Exploring Investment Opportunities

Exploring investment opportunities for the power

sector in emerging economies
Purbashish Ganguly, Karanvir S. Sidana, Spreha Kanika, Siddhi Agarwal, Dheer Vora,
Aseem Rohatgi
ABSTRACT
The emerging economies especially the African continent offer great
opportunities for investment to target high profits. The GDP growths of
these countries have been twice or even thrice of global GDP growth. We
are looking for investments opportunities in the power sector in African
countries for our client. The African continent has a major demand-supply
gap in the power sector. With the discovery of new natural resources almost
every day, the African countries have a great potential for an industrial
boom. After studying the macro-economic environment, the business laws &
policies and banking regulations of the African countries we have Ethiopia,
Tanzania, Ghana, Zambia, Namibia, Kenya, Mozambique and Nigeria suitable
for investing in the power sector.
KEY WORDS: Emerging economies, Africa, power sector, investment, GDP, natural
resources, macro-economic framework, bank lending rate, investor friendly policy,
power transmission efficiency, demand, supply, electrification.
INTRODUCTION
An emerging market economy (EME) is
defined as an economy with low to
middle per capita income. (Antoine W.
Van Agtmael, World Bank) For the current
2015 fiscal year, low-income economies
are defined as those with a GNI per
capita per annum, calculated using
the World Bank Atlas method, of $1,045
or
less
in
2013;
middle-income
economies are those with an annual GNI
per capita of more than $1,045 but less
than $12,746.

compared to only 35% in 2000 (Global

Economic Watch 2013, PWC).
Our
client,
who
is
primarily
in
infrastructure business, is considering
investing in the power sector of African
countries because it feels that the
growth in the Indian construction and
civil infrastructure is stagnating. Since
the Indian power sector is already
occupied by 30 players and is dominated
by players like NTPC Ltd, Power Grid,
NHPC, Tata Power (RNCOS, 2013), they
are looking to invest in African countries
in search of higher returns.
According to Wests report on African bioresources 'exploited, Africa has a large
quantity of natural resources including
oil,
diamonds,
gold,
iron,
cobalt,
uranium, copper, bauxite, silver and
petroleum. Extraction and processing of

Such countries constitute approximately

80% of the global population, and
represent about 20% of the world's
economies. The Global GDP growth in
2017
will
be
around
3.5-4%
(International Monetary Fund). By 2017,
the emerging economies will contribute
more than 55% to the global growth

Exploring Investment Opportunities

these mineral-ores will drive further the
commercial demand for energy (RNCOS,
2013).

occurred in more than 30 instances in

sub-Saharan Africa. This would lead to
better government policies which will
make the inflow of investment from
foreign countries stable (The African
Competitiveness Report 2013, World
Economic Forum).

THE CONTEXT
According to report Prospects to the
African power sector by IRENA, Africa
currently has an installed capacity of
147GW, comparable to the capacity
China installs in one to two years. The
average
per
capita
electricity
consumption in sub-Saharan Africa
(excluding South Africa) is just 153 kWh
per year which is one-fourth of the
consumption in India and is just 6% of
the global average. According to the
same report, around 600 million people
in African continent lack access to
electricity and blackouts occur daily in
many African countries. Thus many
countries depend upon the expensive
diesel power generation for their
electricity demands which costs these
countries 1%-5% of their GDP annually.
All these factors make Africa highly
attractive for investment in power sector.

Also, almost 40% of the African

population is under the age of 18 and
that promises to be an extremely big and
productive working population. As these
younger and more educated people
enter
the
workforce,
consumer
expenditures in sub-Saharan Africa are
projected to rise from $600 billion in
2010 to nearly $1 trillion in 2020. This
will further push the demand for power.
Africa has probably the highest growth
potential among all the continents. The
IMF predicts that out of the ten fastest
growing economies from 2011-2015,
seven of them will be in sub-Saharan
Africa and expects Africa to take from
Asia the title of the worlds fastest
growing region.

According to Africa Growth Initiative, the

continent is extremely rich in minerals,
energy resources and uncultivated
arable land. The surprising part here is
that most of the land has been unutilized
and untouched. Less than 50% of the
land has been surveyed and it is already
being speculated that Africa contains
more than half the worlds gold, more
than 40% of its platinum and vast
deposits of copper, diamonds and iron
ore. It can be inferred that deposits of
higher gold and other valuable minerals
could lead to more industries being set
up and that will lead to higher power
requirement (Foresight Africa, 2013).

