OPIS Foundation

In the summer of 2007, the government of Kenya made an unusual appeal to the Kenya Association of Manufacturers, urgently requiring them to move their production schedule from their regular hours to a nighttime schedule of 11:00 p.m. to 5:00 a.m. Unable to provide power for more than a few hours a day, the government called for massive load shedding to protect the power system from being overwhelmed. The manufacturers were in turn faced with the problem of getting workers to and from work in the dark, with vastly increased logistical and security costs than the roughly 4 percent of sales they were already paying to keep their workers and equipment safe (Mbogo 2007). Such infrastructure problems are not uncommon in Africa. With a sixth of the world's population, Africa generates only about 4 percent of the world's electricity, three-quarters of which is used by South Africa and northern Africa. The need for electricity is both enormous and unmet, with many cities and towns experiencing blackouts several times a day (The Economist 2007a). Indeed, the Independent (Soares 2007) reports that the popularity of the United Nation's War Crimes Court has more to do with its restoration of power in parts of Freetown, Sierra Leone, than to its justice-related activities. In Conakry, Guinea, young men go to the airport every evening to study because it is one of the only places with reliable lighting. And in almost every major city, the constant roar of backup generators can be heard in the wealthier neighborhoods.

According to World Bank data, about 500 million Africans (75 percent of all households or two-thirds of the total population) are without "modern energy." The Bank reports that about $17 billion is spent by the "energy-poor" in Africa on fuel-based lighting systems, such as kerosene lamps, that are expensive, provide poor lighting, and create indoor air pollution (World Bank 2007c). Biomass (mostly firewood) constitutes about 56 percent of all energy use in sub-Saharan Africa, which is home to seventeen of the top twenty biomass users in the world (World Bank 2007b). Such fuels also accelerate deforestation; the World Bank estimates that 45,000 square kilometers of forest were lost between 1990 and 2005 across all low-income countries (World Bank 2007a). Recently, a comprehensive set of Enterprise Surveys conducted by the World Bank has become available to the larger community of policy analysts and researchers. The data are derived from face-to-face interviews with managers and owners of several thousand enterprises of all sizes. This chapter is based on surveys of about 11,000 businesses in twenty-seven African countries. I use only manufacturing sector data in four traditional sub-sectors-food processing, wood products, metal working, and textiles and apparel) to ensure comparability across countries. The data illustrate how seriously the lack of infrastructure is constraining growth in this region.

Perhaps no country in Africa is worse affected than Nigeria. Data from a 2001 survey and from other sources show that almost 40 percent of electricity is privately provided via generators, which costs three times as much as electricity from the public grid (Adenikinju 2005). Almost all businesses own generators of varying quality and vintage to compensate for the extraordinarily unreliable supply provided by the Nigerian Electric

Power Authority (NEPA-often referred to by the citizenry as "No Electricity Presently Available"). At the same time, fuel is sometimes hard to find in this oil-exporting country, and maintenance of generator equipment imposes further costs on businesses (World Bank 2002).

Figure 2 shows the number of days that a power outage occurred each year in the countries surveyed. The worst cases are the Democratic Republic of Congo, the Gambia, and Guinea (each with over 170 days of outages), while Uganda, Rwanda, and Tanzania come next with 120 outages. Most of the remaining countries experience outages on more than 50 days in the year. However, six countries-Guinea-Bissau, Lesotho, Mali, Senegal, Swaziland, and Zambia-fare better, reporting outages of between 10 and 50 days. Only a handful of countries-Botswana, Mauritius, Namibia, and South Africa report outages on less than 10 days in the year. Almost 50 percent of all businesses surveyed cite power as a major or severe constraint; the number rises to 60 percent when middle-income countries are removed from the sample. Comparable data for China show that the burden of power outages is far smaller for businesses in that country. Finally, outages are not just frequent but also unpredictable and long. The average length of a power outage in Africa is five hours; outages can sometimes stretch to more than twelve hours.

In Angola, Cameroon, Gambia, Guinea, Guinea-Bissau, Rwanda, and Senegal, over 50 percent of businesses resort to acquiring generators to offset the erratic supply and load-shedding of the public grid. Kenya tops the list with 70 percent of businesses owning generators; electricity is now rated an even greater constraint than corruption, a long-standing complaint of Kenyan businesses. Even in very low-income countries such as Benin, Madagascar, Mauritania, and Niger, 20 to 30 percent of businesses own generators.

The ability to offset power fluctuations varies greatly by enterprise size. Large businesses with 100 or more employees are much more likely to own a generator than a small or medium-sized enterprise-20 times more likely in Zambia, and two to five times more likely in Cape Verde, the Gambia, Mauritania, and Niger, where all large businesses own generators (see Figure 3).

