Powering Africa’s Green Growth – beyond adaptation and resilience

By Dr. Amar Inamdar, Managing Director, KawiSafi Ventures Fund | August 29, 2022

Africa. Its 1.2 billion people in more than 50 countries speak over 1,500 languages. It’s not the kind of place where easy generalisations work. Yet, its voices are too often overlooked on the global stage. As the world grapples with climate change and its implications, Africa’s strength comes from its unity. A continent that is vibrant, fast-growing, energetic and diverse. And, a key player in showing the way to a low carbon future.

It is a deep injustice that Africa contributes only 3% to global GHG emissions, yet its people will be hardest hit by climate change. Pope Francis has called the global failure to act on climate change “a brutal act of injustice toward the poor”. Over half, 55%, of the world’s poorest are in Africa. The World Resources Institute (WRI) puts numbers to it: failure to meet the Paris targets will mean that 118 million people will be pushed into extreme poverty by 2030; 15% of Africa’s hard earned GDP growth will be wiped out.

Africa has historically low emissions because many of its people don’t have access to essential needs, such as electricity. Energy access and consumption rates in Africa are among the lowest in the world. The average Ethiopian family uses less than one hundredth of the power of one American. Around 600m people don’t have access to any energy; 78% of businesses across the continent experience disruptions to energy which means they have to resort to dirty and polluting generators; and energy sits stubbornly in the top three of concerns cited by business leaders.

Nigeria’s energy infrastructure is a case in point. Nigeria’s enterprises are desperate for power solutions. With roughly 4GW of power on the grid, there is an astonishing 14GW of power provided by private generators off the grid. The real, unsubsidised cost of this mostly diesel-generated power is close to 60c/kwh. Local businesses and entrepreneurs have no choice but to use it. Nigeria contributes 3.5 billion tonnes of CO2e to global warming. And here’s the rub: it spends $1.7B on diesel and fossil fuel subsidies that bring that 60c/kwh cost down to about 35c.

As costs of solar and battery storage have come down dramatically over the last 10 years, unsubsidised solar providers have been stepping into this market. Companies like Redavia and Shyft offer solutions for clean, affordable and reliable power at a fraction of the cost. These companies are true market disruption at its best: they outcompete dirty fuels on price, create jobs and drastically cut CO2 emissions. Green growth, with significant potential to benefit people, planet and profits.

Without energy, societies are trapped – people within them can’t become as productive and able to flourish in an economy as those that have easy access to cheap energy. Africa needs to be unleashed to achieve its potential.

Without low-carbon technologies, African economic growth will derail global climate ambition

Africa’s population is fast-growing: its 1.2bn people will grow by 500m by 2030 – the fastest rate of growth on earth. Because of this, and the relatively low economic base from where it starts, Africa’s energy consumption and manufacturing output need to triple over the next two decades to create the economic opportunities and jobs that will lift people out of poverty. In a business-as-usual scenario, where both energy use and energy intensity increase, Africa’s emissions would double by 2050, derailing the Paris Agreement climate targets.

A pathway to build an inclusive new economy

In the last few weeks organisations as diverse as the African Union and Management Consultancy McKinsey’s have offered some solutions. The inherent characteristics of the continent – young, educated, lacking legacy infrastructure, fast growing and richly endowed with natural resources – make it more competitive in the low carbon economy.

The advantage for Africa is that much of its infrastructure, manufacturing capacity and economy are yet to be built. There is every opportunity to direct investment toward efficient, low carbon technologies that deliver for the benefit of all, today. Here are some ingredients:

• Positive market signals from regulators and governments worldwide are driving a Cambrian explosion of green growth innovation. As economies of scale improves, prices drop: as an illustration, year on year sales of EVs in Europe reached 47% during the pandemic, while overall vehicle sales growth stalled. That wouldn’t have happened without government signalling an end to ICE vehicles. Tie to this low-carbon procurement policies from the State, and that results in predictability to which innovation will respond.

• A focus on the highest impact sectors: Energy/power, transport, buildings, industry and agriculture. Together, these account for 80% of Africa’s emissions. In each of these segments, low-carbon technologies, such as bioethanol and electric vehicles, are increasingly competitive. McKinsey estimates that decarbonization-fuelled growth could create 3.8 million net new jobs in Africa over the next 30 years. As an example, its analysis of the two-wheeler market suggests that there is a $100M revenue opportunity based on just 1% penetration of the East African market by EVs by 2030. The AU estimates that digital technologies for the agricultural sector –helping to promote market access, insurance, and knowledge – will lift yields by 60%, create a $1trillion agribusiness market and help drive the innovation needed to feed Africa’s 2.5bn people by 2050.

• Green finance: The State can help business adopt a net zero mindset by requiring carbon reporting and publication of transition plans for the largest, most polluting industries like oil/gas and cement. Pricing carbon properly, and taxing it appropriately, recognises the costs of carbon pollution and tilts the economics in favour of technologies that are better for our planet and society. This enables investment dollars to flow at scale to the most efficient and competitive firms and accelerates adoption of non-polluting technologies.

• Redistribution: For a transition to be just, fair and equitable, it requires society to support people who bear the costs of climate change and create opportunities for them to participate in new sectors and industries. This needs to happen both within countries – as we shift from a fossil fuel economy to a renewable energy economy – as well as between countries. The $100bn COP commitment from richer countries to poorer ones is a step in the right direction, but it is not nearly enough. Voluntary and compliance carbon markets – re-energised by Mark Carney, former governor of the Bank of England – have the potential to play an outsize role in redirecting up to $100bn per year of capital toward  low-carbon solutions. We already see one practical solution in play: Across Africa, 900m people cook on biomass and kerosene, resulting in deforestation and respiratory illness. Firms like Biolite, Burn and Koko Networks sell high-efficiency, clean cookstoves that create Gold Standard carbon credits. They use those credits to reduce the cost of cookstoves to the consumer, dramatically accelerating sales.

While business and entrepreneurial innovation will play an outsize role in driving innovation and ambition to achieve Goal Zero, the speed and scale of change required to meet the Paris targets requires collaboration on a scale never seen between private and public sectors.

McKinsey sees a $3tn pipeline of high impact investments in Africa that focus on decarbonization and creating millions of quality jobs. For those willing to show leadership and take risks, these opportunities will deliver green growth in Africa: both improving economic livelihoods and climate.

Dr. Amar Inamdar is the Kenyan-born Managing Director of the KawiSafi Ventures Fund, a Nairobi-based impact investment fund focused on catalysing universal energy access and a low-carbon economy.