APPROACH TO THE PROBLEM

Examining Demand and supply in
Power Industry
The demand and supply trend in the
power industry will be addressed with
the help of research journals (Rosnes and
Vennemo 2012) that would assist in
investigating the gap and thus realising
opportunity in the African market
Investment climate and ease of
doing business
It is vital to understand the business
environment of nation before deciding on
investment. The approach would use
academic
journals
(Eberhard
and
Gratwick
2011)
and
to
compare
investment
scenarios
in
different
countries of Africa

Africa continues to become more open

and democratic. Since 1991, peaceful
transitions of political power have

Exploring Investment Opportunities

in Nigeria to 18% in Ethiopia. In some
North African countries it is projected as
high as 70%. It is projected to increase
by 20 percent points by 2050. Almost
66% of the population will then live in
cities (See Table 1) Today 34% of the
population lives in urban areas and the
rest are still rural. African countries have
been growing at around 4% on average
and are expected to grow at around 6
times by 2050.( UN Population Division
2009)

Current
Macroeconomic
Environment
Assessing
current
macroeconomic
scenario
through
available reports (Investment Climate in
Africa program Comparative Report )
and published articles (The role of
central banks in macroeconomic and
financial stability, BIS paper) in different
nations of Africa so as narrow down the
research to the countries that can reap
the maximum profit for power sector.

The model by Rosnes O. & Vernnemo H.

geographically
divides
the
African
continent into 4 power pools:

Evaluating future growth and its

impact on power sector
The evaluation would be done by
referring available research journals
(Chete, Adeoti, Adeyinka, and Ogundele
2014) and articles (Economic Report on
Africa - Making the Most of Africas
Commodities: Industrializing for Growth,
Jobs and Economic Transformation 2013)
so as to shortlist the countries with high
growth potential and the effect of such
growth on power sector

Southern
Africa
Power
Pool(SAPP)
consisting of Democratic Republic of the
Congo (DRC), , Mozambique, Malawi,
Namibia, South Africa, Angola, Zambia
,Zimbabwe.
The Central Africa Power Pool (CAPP)
consisting of Cameroon, the Central
African Republic, Chad, the Republic of
the Congo (Br), Equatorial Guinea and
Gabon.

LITERATURE REVIEW

Demand side analysis

The East Africa Power Pool (EAPP)

consists of Burundi, Djibouti, Egypt,
Ethiopia,
Kenya,
Rwanda,
Sudan,
Tanzania and Uganda.

There are broadly three trends which

should contribute to increasing demand
for power in Africa: growing population,
rapid urbanization, high GDP growth
rate.

The Western Africa Power Pool (WAPP)

consisting of Benin, Burkina Faso, Cte
d'Ivoire, Gambia, Ghana, Guinea, GuineaBissau, Liberia, Mali, Mauritania, Niger,
Nigeria, Senegal, Sierra Leone and Togo.

The population of Africa is growing fast

as opposed to world growth rate of 1.8%.
This is accompanied by rising per capita
income and rapid urbanization. (2.3%
IRENA report 2013) It is projected that
the African population will grow to 2-3
billion by 2050 from 1.051 billion in
2010. The urbanisation trends currently
show a wide range from as high as 50%

Using the econometric model by Khanna

and Rao 2009, we arrive at the
conjecture that urbanization and per
capita income are important factors
driving demand. The coefficient on
urbanization
is
highly
statistically
significant. (See Table 2)

Examining Demand and supply in

Power Industry

Exploring Investment Opportunities

Checking on individual countries we find
that the need for electricity is huge in
Africa as there are countries whose 90
plus percent of population go without
consuming electricity. (See Table 3)

it produces 174.6 bbl/day (2012) and

imports 12,500 bbl/day (2010 est.).
Namibia is another country relying on
imports for electricity generation. It
produces 1.331 billion kWh (2013),
consumes 4.238 billion kWh (2013),
exports 89 million kWh (2013) and
imports about 2.907 billion kWh (2013).

We look at the existing production and

consumption patterns of power and try
and analyze supply gaps in these
countries. (CIA World FactBook)

There is much speculation today that

urban economies in sub-Saharan Africa
are greatly improving and that the region
may be on the brink of an upsurge in
economic development. In terms of
urbanization some economies that show
positive signs of urbanization in terms of
growth in urbanization are Burkina Faso,
Tanzania, Cameroon, Rwanda, Ghana,
Tanzania,
Zimbabwe,
Democratic
republic of Congo, Angola and Kenya
(Potts 2013).

Looking specifically at Ethiopias refined

petroleum sector, a gap exists in terms
of consumption and production. It does
not produce any refined petroleum, yet
imports 42,500 bbl/day (2010 est)
Tanzania shows a similar consumption
production gap in the electricity sector.
Production is at 4.302 billion kWh (2010
est.), 3.403 billion kWh (2010 est.) is
consumed and
50 million kWh (2010
est.) is imported. Also with regards to
refined petroleum it shows a similar
trend.
It doesnt produce refined
petroleum,
consumes
about
43,310 bbl/day (2011 est.) and imports
30,750 bbl/day (2010) implying
a
demand supply gap.