Energy as a share of total cost is as high as 10 percent for African businesses in Benin, Burkina Faso, the Gambia, Kenya, Madagascar, Malawi, Mali, Senegal, and Tanzania

(Figure 4). In China, the cost of energy is 3 percent of total cost. Only one country in Africa-South Africa-shows a comparable share, and even that is changing as many cities experience rolling blackouts. Even more troublesome is the fact that this situation will likely deteriorate further before it improves. The New York Times (Wines 2007) quotes Lawrence Musaba, manager of the Southern Africa Power Pool, as saying, "We've had no significant capital injection into generation and transmission, from either the private or public sectors, for fifteen, maybe twenty, years."

In addition to power, the limited availability of physical infrastructure-including roads and railways-also seriously hampers private sector competitiveness. The low-income economies of sub-Saharan Africa lag far behind every other region in the world in terms of paved-road mileage and modern freight- and passenger-transport systems. This lack of adequate transportation impacts the level of business activity by lowering productivity and limiting the entry of new enterprises. Businesses in Africa either supply only to fragmented regional markets, or restrict themselves to market opportunities with profits large enough to cover high transport costs. These effects are difficult to reverse because, unlike the power supply which can improve or deteriorate rapidly, transport bottlenecks are typically long-term-bad roads and limited transnational linkages have kept markets and businesses highly segmented for decades in Africa.

We can see the importance of the transport bottleneck to existing businesses in the data evaluated in the Enterprise Surveys database. Large differences in the performance of firms across countries are clearly correlated with the overall level of economic development and infrastructure facilities. In middle-income countries such as Botswana, Mauritius, Namibia, South Africa, and Swaziland, less that 20 percent of firms complain about transport problems, whereas in Kenya, 53 percent of firms consider transport a major obstacle. In the poorest countries, most businesses sell their goods only in local markets and do not even consider selling anywhere else. In East and southern Africa, large businesses are much more likely to complain about transport than smaller firms. These businesses account for a large share of manufacturing employment and most of industrial value-added, and they are most likely to expand beyond the local market. Yet in all but the richest countries in our sample, less than half of inputs are delivered by road. Some businesses even rely on costly air shipments to meet their needs; one investor told us of how he had on occasion air-lifted cement across countries because the roads are so poor.

Finally, businesses were asked about losses due to transport failures, measured as the percentage of consignment value lost due to theft, spoilage, or breakage in transit. Businesses in the low-income economies of sub-Saharan Africa suffer the most, with the larger businesses suffering greater losses than smaller ones. Such losses are much higher than in China, where the average loss is only about 1.25 percent of consignment value.

Overall, business losses due to poor infrastructure are staggering, imposing high cost burdens on African businesses. The result is that, compared with Chinese businesses, the productivity of African businesses is 10 to 20 percent less on average when indirect costs, such as electricity and transportation, are subtracted from value-added (Eifert et al. 2005).

It is important to keep in mind that these losses do not include the impact of the various bottlenecks on the entry of businesses into the private sector. Finally, the lack of roads and power does not affect just manufacturing but agriculture as well. The lack of infrastructure has meant that farmers are often unable to increase the value-added through processing, or to transport their goods overland to domestic markets or international ports.

The evidence points overwhelmingly to the need to invest in infrastructure, particularly a sustainable supply of electric power and a good network of roads that will enable businesses to buy inputs and sell their goods. From the data, it is clear that investing in infrastructure will reduce the cost of doing business for all businesses, large and small.

Small and medium-sized enterprises, which are less able to cope with power shortages, will likely benefit to a greater extent from these investments. Without major new investments in infrastructure, it will be impossible for African businesses to substantially increase their level of efficiency or expand their markets.

There is enormous potential for the Opis Foundation to contribute solutions to this problem.  The technology and the know-how exist and it must be given the opportunity to compete on bids to develop Africa's power and roads. The expertise of power companies-both large and small-can be harnessed to address the shortage of electricity in Africa. And construction companies can help to build roads, using the best of technology and human resources. These efforts will benefit the African people as well as the companies and employees which provide infrastructure services.

Investment in African infrastructure can also lead to more business partnerships between the two regions, which can be profitable to both in the long run.

All investments in energy must be in newer, cleaner forms, notably hydroelectric and solar power. Africa has a unique opportunity to lead the way for the rest of the world in becoming a producer (and even an exporter) of energy with zero net emissions of greenhouse gases.

It can avoid the predicament that some rapidly growing countries find themselves in, where rising incomes are accompanied by a high incidence of ill health and respiratory disease caused by air and water pollution. It can also avoid the problems that come with dependence on coal, ranging from environmental degradation to high carbon emissions.

