To meet the needs of Earth’s booming population with goods and food since the 1970s, mankind has been consuming more natural resources each year than they can renew or regrow naturally within one year. The burning of nonrenewable raw materials, such as coal, oil, or natural gas, to meet the world’s energy needs has proven to have catastrophic effects on the Earth’s climate. Due to these practices, there has been a steady increase in natural disasters, such as droughts, floods, and storms. The number of natural disasters has increased tenfold since the 1960s (Vision of Humanity 2020). According to the United Nations, the Earth’s population will reach 9.8 billion in 2050, a 24 percent increase. As an ever-growing humanity needs an augmenting supply of raw materials, it is relatively clear that sooner or later this will lead to the depletion of raw materials at some point, causing catastrophic effects on the living conditions of the world’s population. It is therefore not surprising that investment in fossil fuels reached its highest level since 2014 in 2021. The G20 countries alone allocated 16% more money to fossil fuels in 2021, totaling US$ 693 billion, and most of this investment went into fossil fuel subsidies, which amounted to $5.9 trillion in 2020 alone. According to Bloomberg, philanthropies’ investments in renewables are forecasted to continue rising in the future.
A significant portion of these essential resources is located in Africa. The continent, for instance, possesses 7.5% of the world‘s oil reserves, 7.1% of the world‘s gas reserves, and, as reported by the African Development Bank, 60% of the world‘s unused arable land. Additionally, Africa continues to have substantial untapped renewable energy resources, including solar, hydro, wind, and geothermal energy. Given the pivotal role played by commodities, one might assume that many African countries should be thriving.
However, in reality, most African countries remain among the poorest nations globally. The widespread poverty in these countries can be attributed to the fact that the governments of these resource-rich nations have not invested the revenues from the sale of raw materials in improving infrastructure and fostering economic development for their citizens. One key indicator of this trend is the notably low Human Development Index (HDI), a metric employed by the United Nations Development Program to evaluate a nation‘s standard of development. According to the UNDP in 2022, the global average HDI score in 2021 was 0.732, whereas the Sub Saharan Africa region‘s average score in the same year was only 0.547, representing just 74% of the global average.
Another pertinent indicator is the gross domestic product per capita. In 2021, the global average for this indicator was $10,741, while the sub-Saharan African average was a mere $1,626, amounting to only 15% of the global average, as reported by the World Bank. These indicators unequivocally underscore the developmental lag in Africa. Consequently, to fortify development in the region, there is a critical need to invest in infrastructure development, which will ultimately bolster local industries and create employment opportunities.
The expanding population in Africa is significantly contributing to the rapid rise in energy demand. As per the International Energy Agency, the energy demand in Africa surpassed 700 terawatt hours (TWh) in 2018, while the power generation capacity stood at 859 TWh. The primary sources for electricity generation were gas, coal, and hydro.
Electricity demand in Africa is projected to reach approximately 2,300 terawatt hours (TWh) by 2040, marking a 2.6-fold increase from the demand observed in 2018. The African Development Bank estimates that achieving universal access to electricity in sub-Saharan Africa by 2025 will necessitate total investments in the energy infrastructure ranging from US$ 420 to 520 billion. According to the World Bank, investments in developing countries, constituting an average of 1.4% of gross domestic product, have the potential to reduce emissions in these nations by up to 70% by 2050.
It is evident that, above all, investments in climate-neutral, renewable energies will need to play a central role in meeting the rapidly increasing demand for electricity in Africa. This becomes even more apparent considering the abundant availability of the raw material “sunlight“ and the consistently decreasing prices for the requisite technology.
However, in reality, a completely different picture emerges. According to the Africa Solar Industry Association, in 2021, global investment in renewable energy increased by 9%, while investments in renewable energy projects in Africa experienced a notable decline of 35%. The International Energy Agency further highlights that over the past decade, only 2% of global renewable energy investment has been directed towards projects in Africa, and less than 3% of global renewable energy jobs are located on the continent. This is despite the availability of sufficient liquidity in global markets for potential investment.