As far as per capita GDP in terms of

purchasing power parity we see that
which countries are performing well (See
Appendix Table 4) (CIA World Fact Book,
2013).
Hence these factors give a fair idea of
the demand side factors affecting the
African economies.

If we look at Ghana, we see that its

mainly an oil producing economy. Oil
projects are being developed and are
expected to come on line in a few years.
Estimated oil reserves have increased to
almost 700 million barrels and Ghanas
growing oil industry is expected to boost
economic growth. Even this is a crude oil
exporter but import dependent for
refined petroleum products.

Investment climate and ease of

doing business
Two third of additional capacity needed
in Sub-Saharan Africa (SSA) by 2030 is
yet to be built (IRENA, 2012). The World
Bank estimates that between $120
billion and $160 billion needs to be
invested each year to bring energy
access to everyone in sub-Saharan Africa
by 2030.

In Zambia, production of electricity

stands at 11.19 billion kWh (2010)
while consumption is at 7.96 billion kWh
(2010).It imports 23 million kWh (2011)
of electricity while it is exporting 578
million kWh (2010). As regards crude oil,

To satisfy this increasing demand, the

African countries have either the
conventional sources of energy (natural
resources like coal, petroleum etc.) or

Exploring Investment Opportunities

the
unconventional
sources
(i.e.
renewable sources like wind, solar etc).

Africa. 3 points to be interpreted (Asiedu,

2013).

Among alternative sources hydropower

has lowest cost, next is onshore wind,
biomass.
Solar is currently
more
expensive, but it has a huge potential
and costs are rapidly falling.( Appendix
Table 5)

First, it suggests that FDI in the region is

mainly determined by an uncontrollable
factor,
and
natural
resource-poor
countries or small countries will attract
very little or no FDI, regardless of the
policies the country pursues.
Second, the countries in SSA are small in
terms of income23 out of the 47
countries in the region have a GDP of
less than US $3 billion

According to IRENA, 2012, between 2008

and 2030, renewable approach will cost
around USD 700 billion more as
compared to the non-renewable. But, in
the long run the cost will be 1 trillion
lower than the cost of non-renewable
sources, hence strong investments are
needed in the short run. Thus many
small countries could leapfrog directly
into renewable based system if PublicPrivate
Partnerships
(PPPs)
and
Independent Power Projects (IPPs) are
supported by suitable policies.

Third, in resource-rich countries, FDIs are

concentrated in natural resources and
investments in such industries tend not
to generate the positive spillovers (e.g.
technological transfers, employment,
creation) that are often associated with
FDI.
According to the same report, however, a
good infrastructure, an educated labor
force, macroeconomic overall stability,
openness to FDI, an efficient legal
system, less corruption and political
stability also promote FDIs. A benchmark
specification tells us that a decline in
corruption from the level of Nigeria to
that of South Africa has the same
positive effect on FDI as increasing the
share of fuels and minerals in total
exports by about 34.84 per cent.

Factors favoring investment in SSA

(IRENA, 2013):
1) English language skills (official in
many Sub-Saharan countries)
2) Improving literacy and education,
availability of splendid resources and
cheaper labor force
3) Around 90 million people with
household incomes exceeding $5,000,
meaning that they can direct more than
half
of
their
income
towards
discretionary spending rather than
necessities. This number could reach a
projected 128 million by 2020.

Country level factors affecting the

Independent Power Plant Market

When it comes to foreign direct

investment (FDI) in Sub-Saharan Africa
(SSA), the common perception is that FDI
is largely driven by natural resources and
market size. The three largest recipients
of FDI are Angola, Nigeria and South

Several elements have contributed to the

success of IPP projects in SSA (Eberhard
et al., 2013) like a favorable investment
climate, new policy frameworks and
regulation, the linking of planning,

Exploring Investment Opportunities

procurement, and contracting and lowcost fuel and secure fuel contracts.

should be taken to (Basu et al., 2011)

ensure that central banks are
independent and fully accountable,
deepen and broaden financial markets,
establish or strengthen the institutions
responsible for the prudential regulation
and supervision of banks, complete the
rehabilitation of weak commercial banks
and improve on loan recovery and open
the banking sectors to healthy
competition and inculcate best practices

Standard Bank Group is of the opinion

that in order to facilitate greater
investment from the private sector,
governments on the continent need to
address five key areas (Standard Bank
Report, 2012), some of which we have
used to rank/compare prospective
countries in SSA:1) The development of an integrated
power policy

As per the relative ranking based on

lending rates (World Bank Report, 2013,
Table 7 in appendix ), Namibia, Zambia
and Mozambique are the top three
countries with relatively lower cost of
capital.

