President Obama announced Tuesday afternoon that private companies and government institutions are providing an additional $12 billion in aid to the administration’s electrification program for Africa, while the federal government is adding $300 million a year to the initiative.
The new pledges, which bring Power Africa’s total funding to more than $26 billion, will help ensure the continent adds 30,000 megawatts of additional capacity and expands electricity access to at least 60 million households and businesses. World Bank President Jim Yong Kim said Tuesday that his institution will commit $5 billion in direct financing, investment guarantees and advisory services to Power Africa, while the Swedish government is also contributing to the initiative.
Even as the administration has touted the business opportunities beckoning in Africa during this week’s U.S.-African Leaders summit, experts and African officials say an adequate power supply remains the biggest obstacle to economic development there.
More than 70 percent of Africans lack a reliable electricity supply. Power outages cost more than 5 percent of the gross domestic product in Malawi, Uganda and South Africa, according to Standard Bank, and between 1 and 5 percent of the GDP in Senegal, Kenya and Tanzania.
Vera Songwe, a nonresident senior fellow in the Brookings Institution’s Africa Growth Initiative, noted even rapidly-expanding sectors ranging from Internet to mining and the service industry are energy-intensive.
“So, for every place you turn on the continent, for production, we need power,” Songwe said.
Sen. Christopher A. Coons (D-Del.), who chairs the Senate Foreign Relations subcommittee on African affairs, said American chief executives have identified three primary obstacles to investment when it comes to Africa: “The physical infrastructure, the lack of transparency and the lack of electricity.”
“It’s really hard to refrigerate your products, to manufacture at any significant level, when you don’t have reliable electricity, and the vast majority of Africa does not have affordable, reliable electricity,” he added.
In a little more than a year since Obama launched the program during a visit to Africa, the initiative has spurred signed agreements that will generate 2,800 MW of electricity, while another 5,000 MW of deals are under negotiation.
One senior administration official, who asked to remain anonymous because the president had not yet made his announcement, said the program has allowed U.S. officials to “figure out where the gaps are and fill them” when it came to sealing new power agreements.
“We know the demand is high. What we are doing is answering that demand,” the official said. “We think this is an idea whose time has come. It benefits Africa, which benefits us. It also benefits the U.S., in terms of investments.”
The administration has already earmarked $1 billion of the program’s total funds for off-grid and small-scale energy solutions over the next five years, which are overwhelmingly renewable. And on Tuesday, Secretary of State John F. Kerry and Ghana President John Dramani Mahama oversaw the signing of a Millennium Challenge Corporation compact in which the independent U.S. foreign aid agency pledged to invest up to $498 million over the next five years to help overhaul Ghana’s power sector.
At a breakfast meeting with reporters Monday morning, General Electric chief executive Jeffrey Immelt — whose company, along with Standard Bank, has a $350 million financing agreement for power projects in Africa — said the administration’s involvement has accelerated the pace of deals on the continent because it provides “a seal of approval” that reassures investors.
“Whenever the U.S. is even a small partner in a deal, it brings a lot of investors with it,” he said.
And for U.S. corporations pressing for regulatory changes in Africa, larger power agreements allow them to be more persuasive when they’re making their case.
“If you’re talking about a 1,000-megawatt project, then the policy discussion becomes a lot easier because you’re not trying to change policy over a 200-megawatt plant,” said GE Africa chief executive Jay Ireland.
Still, lawmakers on Capitol Hill are pressing to institutionalize the initiative through legislation, a task that has become complicated in part because of the ongoing political debate over climate change. Currently the administration funds Power Africa by taking money away from existing programs at the U.S. Agency for International Development, including ones supporting democracy and governance efforts on the continent.
House Foreign Affairs Committee Chairman Edward R. Royce (R-Calif.), whose bill to make the program permanent has already passed the House by a wide margin, said the administration’s electrification effort “doesn’t have any real long-term strategy or oversight. Trying to get these projects up and running will take much longer than two years — longer than the administration’s clock.”
Coons, who has a companion bill in the Senate with Bob Corker (R-Tenn.), said the reason to pass legislation in both chambers is “to send signals to our African partners, to the markets and to American investors that this is a sustained, serious and long-term intervention to support the development of a modern electricity infrastructure and generating capacity across more than a few of our principal allies in Africa.”
While Coons said he remained optimistic it would reach the president’s desk by the end of the year, he cautioned, “Any bill that touches on energy, on power generation, has become very difficult to get passed in this Congress because of the issues around coal and climate change.”
Even in the absence of a permanent program, African and American corporate executives made it clear this week they are eager to strike deals to expand Africa’s power sector. During a panel with Immelt and former president Bill Clinton on Tuesday, Aliko Dangote, president and chief executive of the Dangote Group, a Lagos-based business conglomerate, announced a $5 billion deal with Blackstone to invest in power and power infrastructure in sub-Saharan Africa.
“With this we will definitely close the gap,” Dangote said. “There’s quite a lot of gap. We know about the gap and it’s there and we’re going to be very serious and very aggressive, and the two organizations will really make it work,”
At that point Immelt piped in. “Just remember who sells power generating equipment,” he said to laughs, prompting Clinton to quip, “I should have been your agent.”
Katie Zezima contributed to this report.