By Ijeoma Oneyji and Morgan Bazilian
The populations of sub-Saharan African (SSA) countries have the least access to modern electricity services compared to emerging countries from other regions. Yet Africa’s long-term economic growth and competitiveness fundamentally depends on reliable access to energy services.
However, despite reforms and other measures to scale up electricity access, SSA in particular has not succeeded in dramatically expanding access to electricity. An estimated U.S. $35 billion - U.S. $100 billion annually is required to achieve universal energy access by 2030; so far investments have been far below these requirements, especially in SSA. Consequently, Africa’s energy sector is characterized by deficiencies such as low access and insufficient capacity, and poor reliability as well as extremely high costs. These and other shortcomings in the power sector threaten Africa’s long-term economic growth and competitiveness.
The authors of a study recently published in Energy for Sustainable Development use Ordinary Least Squares for their estimations, with cross-sectional data for 60 emerging countries from six regions (SSA, North Africa, East Asia, South Asia, Latin America, and Middle East) in order to examine the extent to which these variables explain the variation in electricity access for our sample. The dependent variable is the percentage of population with access to electricity. The postulated determinants of electricity access are divided into three major groups: (1) availability of funds, (2) characteristics of the population, and (3) institutional quality.
Funds availability is considered in the analysis, as energy projects typically involve large initial investment before production/supply can even begin and they are highly capital-intensive compared to projects in other industries. Domestic capital is most scarce in SSA, where the energy investment need alone comprises close to 70% of total savings. Further, the SSA region has not been part of the global rise of GFCF for electricity and gas distribution in the past decade.
Characteristics of the population are important determinants of electricity access rates because about 85% of the population without access to electricity in emerging countries lives in rural areas. This is due to the dispersed, low commercial energy consumption of rural populations, which leads to poor capacity utilization of transmission and distribution utilities and other energy infrastructure involved, which in turn is due to low population, low densities and demand levels, peaky demand profiles, and the tendency of high line losses. And as conventional ways of extending energy infrastructure to rural areas are economically inefficient for public as well as private providers, governments tend to give low priority to energy problems of rural populations.
Variables for institutional quality are used in the analysis because institutional development has been shown to be one of the dominant socio-economic variables determining the rate of rural electrification. Like all other sectors, the electricity sector is subjected to the quality of a country’s institutions. While investors and lenders as well as project developers can reduce economic risks, political and legal risks - which are receiving more and more attention - are often outside their control.
The results of the analysis support common knowledge, showing that the share of poor in the population, gross domestic saving rates, corruption, the share of the population living in rural areas, and the population density explain over 90% of the variation of electricity access levels across emerging countries.
In addition, the results indicate that some factors underlying electricity access in emerging countries have a different impact in SSA, suggesting that policies that have been successful in other developing regions may have to be adjusted to be equally successful in SSA. Specifically, the authors find that:
- Government effectiveness is more strongly related to electricity levels in SSA countries than in non-SSA countries. This could reflect that, irrespective of the quality of institutions and government rule in non-SSA countries, electrification has been prioritized in these countries. In SSA countries, on the contrary, the relationship between corruption and electricity access outcomes seems to be more important (see Figure 1).
- Ceteris paribus, SSA countries with the same proportion of its population living in rural areas have on average more people without access to electricity. This result points toward a general lack of efforts specifically dedicated to scaling up electricity access in rural areas.
While the availability of funds is necessary, it clearly is not sufficient for the provision of adequate access to electricity. Factors like capacity building and good governance remain strongly linked to proper policies and regulations as they help create the required investment climate. What countries in the SSA region require is an integrated approach toward electrification. Electricity access is just one aspect of much broader institutional policy issues in emerging economies that need to be addressed jointly.
The results equally highlight the importance of effective reforms. There is a need for clear and expressed commitment to energy access at the government level (e.g., through the prioritization of energy access in national policy and budget). For SSA countries, many of whose electrification reforms have not yet developed to an advanced stage, it is essential to make provision specifically for increased rural electrification before embarking on large-scale privatization.
As most attempts to expand the existing grid networks are inappropriate for inhabitants of rural areas in SSA countries, decentralised electricity generation using clean, renewable energy systems is perceived to be one of the most suitable solutions to meet Africa’s rural electrification needs. The importance of renewable energy technologies cannot be overemphasized. Energy from solar, wind, and micro-hydropower technologies is an attractive option, particularly in SSA countries, which are richly endowed with the necessary resources.
Overall, our results strongly point to the importance of political will, especially at the national level, because governments are not only in charge of attracting and channeling an adequate portion of investments (internal and external) to the electricity sector, but because they are also in charge of guiding reform toward targeting marginalized customers–the rural, mainly poor, population.