This is a combination of various factors

like funding, partnering, pricing and
taxing the power sector. Individual
parameters are analyzed in the following
segments.

4) Suitable regulations:

2) Creating an investment-friendly
environment:

As per the World Bank Report, 2013,

Namibia, Malawi and Ghana figure in the
top three sub Saharan countries to offer
business friendly tax laws and
regulations. (Appendix, Table 8). Factors
include complexities of obtaining
licenses, permits and obtrusive tax rates.

Based on investor friendly government

policies, world ranking of top SSA
countries compiled in Table 6 (see
appendix), suggests Ghana, Mozambique
and Nigeria to be most investor friendly
nations. Factors considered are extent of
disclosure, investor protection, extent of
director liability, ease of shareholder
suits (World Bank Report 2013).

5) Development of a reliable regional

distribution network:
Based on relative ranking of countries on
efficiency (power transmission losses),
(World Bank Report, 2013, Table 9, see
appendix), Nigeria, Ethiopia and Angola
lead the list of countries with relatively
efficient power transmission network
while Ghana, Zambia and Namibia suffer
large losses in power transmission itself.

3) Executing a bankable independent

power procurement program:
Improper Power Purchase Agreements
(PPAs) deter companies from investing
and getting funds. Thus, they require
support from the economys financial
sector. In many of the sub-Saharan
African countries, central banks still lack
the necessary autonomy- financial
sectors are thin and have difficulty in
mobilizing domestic savings and
attracting foreign private capital;
banking institutions are fragile; and
intermediation is inadequate. So, steps

Current Macroeconomic Climate

Economic prospects of African countries
depend largely on domestic and global
factors, which are highly uncertain.
Continued weakness in global economy
is one of the downside risks and the
prominent channels of transmission of

Exploring Investment Opportunities

weaker
global
growth
would
be
depressed commodity export earnings,
decrease in export volumes and tourism
receipts, reduced FDI inflows, workers
remittances
and
lowered
official
development assistance. A significant
transmission channel is trade and the
deepening of debt crisis in Europe and
the political instability due to tensions
between Russia and the Europe along
with the weak global growth can
threaten
to
interrupt
the
stable
remittances, FDI and ODA flows.
(www.africaneconomicoutlook.org).

four years, as compared to Central and

Eastern
African
countries
whose
combined GDP has picked up due to
increased consumption, rise in oil &
natural gas projects and is projected at
around 5.5% while the GDP growth rate
for Northern and Southern Africa is
projected below 4.5%. This suggests that
the Western African countries have
sound macroeconomic
fundamentals
along with rich deposits of oil and
minerals as compared to the Eastern and
Central countries. The top 5 countries in
terms of GDP growth rate were Libya,
Sierra Leone, Chad, Congo Republic and
Ghana. (Regional Economic Outlook, Sub
Saharan Africa).

The evaluation criteria for the presence

of a stable and sound environment yet
growing investment climate will involve
taking into consideration macroeconomic
indicators like Government fiscal budget
and the general debt levels of
government, gross national savings,
leading and lagging economic indicators
such as construction permits, rental
leases and inflation, unemployment and
the access to developed domestic debt
markets and strong financial systems
which can otherwise destabilize a
economy with sound macroeconomic
fundamentals. (The role of central banks
in macroeconomic and financial stability,
BIS paper 76)

The fiscal balances as a percentage of

GDP are projected to be in surplus for
Western African countries while for the
rest of the African regions fiscal balances
are expected to be in deficit with North
African countries accumulating largest
fiscal deficits in the continent. On the
contrary, current account balance (as
percentage of GDP) for these North
African
countries
is
positive
and
projected to be at 3.1 in 2014 with East
African
countries
like
Ethiopia,
Zimbabwe, Mozambique and Sudan
having the largest deficit levels of close
to -8.7 (Investment Climate in Africa
program Comparative Report). Risks of
currency volatility and sovereign defaults
are high in these countries.

Continuing forward by dividing African

continent into four power pools as
mentioned
before
(Rosnes
O.
&
Vernnemo H.) we see that the North
African countries like Libya, Tunisia, and
Algeria which have a significant exposure
to European markets and relatively high
shares of total exports in GDP are
particularly exposed to the weakness of
European economy.

