How important is the private sector to the development of Africa?

Providing access to energy is a fundamental step in fighting poverty. New models of cooperation between the public and private sectors.

by Matilde Mattei
17 September 2019
7 min read
by Matilde Mattei
17 September 2019
7 min read

Africa’s rapid demographic growth is drawing increasing international attention, as it is will have a significant impact on societies, economic performance, political stability and geopolitics, affecting not only the region but the rest of the world. On the one hand, Africa’s fast-growing population and promising markets can trigger extraordinary opportunities for business in key sectors. On the other hand, many countries in the Region still need heavy investments to boost infrastructure, improve healthcare systems and foster job markets. Failing to do so, would translate in enduring poverty and social disruption that could spill over borders.

Guiding investments

If opportunities to foster development are not missing, so are challenges, which means no actor can tackle them by itself. That’s why international organisations such as the United Nations or the World Bank and the European Union are exploring innovative cooperation models, involving the private sector. Partnerships are essential, and public–private partnerships (PPP) are the best way to fill the gap ($2-3 trillion of additional investments per annum) to achieve the Sustainable Development Goals (SDGs) listed by the United Nations’ Agenda 2030.

As one of the largest private investors in Africa, Eni has been a pioneer in crafting partnerships following this cooperation model. It is now working with international organisations such as the Food and Agriculture Organisation (FAO), the United Nations Development Programme (UNDP) and the United Nations Industrial Development Organisation (UNIDO) to help reach the SDGs.

The role of Europe

Europe – which would be particularly exposed to disruptions, as migration from sub-Saharan Africa is likely to intensify in the next decades – has announced in September 2018 a new Africa-Europe Alliance for Sustainable Investment and Jobs. The partnership is intended to be more than a financial plan: it is an alliance among equal partners that complements the long-standing political partnership between the two continents and deepens their economic and trade relations. The Alliance proposes to boost strategic investment and strengthen the role of the private sector to support job creation; to invest in education and skills; to strengthen business environment and investment climate; and to tap the full potential of economic integration and trade.

In this framework, the Commission gives strategic importance to partnerships between public and private sector“Africa cannot develop without the private sector” said San Bilal, Head of Trade, Investment and Finance at the Think Tank European Centre for Development Policy Management (ECDPM), in an interview. Boosting private sector investment requires an enabling investment climate and business environment, security, stability (including macro-economic stability) and transparency. Also, the location and the reputation of the specific country, the size of its market and the presence of natural resources play a role in attracting investments. External actors, like international institutions, can help enhance the conditions to attract more Foreign Direct Investments (FDI) by providing good practices and share expertise, even though reforms can only take place if coming from within, Mr Bilal explained.

Funding for infrastructure

The private sector can have an impact in several areas (agriculture, energy, service, digitalisation and so on). To do so, investments in infrastructure projects are essential: “infrastructure service gap in Africa is much bigger than Latin America or East Asia,” Jason Zhengrong Lu, Head of Global Infrastructure Facility (GIF), a World Bank Group Initiative, explained in an interview. The GIF, a PPP in itself, helps government address technical, financial, legal, regulatory and contractual obstacles to mobilise commercial financing in infrastructure projects. The World Bank and the International Bank for Reconstruction and Development (IBRD) offer advisory services and risk-mitigation instruments for infrastructure financing: together with the private sector, they co-invest and co-finance infrastructure projects in Africa. Well-prepared infrastructure projects (whether it be roads, grids, etc.) take years and require technical, social, environmental and feasibility studies. “Infrastructures have huge impact on the quality of people’s lives; they bring electricity, clean water; they create jobs and economic growth and increase countries’ GDP” Mr Lu said, “the private sector can play a very important role to help governments fill the infrastructure service gap in Africa” he added. In particular, it is important to find ways to attract private investment in electricity transmission projects, which typically features high-risk profile, high capex and considerable regulatory and political complications, especially as they stretch cross-border. Nonetheless, this highly complex regional projects are key to optimise generation capacity, allowing to export excess production in one country or region with peak demand in another.   

Given that electrification rate in Africa is one of the lowest in the world, the energy sector is the force driving development: “no country can emerge out of poverty without access to energy,” Mr Bilal explained. Energy is vital for carrying out basic daily activities (from studying to communicating), as well as for improving productivity – without electricity, one cannot produce, let alone industrialise. Giving access to energy to people is extremely important in the fight against poverty. Access to energy isn’t a poverty alleviation issue only: energy access brings huge benefits for education, healthcare, production, and leads to economic, social and human development. It is in this scenario that private companies can really use their leverage. In addition to NGOs’ fight against poverty, energy companies could focus on developing African productive sector.

Improving access to energy, especially in Africa, is core to Eni’s values and a part of its business. To do so, the company has started pioneering partnerships with international organisations. In September 2018, Eni signed a Memorandum of Understanding (MoU), first of its kind, with UNDP. The partnership aims to maximise the benefits stemming from energy projects to improve access to sustainable energy in Africa and help deliver on SDGs, promoting renewables energies, forestation and climate mitigation, energy efficiency and clean cooking. Last July, it signed a joint declaration with UNIDO, which focuses on areas of common interest, including renewable energy and energy efficiency. It has also built wells powered by solar power in Nigeria with FAO providing clean and safe water to internally displaced persons (IDPs) and host communities: in Bama alone, the water scheme is expected to reach 40 000 IDPs and the host community. Everywhere Eni operates, it strives to be a driver for development: in Sub-Saharan Africa, Eni provides electricity to over 18 million people; in Nigeria, the Okpai power plant has an installed capacity of 480 MW and has generated about 35,000 GWh of energy (about 8-12% of the Country’s capacity) since 2005; in the Republic of Congo, the Congo power plant, “Centrale Électrique du Congo”, covers three-quarters of the energy demand of the local population.

Overall, the EU-Africa partnership, the World Bank’s infrastructure projects and NGO activities are fundamental tools for development but are not enough. Mobilising private capital for Africa is a key priority: hence, international organisations – with the EU up front – are devising innovative ways to come up with the right combination of funding, technical assistance and political dialogue to attract private investment. The cooperation between international organisations and the private sector holds promising potential.