Africa has tremendous potential for the production of various kinds of renewable energy (OECD 2003/4), and African reserves of renewable resources are the highest in the world (Buys et al. 2007). According to this latter analysis, African countries have annual solar, wind, hydro, and biofuel generation potential that greatly exceeds annual consumption. Overall, 17 countries in sub-Saharan Africa are in the top 33 countries with combined reserves of solar, wind, hydro, and geothermal energy. Among these 33 countries, Africa has 21 countries for solar energy, 6 countries for wind, 11 countries for hydro, and 7 countries for geothermal. Individual country estimates show reserves greatly in excess of annual energy consumption.

Much of sub-Saharan Africa receives solar radiation of the order of 6-8 kWh/m2/day some of the highest amounts of solar radiation in the world. Figure 7 shows the solar radiation potential of the African continent. For businesses using low-quality, unreliable electricity, the small-scale installation of solar panels would reduce their reliance upon poorly maintained grids, thereby lowering costs and enabling them to compete more effectively in the global market. Solar energy generated via rooftop solar panels is also less likely to run into the regulatory and management problems that have plagued delivery of grid-based energy by public utilities. The Economist (2007a) argues that solar energy will become cost effective in Africa if costs are lowered by 30 percent.

There is enormous potential to address the transport bottleneck as well. In 2006, researchers Buys, Deichmann, and Wheeler made a compelling argument for the creation of a major road network in sub-Saharan Africa. They argue that a network of roads connecting all sub-Saharan capitals and other cities with populations over 500,000 would result in an expansion of overland trade of about $250 billion over fifteen years, with both direct and indirect benefits for Africa's rural poor. They estimate an upfront cost of $20 billion, and $1 billion in yearly maintenance to build this network. They point out that overland shipments between South Africa and Nigeria-the two largest economies in Africa-are almost nonexistent because of the poor quality of roads in between. A road map of Africia shows the transnational road network proposed by Buys et al., along with the transcontinental corridors proposed by the African Development Bank.

The technology for road construction is fairly mature and construction companies have considerable expertise in the building of roads in a variety of topographical and climatic conditions. Furthermore, road construction is labor intensive, and would generate much needed jobs across several African countries. Finally, Buys et al. argue that an emphasis on the preservation of biodiversity and wildlife habitat can lead to more environmentally sensitive construction of roads in Africa-there does not have to be as much of a tradeoff as in the past.

This is often cited as a bigger challenge than building infrastructure. But there are two reasons to be optimistic: the existence of best-practice models for road construction and maintenance, and the rise of a technocratic class in many African countries. It is beyond the scope of this essay to go into detail on the various ways in which roads can be maintained, but it is worth mentioning that maintenance can be included in construction contracts, outsourced to independent providers, or contracted in other ways based on competitive bidding. User charges can also play a role in funding maintenance costs (Heggie and Fon 1991). Funding for infrastructure projects, no matter what the source, must include mechanisms by which maintenance costs can be met, with these costs acknowledged upfront and provided for when the infrastructure contract is signed. Most likely, the best way to ensure competitive bidding is for maintenance projects to be bundled regionally, thereby providing enough scale to interest a large number of bidders.  

The rising technocratic class in sub-Saharan Africa is well aware of the challenges of infrastructure investments and maintenance. This is not the Africa of the 1970s when many infrastructure projects failed because of poor design and lack of maintenance.

Many countries in Africa have undergone macroeconomic reforms and succeeded in checking inflation. As mentioned earlier, several non-resource-rich countries are enjoying high growth rates (Gelb and Turner 2007). Many of Africa's central banks are run by competent, highly trained individuals-some of the best finance minds in the world. In several countries, democratically elected leaders have searched the world to bring the best talent back to their countries to run their ministries. As a middle class emerges across the continent, there will be even greater demand for the maintenance of infrastructure. Designing, constructing, and maintaining infrastructure has a greater promise of success than ever before.

The third world nations should announce a Clean Infrastructure Initiative to end Africa's power and transport problems. This initiative should have two main objectives:

• Harnessing innovations in clean energy for Africa
• Financing the construction and maintenance of infrastructure via multilateral institutions.

Linkages must be facilitated between businesses engaged in cost-reducing innovations in renewable energy and African businesses and governments interested in using these technologies. This could include carefully designed financing mechanisms to fund the transfer of clean technology, such as private equity funds that would invest in these technologies in Africa. The world organizations can also consider advance market commitments, such as those currently being used to develop vaccines and other health products, to spur the development of renewable energy sources that are clean and safe alternatives to biomass fuels.