High consumer price levels (percent

change) for countries like Ghana (11.1),
Angola (8.8), Malawi (27.1), and Guinea
(12) will hamper sustainability of
business. Risks for countries that have
depended on international capital flows
to compensate for high current account
deficit levels and primary deficit levels
Ghana and Zambia are high due to risk
of sudden capital flow
reversals.
Countries like Ghana and Zambia are

The combined GDP growth rate of

Western African region has been
projected to grow at 7.4% in 2014 and
has been consistently higher since last

Exploring Investment Opportunities

extremely vulnerable to external shocks
(African Economic Outlook, 2014).

installed capacity is currently provided

by the large-scale Akosombo and Kpong
hydropower projects. Biomass also
makes a significant contribution to the
energy mix. The government is targeting
to increase the contribution of wind and
solar power to 10 per cent of the
countrys capacity by 2020 and has
recently enacted the Renewable Energy
Law to support this objective. The
Government recognises the importance
of IPPs to the achievement of these
international and domestic expansion
objectives. (Norton Rose Fulbright, 2013).

The African economy continues to show

high degree of resilience against
turbulences in world economy. (OECD,
African
Development
Bank,
United
Nations Development Programme
2013). The countries with strong linkages
to world economy, especially the oilproducing counties are relatively more
vulnerable and the growth momentum
has eased in countries with political and
social tensions. Prudent selection with
keeping all these factors in mind is
critical
in
selection
of
preferred
investment destination.

Kenya is the 7th most populated country

in Africa with an estimated population of
44 million and an electrification rate of
only 16 per cent. The total installed
generating
capacity
in
Kenya
is
1,429MW, but the peak load is projected
to grow to about 2,500MW by 2015 and
15,000MW by 2030. To meet this
demand, Kenyas Vision 2030 requires
that
installed
capacity
increases
gradually to 15,000MW by 2030 (Norton
Rose Fulbright, 2013). After the discovery
of commercial oil deposits in March
2012, the IMF believes that Kenya will
begin producing commercial quantities of
oil in 6-7 years. On Nov. 28, 2013
President Uhuru Kenyatta inaugurated
the commencement of construction of a
rail project that will link Kenya's coast
town of Mombasa to Kampala (Uganda),
Kigali (Rwanda), and Juba (South Sudan).
With an average GDP growth rate of
6.2% between 2012 & 2017 and the
positive growth trajectory, the demand
for electricity is going to drastically
increase in the coming years (Africa
Infrastructure Investment, PWC, 2013).

Evaluating future growth and its

impact on power sector
The African continent is endowed with
many natural resources which can be
used to promote industrial growth in
agricultural, industry and service sectors.
Africa has about 12 per cent of the
worlds oil reserves, 42 per cent of its
gold, 8090 per cent of chromium and
platinum group metals and 60 per cent
of arable land in addition to vast timber
resources (Economic Report on Africa,
2013).
With such abundance and the rising
global demand for raw materials, the
African governments are forging new
partnerships and boosting infrastructure
investments.
The demand for electricity in Ghana is
predicted to exceed 5,000MW by 2016,
primarily as a result of the Ministry of
Energys objective of becoming a major
exporter of electricity into the West
Africa Power Pool, coupled with an
increase in demand domestically, as the
government seeks to increase the
electrification rate to 80 per cent by
2016. Around 65 per cent of Ghanas

Mozambique has seen an average annual

growth rate of 7% and is expected to
grow at similar or higher rates in the
coming years as substantial coal and gas
reserves are developed. In 2012, four of

Exploring Investment Opportunities

the five largest oil and gas discoveries
were made offshore Mozambique. Its
estimated gas reserves of 160TCF mean
that it has the fourth largest gas
reserves in the world. Various petroleum
companies like Anadarko, Mitsui, Bharat
Petro Resources Limited, Videocon, PTT
and the Mozambican national oil
company
Empresa
Nacional
de
Hidrocarbonetos (ENH), Chinas CNPC,
GalpEnergia and KOGAS are developing
these off-shores. According to estimates,
they will be able to export LNG by 2018.
Power projects worth an anticipated
US$12 billion are understood to be in the
pipeline to support these projects. The
electrification rate in Mozambique is
approximately 12 per cent, which is well
below the average for Sub- Saharan
Africa (30.5% according to World Energy
Outlook 2011) indicating that substantial
growth in electrification is possible. The
Government of Mozambique is targeting
20 per cent electrification by 2020,
which will still fall well short of the
regional average (Norton Rose Fulbright,
2013).

development of the mining industry puts

an
added
pressure
on
the
underdeveloped
power
sector
of
Namibia. The increasing demand of the
Namibian mining sector forecasts a
power deficit of 430MW by 2015(Norton
Rose Fulbright, 2013).
Nigeria is worlds 10th largest producer
of oil. The sector contributed 14.8 and
13.8
percent to GDP in 2011 and 2012,
respectively. The largest oil producers
are
Shell
Petroleum
Development
Company Limited, Mobil Producing
Nigeria Unlimited, Chevron Nigeria
Limited, and Texaco Overseas Nigeria
Petroleum Company Unlimited (Industrial
development and growth in Nigeria,
WIDER Working Paper, 2014/019). The
Nigerian
Association
of
Petroleum
researchers say that the country has the
capacity to meet the 40 billion barrels oil
reserves as projected by the Federal
Government. For this purpose the
Federal Government of Nigeria aims to
increase generating capacity of the
country to 40GW by 2020 (Norton Rose
Fulbright, 2013).

