Abstract
As the second-largest continent in the world, Africa has a large population and is rich in resources. Five power alliances have been established based on the geographical locations of different countries, which aims to promote regional power trading and achieve economic integration.
The power coveragein Africa is unevenly distributed, and the infrastructure and supporting facilities urgently need to be improved. There are plenty of opportunities for project investment and construction. Chinese investors or construction contractors should conduct comprehensive and prudent due diligence and risk assessments when carrying out overseas investments in African countries.
Power Regional Division on The African Continent
Africa, as the second-largest continent in the world, has an area of approximately 30.2 million square kilometers (land area). There is a total of 54 United Nations member states on the African continent and its adjacent islands. According to the latest United Nations Geographical Scheme released by the Statistics Division of the United Nations Department of Economic and Social Affairs, for the convenience of statistics, Africa is divided into North Africa and Sub-Saharan Africa (Sub-Saharan Africa is further divided into Central Africa, East Africa, Southern Africa, and West Africa). According to the latest statistics, Africa's population exceeds 1.4 billion, accounting for about one-sixth of the world's total population. However, 43% of Africa's population, nearly 600 million people, have no access to electricity, and most of them are in the Sub-Saharan Africa region.
Electricity trading has already been carried out among different countries in the African continent region, which is mainly divided into five power alliances: the North African Power Pool (NAPP), also often referred to as the Maghreb Electricity Committee(COMELEC); the East African Power Pool (EAPP); the Southern African Power Pool (SAPP); the West African Power Pool (WAPP); and the Central African Power Pool(CAPP).
The establishment of power alliances aims to promote regional electricity trading, enhance energy security and efficiency, boost the development of renewable energy, and drive economic integration. Since their establishment, the member countries of the five African power alliances have changed from time to time, and due to different sources of release, the composition of member countries varies slightly. Based on a search and summary of public information, the member countries of each power alliance as of now are as follows.
- The North African Power Pool (NAPP) was establishedin 1975 and consists of six member countries, namely Tunisia, Algeria, Morocco, Mauritania, Libya and Egypt.
- The West African Power Pool (WAPP) was establishedin 1999 and includes 14 member countries, namely Benin, Burkina Faso, Côted'Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.
- The Central African Power Pool (CAPP) wasestablished in 2003 and includes 10 member countries, namely Angola, Burundi, Cameroon, the Central African Republic, Chad, the Republic of Congo, the Democratic Republic of Congo, Equatorial Guinea, Gabon, and São Tomé and Príncipe.
- The Eastern African Power Pool (EAPP) wasestablished in 2005 and includes 11 member countries, namely Burundi, Djibouti, the Democratic Republic of Congo, Rwanda, Egypt, Ethiopia, Kenya, Sudan, Tanzania, Libya and Uganda. Countries such as Eritrea, Somalia and South Sudan may join the EAPP.
- The Southern African Power Pool (SAPP) was established in 1995 and includes 12 member countries, namely Angola, Botswana, the Democratic Republic of Congo, Lesotho, Malawi, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.
Analysisof the Current Situation of Regional Power Development
Many African countries mainly rely on their domestic oil, natural gas orcoal resources for power generation, while some other countries depend on imported fuels, which makes them vulnerable to fluctuations in the international market. The distribution of electricity in Africa is uneven.
Based on the development level of the electricity market, power generation, transmission and distribution infrastructure, there are significant differences among power alliances. The southern and northern regions are relatively better off, while the central and eastern regions lack a stable power supply.
North Africa has the best power infrastructure and still mainly relieson fossil fuels at present. In recent years, increasing attention has been paid to the development of renewable energy. Solar energy projects are advancing rapidly in Morocco and Egypt.
The power development in West Africa is relatively diversified, but it still faces problems such as insufficient infrastructure and unstable power supply. Nigeria is the largest power market in this region and is making efforts to promote privatization and investment to improve power supply. In recent years, renewable energy projects have been gradually increasing, especially solar energy. Although the power
coverage rate in some countries in West Africa is improving, rural areas still face a serious shortage of electricity.