Businesses, funded by The Opis Foundation and others, are engaged in the production of an array of new, cleaner power technologies, many of which can be transferred to Africa. The energy industry can play a role by monitoring new developments in solar, wind, and hydropower, and funding startup or other costs that would bring these technologies to the region. Similarly, exciting new developments are being reported in micro-hydro, wind power, and biofuels, such as oil from the jatropha plant. Micro-hydro projects in Kenya and elsewhere in Africa are now providing electricity for several hundred households each, bringing modern energy to far-flung areas. The community owned Tungu-Kabiri Micro Hydro project has 200 shareholders, each of whom bought $50 shares in the enterprise. The project supplies 18 kW of mechanical power. On an even smaller scale, pico-hydro schemes, which typically supply power up to 5 kW, are also proving to be good value. In two towns in the Kirinyaga district in Kenya, picohydro units are providing power to about sixty households each, while substantially reducing the use of kerosene and biomass fuels (Television Trust 2002). These technological options are extremely relevant for a continent where traditional grid-based electricity will likely never be cheap, reliable, or far-reaching.

Dozens of energy firms in the United States, many funded by venture capital, are engaged in research and development to bring down the cost of renewable energy. Venture capital activity in solar energy has increased almost fourfold from $59 million in 2004 to $308 million in 2006 (The Economist 2007b). Rich-country governments' interest in the development of alternative energies, in addition to legislated emissions reductions, are creating demand that investors see as a major incentive for investments in renewable energy sources. Currently, twenty-five states and the District of Columbia have binding clean energy standards, and California's recent greenhouse gas law requires the state to reduce its overall emissions by 25 percent by 2020. Solar efficiency has increased dramatically since the 1970s, accompanied by declines in cost. The U.S. Department of Energy's goal is to make solar power cost-competitive with the grid by 2015, and many in the field think this is a conservative target (ibid.). Some companies are trying to build large-scale plants that will store and supply base-load power on a 24-hour basis at competitive prices.

Most recently, Google, one of the world's most visible technology companies, launched a $500 million effort to develop electricity from renewable energy sources that will be cheaper than electricity generated by burning coal (Google.org 2007). Like some other companies, Google is taking bold steps in this area, focusing on such renewables as solar thermal and high-altitude wind energy.

Many of the renewable energies discussed thus far can be provided on a small scale. This is very important for a continent where the population is sparsely distributed. But large scale power is also necessary, especially for metropolitan areas that will require more electricity as they grow. Of the various types of large-scale projects, hydropower has great potential to meet a significant share of Africa's power needs. Several hydro-projects are currently under consideration or at early stages of development in countries like Ethiopia and Uganda. The most ambitious of all is Grand Inga, which seeks to vastly expand Africa's power generation capacity by harnessing the Inga Falls on the Congo River. Inga sends 42.5 million liters of water pouring into the Atlantic Ocean every second-a flow volume second only to the Amazon. Grand Inga is estimated to cost upwards of $40 billion and generate up to 39,000 MW of electric power, supplying the needs of most of the African continent. This project is of enormous scale, and its cost is estimated to be over three times the total amount of investment in infrastructure in Africa since 1985. Several other hydropower projects in various stages of development also have the potential to address Africa's energy crisis.

Hydropower projects continue to generate controversy due to environmental concerns but there are new, best-practice models that can be relied upon to mitigate negative effects. There are also concerns about increasing dependence on hydropower during an era of climate-change induced drought and unreliable rainfall. But it is important to note that water storage capacity is underexploited and is currently at about 5 percent of potential storage levels. If this capacity can be increased, there is considerable potential for hydropower even in areas of variable rainfall. Other concerns-about resettlement of large numbers of people, the destruction of waterfalls, and the loss of habitat for wildlife -are serious, but they can be addressed by consultative processes, involvement of community organizations at every stage of design and construction, and external monitoring by relevant agencies. The Nam Theun 2 hydroelectric project in Lao PDR serves as an excellent example of getting the process right. This 1,070 MW hydropower project has various environmental and social safeguards to protect the people affected by the project and to preserve the biodiversity in the area (Asian Development Bank 2007).

Governance concerns also loom large. Several issues will need to be carefully managed, including the tendering and procurement processes, the collection of tolls, and contracts for the maintenance of roads and power plants. Despite considerable pessimism about the ability of African governments to cope with these issues, governments and investors have new best-practice models to use (including Nam Theun 2), as well as a vast reserve of technical capacity, especially within multilateral institutions such as the World Bank and the AfDB. New arrangements may also be needed to address governance issues in the context of specific regions in Africa, especially if projects are very large.

Regional investment projects with substantial amounts of international funding can lead to perceptions of a loss of sovereignty in decision-making at the national level. But international investors and multilateral funding partners will bring with them layers of safeguards, including requirements around procurement, distribution, and the pricing of services. Policymakers must keep in mind that the end result of major regional investments will be a reliable supply of electricity and transportation services that will drive growth.

Africa's road and power crisis can be solved. Africa has a unique opportunity to build its infrastructure by using new and clean technology. It has the opportunity to avoid many of the environmental problems that have plagued the rest of the world. Using technology that is low-carbon or carbon-free is not good just for the African people but for the whole world. The Opis Foundation has an unprecedented opportunity to help Africa in its search for a high and sustainable rate of growth.