Namibia currently has a peak demand of

511MW, of which 64 per cent is met by
imported power, predominantly from the
Southern African Power Pool (SAPP).
Mining accounts for 8% of Namibias GDP
and 50% forex earnings (CIA World
Factbook, 2014). The ground-breaking
ceremony for the Swakop Uranium
Husab mine was held on 18 April 2013,
which is set to become the worlds
second largest producer of uranium
oxide. The construction of the mine
remains on track and is scheduled to
commence production in early 2016 with
ramp up to full production in 2017.
Further inaugurations of the Otjikoto gold
mine on 26 April 2013 and Tschudi
copper mine on 8 November promise a
great future for the Namibian Mining
Industry (Chambers of Mine, 2014). They

The availability of a secure and reliable

gas supply is a key ingredient in the
successful development of Tanzanias
power sector. Exploratory gas drilling in
Tanzania has been highly successful.
Recoverable natural gas reserves are
estimated to be 33 trillion cubic feet,
with gas revenues that are estimated to
be US$70bn as a base case. Current
predictions are that Tanzania could
become the worlds third largest gas
exporter. BG Group, in partnership with
Ophir Energy, has discovered more than
7 trillion cubic feet in recoverable
reserves from three offshore blocks.
Statoil in partnership with Exxon-Mobil
has so far discovered 9 trillion cubic feet.
Statoil has announced plans to work with

Exploring Investment Opportunities

BG on the development of a US$14
billion liquefied natural gas facility, to
facilitate the export of LNG to the Asian
markets. The power requirement for
these projects is estimated to be around
630 MW. Such developments in the gas
industry will put a huge pressure on the
inefficient power sector of Tanzania
which has an installed capacity of just
1041 MW and where only 10.5% of the
population has access to electricity
(Norton Rose Fulbright, 2013).

from the South African grid. By the

second week of February 2012, Zambia
had already imported 100MW of power
from Mozambique to offset the deficit.
According to Hanson Sindowe, Chairman
of Copperbelt Energy Corporation (a
distributor of power to Zambias mining
industry), the country will require an
additional US$12 billion of electricity
investment
or
4,400
additional
megawatts by 2030 (Zambian Country
Guide, 2013).

The leather industry of Ethiopia is

currently witnessing a boom due to its
abundant and available raw material,
highly disciplined work forces and cheap
prices. Ethiopia has the largest livestock
production in Africa and the 10th largest
in the world. Ethiopia currently produces
2.7 million hides, 8.1 million sheepskins
and 7.5 million goatskins annually. This
advantage is further underlined by the
fact that the costs of raw hides and skins
constitute on average 55-60% of the
production of semi-processed leather
(Investing in Ethiopia: Leather and
leather goods). UK based Pittard, who
has been trading in Ethiopia since 1920,
now has ambitious plans to grow its
Ethiopian operations. At present its Addis
Ababa-based factories and tannery to
the south of the city employ about 1,200
locals, a number expected to grow to
about 5,000 within five years.

DISCUSSION
In our literature review we looked at the
African continent from a number of
different perspectives like the investor
friendly policies, business friendly tax
laws, demand-supply gap, availability of
natural resources, the macro-economic
scenario
and the future business
potential.
When comparing the demand supply gap
in the African continent, we compared
the installed electricity capacity in
various countries with the potential
future demands. We looked at the
existing production and consumption
gaps and identified countries with
shortage of crude oil, natural gas and
lack of electricity (IRENA, 2013).
The availability of natural resources in
the various African countries told us the
potential of more industries being set up
in those countries. As the industrial
boom will occur the power consumption
in these countries will naturally rise
further widening the demand supply gap.
This increasing gap will act as a
motivator to set up more PPPs and IPPs
(African Infrastructure Report, 2013).

