Sub-Saharan Africa's (SSA) energy system is set to expand rapidly to 2040, with urban areas experiencing significantly improved coverage and reliability of centralised electricity supply, while mini-grid and off-grid systems will increasingly provide electricity to 70% of those in rural areas. Yet, despite these positive projections made by the International Energy Agency in its 2014 report, some 530 million Africans will probably continue to remain without electricity during this period.
At present two out of every three people in sub-Saharan Africa do not have access to electricity. This is a terrible obstruction to the continent's true growth potential, one that hampers the speed of economic diversification and job creation, and that feeds the cycle of poverty.
It is widely argued that in order for a more viable energy sector to take root, African nations need to step up infrastructure investments and focus on innovative approaches and technologies to leap frog economic growth. They need to pave the way for stable legal systems, predictable fiscal regimes, profit repatriation guarantees, and access to foreign exchange. The International Institute for Sustainable Development Infrastructure (IISD) defines a financially sustainable electricity sector as one that can recover costs, make investments, provide reliable electricity and meet social and environmental obligations.
While this might seem like an insurmountable challenge in the near future, there are ways to take greater strides in the short term by turning these threats and challenges into opportunities and action.
The African mining sector, holds a crucial key.
Threats and opportunities in resource nationalism...
An open knowledge report, The Power of Mine, produced by the World Bank in 2015, states that since the year 2000 the mining industry in SSA has spent around $15.3 billion on generating its own electricity - 1,590 megawatts. Bewilderingly, none of this made its way on to the national grid.
With the fall in commodity prices, which according to PwC's 2015 annual mining report effectively wiped $156 billion off the global mining market this year, mining companies in Africa are struggling to remain buoyant. Governments too are feeling the pressure, giving rise to a growing climate of resource nationalism, a condition in which African governments look to secure higher benefits from minerals mined and exported by foreign companies operating in the continent's mining sector.
There is a very fine line between resource nationalism and legitimate national interest, but if handled properly it could be a viable solution to securing long term socio-economic growth for African nations and ensuring profitability for mining companies.
In fact, falling commodity prices, climate change and mining by-products present Africa with opportunities to transform how mining companies contribute to the region, and reduce the impact or risks associated with resource nationalism. This is an opportunity for governments and institutional investors to focus on public private partnerships (PPP) to drive job creation and economic diversification.
Reversing the self-supply mindset in mining...
One of the most notable inefficiencies is the way in which mining companies 'self-supply' their energy, effectively turning their backs on the region's own energy needs. Mining is one of the most energy-intensive industries and companies are prepared to invest billions of dollars in generating their own electricity, while the majority of the people in the countries they mine in go without.
This is a form of humanitarian negligence that has to be reversed. An old African proverb says that 'greed loses what it has gained', which in the face of falling commodity prices, rings true for mining companies caught in a downward trajectory. Self-supply is expensive to start with, and it contributes nothing to the national grid. So here is an opportunity for an entire, energy-intensive industry to become a major customer. Mining companies have an opportunity to act as 'anchor' customers, a primary customer to state-generated electricity (with the understanding that their energy needs will be met in a timely manner) that puts money back in to the economy and supports reinvestments in the electrification of the region. And of course with electricity comes opportunities for businesses to flourish and for people in remote regions to build a better quality of life.
The mining industry also has to battle with many other high costs that are often linked to inefficiencies and a lack of innovation. Tackling such issues may provide mining companies with an opportunity to trim expenditure and also provide opportunities for local entrepreneurs and foreign investors to create new and transformative industries that are linked to the sector.
The environmental opportunity in mining...
One of the ironies is that many African countries have a surplus of a cleaner and cheaper fuel, particularly gasses such as methane, butane and propane, which are produced as a by-product of oil extraction. So why doesn't Africa use these alternative fuel sources instead of resorting to flaring? Typically, countries that flare gas lack the infrastructure needed to encourage investments in flare elimination. There may also be legal, regulatory, investment or operating issues that make flare elimination difficult.
Here is a natural resource that is readily available, easy to access and comparably much cheaper than burning diesel and other fossil fuels. If governments and multi-billion dollar mining companies can collaborate, gas-fuelled power stations can be up and running within two years, providing a fast-turnaround for investors. Tackling flaring provides Africa with the opportunity to reduce unnecessary emissions, utilise existing cleaner energy resources and transform the continent's electricity grids.
At present, with increased pressure, some African countries are already signed up to the Global Gas Flaring Reduction Partnership, including the Democratic Republic of Congo, Gabon and Nigeria. Many of the world's biggest oil companies such as BP, Chevron, ExxonMobil, Shell and TOTAL have also signed up.
Yet this area remains as low hanging fruit and a missed opportunity for foreign investors to work with governments in the form of PPPs or through direct investment.
Now is the time to modernize Africa's mining industries...
If mining companies can become anchor customers for state-generated electricity, they will be contributing significantly more to the national GDP, enabling host countries to invest greater sums in national infrastructure.
Focusing on the electrification of the continent using natural resources would help to restructure many state budgets as refined oil subsidies could be cut considerably. For example, for Angola, the GDP growth elasticity factor is estimated at 0.2, meaning that for each 1% increase of power consumption, there is a 0.2% increase in GDP growth. Investors are now diverting considerable funds into this 'new frontier of capitalism' but this is still not sufficient to support Africa's electrification needs.
There is also the opportunity for national governments to use their improved infrastructure and higher GDP to invest in renewables and new technologies. Hydropower, for instance, is already a focus for countries above and below the Sahara. Morocco is building the world's largest solar panel farm in the Western Sahara and countries such as Cameroon have already implemented policies that compel large power users to invest in hydropower, legally binding private developers to compete for hydro sites.
Mozambique is yet another example of creative thinking, channelling efforts to turn waste coal from its coking coal production for power generation. There are many ways in which mining companies can contribute to the national grid, and help build a national and regional power market.
At the core of it, it is the collective responsibility of governments and private mining companies to ensure that the benefits of mining are transferred to citizens. The time for ruthless plundering of an entire continent's natural wealth for private gain is over, especially as world economies draw closer together and where the political and economic developments in important emerging regions, such as Africa, have global reverberations.
In many ways, African nations are at crossroads. They have an opportunity to modernise their mining industries in a way that benefits the environment and supports the development of wider and more reliable electricity grids. This modernisation can come from enforced policies as well as innovation and investment in renewables. Smarter use of existing resources such as mining by-products is of paramount importance, not least because it is a win-win for mining companies, the national economy, communities and the region's grid development.
Africa's time is now, and its leaders must take advantage of the opportunity to avoid the mistakes made in the West by being smart about existing resources in a way that benefits all citizens and presents Africa as a world leader in transformative mining industries and renewables. It is what the continent needs to radically speed up diversification, boost a weak MSME sector, drive innovation and job creation, and unleash a new era African industrialization.