In Central Africa, many countries have unstable power supply and weakinfrastructure. Despite the abundant water resources in the region, the development progress is slow. For example, the Democratic Republic of Congo has huge hydropower potential, but only a part of it has been developed. Regional cooperation, such as the Central African Power Interconnection Project, is making efforts to improve power supply and coverage.
The power development in Eastern Africa faces many challenges, such as insufficient infrastructure and unstable power supply. The overall power coverage rate remains relatively low, especially in rural areas. However, renewable energy projects within the region are gradually being promoted, especially hydropower, wind power and solar energy. For instance, Ethiopia is increasing its power production capacity by building large-scale hydropower stations.
The power development in Southern Africa is relatively advanced. SouthAfrica is the largest power producer in this region. It relies on coal for power generation but is also gradually shifting towards renewable energy. Efforts to achieve power interconnection within the region have been continuously strengthened. For example, the Southern African Power Pool (SAPP) has promoted cross-border power transactions. Nevertheless, rural areas in some countries still face the problem of insufficient power supply.
Based on the below overview table of the regional power situation in African countries, it can be seen that in North African countries such as Morocco, Algeria and Tunisia, the power coverage rates are all close to 100%. Their main power production relies on thermal power generation, and at the same time, they are gradually developing renewable energy sources such as solar energy, wind energy, hydropower and geothermal power generation. In Southern Africa, the overall power coverage is relatively good. For example, the power coverage rate in South Africa is close to 100%, and in countries like Lesotho and Botswana, the power coverage rates can reach about 90%.
The power development in Central Africa is rather poor. For example, in the Central African Republic, the Republic of Congo and the Democratic Republic of Congo, the power coverage is only about 20%. Power production mainly relies on diesel power generation. In Eastern African countries, the distribution of power coverage rates is extremely uneven. The power coverage in Egypt is close to 100%, while in South Sudan, power resources are extremely limited, the power supply is unstable and the power coverage rate is very low, less than 10%. There is almost no power supply in rural areas. Currently, South Sudan's power investment and development policies aim to improve power supply and infrastructure construction. Despite facing many challenges, South Sudan is still making efforts to improve its power situation.
Joining regional power alliancessupplemented by complete transmission facilities is conducive to realizing the trading and allocation of power production and consumption among various countries.
Suggestions on Participating in the Investment and Construction of the Power Industry in
Africa
Since the early 21st century, China's role in Africa's economy has been continuously increasing and became Africa's largest trading partner in 2009. Currently, China is Africa's fourth-largest investor and accounts for approximately one-fifth of all loans, with a large amount of funds flowing into energy and infrastructure projects. However, against the backdrop of uneven distribution of regional power in Africa and the uneven development level of supporting infrastructure, Chinese investors or construction contractors should conduct a comprehensive due diligence through careful analysis when investing in power projects on the African continent. It is recommended to focus on the following aspects.
- Market Research: Gain an in-depth understanding of the policy environment,economic indicators, industry development trends and power demand in the target country. Understand the market potential to ensure that the investment aligns with local needs. When making market forecasts, in addition to considering meeting local demands, it is also necessary to study the positive impact of relevant power project investments on promoting the growth of local demand.
- Policy Environment: Evaluate the government's policy support and investment incentivesand pay attention to the stability and transparency of laws and regulations.
- Competition Analysis: Study competitors and their market shares, and seek out one's ownunique competitive advantages. Meanwhile, look for local partners to better understand the market and regulations and reduce risks.
- Technical Adaptability: Adjust technical solutions according to the infrastructurelevels of different countries and adopt equipment and technologies suitable for local conditions.
- Risk Assessment: Analyze risk factors such as political, economic,environmental, social and cultural ones, and understand the local business environment. Strengthen the assessment and conduct a comprehensive demonstration of the relevant risks faced by the investment project itself, including the social environment, natural conditions, technical solutions, electricity prices and trading policies.
- Financial Evaluation: Conduct detailed financial analysis, calculate the return oninvestment and cost-benefit ratio, and carry out relevant investment risk sensitivity analysis.
- Renewable Energy: Focus on renewable energy projects, especially in countries rich inresources, to contribute to sustainable development.
- Trainingand Development: Allocate resources for the training of local talents,enhance the local technical level and promote the long-term sustainability of the project.