The development of new mines and the

rapid growth of the Zambian economy
after the year 2000 saw a 36% demand
increase for power between 2001 and
2005. From 2005 to date, the demand
growth has been in line with ZESCOs
200616 projection of a further 100MW
per annum. The power shortfall means
that 26% of the country is now affected
by load shedding at peak times and, to
bridge the shortfall, Zambia relies on
imports with 100MW of power coming

Further we decided to compare the

macro-economic
scenario
and
the
business & investor laws prevalent in
various African countries. Lack of

10

Exploring Investment Opportunities

rate they are ranked 5th which is going to
be a huge attraction for Industries which
are going to be set up (World Bank
Report, 2013).

business policies and a weak legal

framework always act as deterrent for
foreign businesses. An integrated power
policy, the bank lending rates, suitable
regulations,
an
investor
friendly
environment and a reliable distribution
network are certain parameters every
major power player will look at before
entering into any country (Norton Rose
Fulbright, 2013).

Ghanas established oil industry would

have an electricity requirement of more
than
5000MW
by
2016
(Africa
Infrastructure Investment, PWC, 2013).
Ghana ranks 1st, 3rd and 7th in Africa in
terms of investor friendly policy,
business friendly tax laws and power
transmission
efficiency
respectively
(World Bank Report, 2013).

Thus we decided to compare the various

African countries on all these parameters
and came up with a list of countries. The
next section explains how and why we
have selected these countries as a good
option to invest in.

The discovery of new mines coupled with

the shortage of crude oil has forced
Zambia into becoming a major importer.
In 2013, they imported 100MW from the
South African grid (Africa Infrastructure
Investment, PWC, 2013). Zambia would
require an investment of US $2 billion
(4400 MW) by 2030 (Norton Rose
Fulbright, 2013). In terms of lending
rates, Zambia is 2nd in the African
continent. This would give a huge boost
to their industrial development. They are
ranked 4th in terms of business friendly
regulations and 7th in terms of investor
friendly policies. Zambia is ranked a little
lower at the 10th position in power
transmission efficiency (World Bank
Report, 2013).

MANAGERIAL IMPLICATION
Our client is looking for investment
opportunities in the power sector in the
African continent.
The research conducted above has
revealed some interesting possibilities
for investment opportunities in Africa.
The shortage of refined petroleum along
with the expanding leather industry,
especially the expanding operations of
UK based Pittard, is going to put a lot of
pressure on Ethiopias power sector.
Ethiopia is ranked 12 in Africa as per the
investor friendly policies (World Bank
Report, 2013). In terms of business
friendly tax laws and regulations, it is
ranked 7th and it is 2nd in power
transmission efficiency (World Bank
Report, 2013).

Namibia has a severe lack of electricity

with 64% of it being imported (Africa
Infrastructure Investment, PWC, 2013).
The high mining activities are only going
to put further pressure on their power
sector. Ranked at 1st place in both
lending rates and business friendly tax
laws, Namibia can expect a huge
industrial boom in the future (World Bank
Report, 2013).

With only 10.5% electrification and a

booming natural gas industry, their
electricity demand is only set to grow.
Tanzania is currently the 3rd largest
exporter of oil in the world. Tanzania
ranks 8th in the investor friendly policies
and 10th as per the business friendly tax
laws and regulations. In terms of lending

With only 16% electrification, Kenya has

a huge shortage of electricity. The large
oil deposits found in Kenya (Regional

11

Exploring Investment Opportunities

Economic Outlook, Sub Saharan Africa),
will lead to commercial set ups and
further affect the power deficit. Kenya
has ranked 6th in both business friendly
tax laws and power transmission
efficiency. With a rank of 7 and 8 in
investor friendly policy and lending rates
respectively, Kenya will prove to be a
promising option for industries to set up
(World Bank Report, 2013).

We would suggest our client to also look

at the African continent from the point of
view of the investment required in
various countries and the possible return
on investment. We would also suggest
our client to research on the time
required to reach break-even point.
All these approaches would enable our
client to make a more informed decision.

With the discovery of 4-5 oil gas reserves

(Norton
Rose
Fulbright,
2013),
th
Mozambique now has the 4 largest gas
reserve in the world. It has thus become
a target for many power plants (Africa
Infrastructure Investment, PWC, 2013).
Ranked 2nd at investor friendly policy and
3rd at lending rates, Mozambique is
attracting a number of foreign industries
(Africa Infrastructure Investment, PWC,
2013).
Nigeria is currently the 10th largest
producer of oil in the world with a 14%
contribution to its GDP. Nigeria is
expected to have a 40GW energy
requirement
of
2020
(Africa
Infrastructure Investment, PWC, 2013).
In
terms
of
power
transmission
efficiency, Nigeria is ranked 1 st in the sub
Saharan countries. It is also well ranked
at 3rd in terms of investor friendly policies
and 6th in terms of lending rates. Its
strong rank of 5 in business friendly tax
laws makes it an interesting option for
other companies Africa Infrastructure
Investment, PWC, 2013).
RESEARCH LIMITATIONS
After our preliminary secondary research,
we decided to look at the African
continents
from
the
four
major
perspectives discussed above. We chose
these approaches as we felt they were
the most relevant to the African
continent.