According to the 2021 Global Wealth Report by Credit Suisse, global assets reached US$ 463 trillion, with over US$ 110 trillion invested in assets under management in 2019. Investors, seeking alternatives to low-interest bonds, may find Africa appealing, given the World Bank‘s projection of a 5% growth in the Sub-Saharan Africa region by 2024.
In 2021, the United Nations reported over US$ 83 billion in foreign direct investment flowing into Africa, double the amount in 2020. However, this only accounted for 4.1% of global foreign direct investment, indicating room for improvement. Investor hesitancy toward Africa is influenced by factors like poor infrastructure, low education standards, lack of security, and insufficient government regulation.
With high global liquidity and uninvested assets, there‘s increasing pressure for allocation, potentially leading to more investments in Africa‘s renewable energy sector, especially in large infrastructure projects. The higher risk analysis costs for African investments compared to developed countries make larger projects more viable, posing a challenge for smaller ventures.
In Africa, a significant hurdle is the lack of power transmission infrastructure, with only 28.5% of the rural population in sub-Saharan Africa having electricity access, according to the World Bank. This hampers the impact of large-scale renewable energy projects in rural areas, exacerbating the ongoing rural exodus and the structural challenges faced by African nations.
While the proportion of Africans in extreme poverty has decreased from 54% in 1990 to 41% in 2015, the actual number living in poverty has risen from 278 million to 413 million. The World Bank Group attributes this increase to the fact that 82% of those in extreme poverty in Africa reside in rural, infrastructure-poor areas. Consequently, targeted investments in the renewable energy sector in rural Africa make the most sense, offering a dual benefit of addressing energy needs and contributing to poverty reduction.
Promising developments in renewable energy include the emergence of offgrid solar products (OGS) in recent years. OGS refers to self-sufficient, offgrid products that incorporate solar panels and rechargeable batteries, including solar lanterns, multilight solar systems, and Solar Home Systems. These innovations have attracted significant investment, with companies in this market investing over US$ 2.3 billion by 2021. By the end of 2021, an estimated US$ 490 million worth of such products will have been sold worldwide, providing electricity predominantly to people in off-grid areas, according to the International Bank for Reconstruction and Development.
Off-grid solar products (OGS) immediately boost the income of rural households by covering basic electricity needs and cutting expenses on lighting and mobile phone charging. Larger OGS, equipped with energyefficient appliances, create incomegenerating opportunities such as selling phone charging services or attracting customers for micro-enterprises. For a holistic improvement, implementing decentralized solar mini-grids is crucial, providing sustainable electricity networks for rural communities in Africa. The access to electricity facilitated by these innovations, combined with the use of emerging energy-efficient devices for productive purposes, offers various opportunities. These include:
- Solar generators for telecommunication towers to enhance communication networks,
- Electronic tools for small and medium enterprises,
- Water pumps for agricultural irrigation,
- Cooling technologies to minimize post-harvest losses,
- Machinery for processing agricultural products,
- Electrical diagnostic equipment for health centers,
- Lighting and internet access for local schools,
- Water purification technologies for clean drinking water.
This comprehensive approach has the potential to enhance efficiency and productivity in agriculture, trade, and industry, leading to improved supply chains and job creation. It represents a significant contribution to poverty reduction, enhancing living conditions and the overall quality of life in these communities, thereby curbing rural exodus.
Innovative companies are investing in rural African communities to address challenges. A notable project employs solar technology and energyefficient innovations to establish solarpowered centers, providing business infrastructures and internet access for enterprises in rural areas (THE PULSE Rwanda Limited 2020). These centers, with adapted business models, aim to become economic and social hubs, connecting local economies globally. This approach has the potential to bring systemic change, fostering business development, job creation, and a more formalized supply chain. It aligns with Sustainable Development Goals and climate reduction targets, offering a transformative solution to socio-economic and environmental challenges.
The ball is now in the court of investors, who should make an immensely crucial contribution to achieving these goals. When considering the risk of investments, they should not only focus on the costs of the risks but also consider the risks at stake if they do not invest. To emphasize this, they consider the costs of eradicating climate damage, which are currently estimated at $200 billion US dollars per year over the last decade by the organization Vision of Humanity.
Let’s not forget that the damage often occurs in other regions besides the one in which climate change originates. So, it is in their own interest to act and invest with a solidarity approach.
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