12

BIBLIOGRAPHY
Ann. Rev. Resour. Econ. 1, 567595.

Asiedu E. Foreign Direct

Investment in Africa: The Role of
Natural Resources, Market Size,
Government Policy, Institutions
and Political Instability

Outlook on Sub Saharan Africa

Investing in Ethiopia: Leather and
leather goods (2013), Ethiopian
Embassy
Khanna M. and Rao, N.D., 2009.
Supply and demand of electricity
in the developing world.

Basu A, Calamitis E.A and Ghura D. Promoting Growth in SubPotts D. Urban livelihoods and
Saharan Africa- Learning What Works.
Bhorat et al. (2014), Foresight Africa,
Africa Growth Initiative
CIA.GOV (n.d.) World Fact-book;
Guide to Country Comparisons
[Online] Available from:
https://www.cia.gov/library/publicatio
ns/the-worldfactbook/
[Accessed: 04/09/2014]
Chete L.N., Adeoti J.O, F. Adeyinka,
and Ogundele O, Industrial
development and growth in Nigeria,
WIDER Working Paper 2014/019

Eberhard A and Gratwick K.N,

Independent Power Projects in
Sub-Saharan Africa: Determinants
of Success
Economic Report on Africa - Making
the Most of Africas Commodities:
Industrializing for Growth, Jobs and
Economic Transformation (2013),
Economic Commission for Africa,
p10-11
Fulbright N R, Investment in the
African electricity sector (2013)
IRENA (2012), Prospects for the
African power sector
IMF (2014), Regional Economic

urbanization trends in Africa:

winners and losers? Environment,
Politics and Development Working
Paper Series (2013).
Rosnes O and Vennemo H., 2009.
Powering up. Costing power
infrastructure investment
needs in Sub-Saharan
Africa.Energy Economics 34
(2012) 13181328.
Schwab K, (2014), The Global
Competitiveness Report 2013-14, World
Economic Forum
World Bank (2013), The African
Competitiveness Report 2013, World
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Zambian Country Guide (2013),

KPMG

APPENDIX
List of tables:
Table 1: PROJECTED SHARE OF URBAN POPULATION FOR DIFFERNT AFRICAN REGIONS.

Table 2

Source: O. Rosnes, H. Vennemo / Energy Economics (34) pg 1321

Table 3 SHARE OF POPULATION WITHOUT ELECTRICITY ACCESS( IN %)

Table 4 Per Capita GDP per annum of richest African countries (in US $)

Table 5: SUB SAHARAN AFRICAN COUNTRIES: AVERAGE COST OF POWER GENEARTION

(US CENTS A kWh)

Table 4 (In USD)

Table 4: Per capita GDP per annum of richest African countries(in $US)

Table 5

Table 5: sub Saharan African countries: average cost of power generation(in US cents a kWh)

Table 6: Ranking of sub-Saharan countries on investor friendly policies as per World

Bank Report, 2013.

Economy
Ghana
Mozambique
Nigeria
Angola
Malawi
Namibia
Zambia
Kenya
Tanzania
Congo, Dem. Rep.
Cte d'Ivoire
Ethiopia
Guinea

Rank
34
52
68
80
80
80
80
98
98
147
157
157
178

Table 7: Relative ranking of sub-Saharan counties based on lending rates as per World
Bank Report, 2013.

Country Name
Namibia
Zambia
Mozambique
Angola
Tanzania
Nigeria
Kenya
Congo, Dem. Rep.
Malawi

Relative rank
1
2
3
4
5
6
7
8
9

Table 8: Relative ranking of sub-Saharan countries on business friendly tax laws &
regulations as per World Bank Report, 2013.

Economy
Namibia
Malawi
Ghana
Zambia
Nigeria
Kenya
Ethiopia
Mozambique
Guinea
Tanzania
Cte d'Ivoire
Angola
Congo, Dem. Rep.

Relative rank
1
2
3
4
5
6
7
8
9
10
11
12
13

Table 9: Relative ranks of sub-Saharan countries on power transmission efficiency as per World Bank Re

Country Name
Nigeria
Ethiopia
Angola
Congo, Dem. Rep.
Mozambique
Kenya
Ghana
Tanzania
Cote d'Ivoire
Zambia
Namibia

Relative ranks
1
2
3
4
5
6
7
8
9
10
11