Remarks at the IMF/World Bank 2012 Annual Meetings Event: The Energy Challenge of Africa
Good afternoon everybody. I’m very grateful and thankful to the Japanese authorities for organizing this event jointly with the World Bank and for extending their hospitality to all of us here. I would like, in particular, to thank Minister Gemba, who took time out of his very busy schedule to come and open this event.
I would like to thank Mayor Hayashi for her presence here, and I look forward to visiting her in Yokohama. I would like to thank JICA―the Japan International Cooperation Agency― the Ministry of Finance and the Minster of Foreign Affairs for organizing this event.
I have some remarks, but I just want to, before I go on to my remarks, comment a little bit and react a little bit to the wonderful discussions that I heard today.
Let me pick up a couple of points and start with something which is not discussed often, and that is the impact of energy on number of issues which are important for us. We have been discussing the need to meet the Millennium Development Goals, the MDGs, for some time, and soon we are about to start the post-MDG 2015 era and the question is how Africa will be able to reach these MDGs. We will not reach them without solving the issue of energy in Africa. Again, we will not reach the MDGs in Africa if we don’t address the issue of energy.
As we are moving towards the post-2015 MDGs era, I would like to start discussing it in the context of the issue of energy.
Without energy, it’s not possible for a health clinic to work in remote areas in Africa. Without energy, it’s not possible for our kids to learn because they will not be able to learn in the evening. Without energy, it’s not possible for the woman, who is walking 10 kilometers a day to fetch water in remote Tanzania or remote Senegal, to be able to reduce the time she spends getting water. Without energy, it’s not possible to give signs in the remote area to be able to reduce incidence of some diseases in our country. So of the things that if you talk about energy, let’s talk about growth, about manufacturing, it’s about the life of the poorest in Africa, the women is in Senegal, in Nairobi, in Cape Town, or in other places, in Kinshasa, who cannot continue running a business because there is no electricity supply or electricity is too expensive in our countries.
So let’s link that discussion on energy to something also which is very important for the international community, which is inclusive growth, reducing poverty, but also reaching the Millennium Development Goals.
Energy is also inclusion. We’re talking often about inclusive growth. What does it mean for us Africans? Inclusive growth means that the farmer in Tanzania can also be part of the growth agenda. It means that the people working in informal services in our capital cities, which are growing at the fastest pace in history, can also be involved in formal activities. Having more energy is also allowing people who are now disenfranchised to be part of the real economy in our counties. So, talking today about inclusive growth means moving activities from capital-intensive sectors to sectors which are job creating.
And it’s not by chance that the World Bank has decided to make the theme of this WDR, World Development Report, this year jobs. Job creation in Africa has been around sectors which are capital-intensive and all the consumption of electricity in Africa and generation of electricity has been towards feeding these activities which are capital-intensive – mining, etc., etc.
We are talking now about the democratization of this process and making this resource a vital resource for everybody, to be available for our population, and therefore make growth much more inclusive by leading to a creation of jobs and diversification of our economies.
Since the issue of pricing was raised, let me give you a little bit part of my own story as a, my own story. I spend in the 80s a lot of time with some colleagues here working on some reforms in our economies. At the time, because we didn’t have the right macroeconomic policies, in some cases essentially misaligned, in other cases inflation was too high.
In other cases we didn’t have good distribution of public expenditure. What did it lead to, it led to underinvestment in the sector of energy, and so during those years of the 80s to the 90s the depreciation of capital, which was not replaced, and countries moving towards more and more short-term solutions, short-term solutions which lead to acquiring fewer base units which were generating a cost of production around 53 cents a minute, 43 cents a megawatt, etc., etc.
It’s not because people didn’t know technically how to do it. It was not a technical question. It was a political question. It was the fact that we underinvested in the sector because there was poor governance. So a strong link between party financing, political processes, and the management of the participants in the electricity sector.
Ten years later, African countries have learned their lessons and want to do things differently and are doing things differently, but the issue of pricing, which worries the private sector rightly and, Mr. Ibrahim, you were right to emphasize it. It’s also destabilizing the social situation and political situation in our countries. Which political leader will continue having 53 cents per megawatt in his country? It’s killing production, it’s too high for the consumer, it creates more poverty.
What is the solution? I ration it, I subsidize, my budget cannot do it forever, or I try to reflect it in the pricing, but when I reflect it in the pricing, the private sector doesn’t come because it’s too expensive to invest in our continent with this price. So the consumer is suffering because it’s too expensive, and the consumer cannot do that.
So we are in a vicious circle. How can we break it? I think the conversation today was centered really around how to break this vicious circle, and I think that what I heard today is extremely powerful. I’ve heard that uncertainty needs to be addressed and cannot be addressed at the local level. Having local solutions increases the level of uncertainty and therefore increases the risk and the cost of doing business in this sector. I think that moving to a regional initiative is not only good in terms of rationalizing your investments, but is good in terms of reducing the uncertainty that we’ve been facing in our countries. Therefore, we decided to move and to support all investment which will have a regional dimension in energy, but as the minister will tell me, we have to do it in a sustainable way. I think that luckily our continent has the potential doing it in a sustainable way.
I was lucky to spend two and a half years in Kenya. I know that the Rift Valley has a huge potential in geothermal. Japan was one of the leading countries to work in this area with the World Bank and try to use that source. So the question now is that why cannot we explore the whole potential in the Rift Valley? By exploiting the resources that we have in the Rift Valley in geothermal could solve a large number of problems in terms of energy generation in Africa.
What is the constraint? Money. But money exists somewhere and somehow. I was told today there are a lot of equity funds which are interested in working in Africa, so return on investment in Africa is much higher than in any other place in the world. But why people are not coming? Again, uncertainty. That’s why I think international organizations like the World Bank or other International Financial Institutions (IFIs) can play a critical role in reducing the level of uncertainty in our economies by being part of the solution. That’s what we are trying to do right now and try to reduce it.
First, action. In my discussion with ministers of finance during this Annual Meeting, I discussed with them the possibility of moving from a Public Private Partnership or PPP legal framework country-by-country to a regional PPP framework. That will reduce uncertainty, that will create much larger markets, and make those solutions more interesting.
Good news – they were all excited about it and we will like to start having these conversations with the Ministry of Finance of the West African Monetary Union, who promise that in the coming months they will raise it in their meeting and try to move very fast towards having a regional PPP framework. With that experience working, I’m sure that you can replicate it in the Southern Africa Development Community (SADC), in the East African Community (EAC), etc., etc., reducing the uncertainty by creating.
Secondly, working towards the regulatory framework on energy. As we know, as we move towards these regional projects, we have complex issues linked to the regulatory process between the distribution across countries. We will be working very closely with regional institutions to be able to reduce the risk and have a much more harmonized system in terms of regulatory framework in that particular sector.
Third, mobilizing domestic savings in Africa. Long-term investments in infrastructure have always been tapping institutional investors. We need to accelerate that process. Today, investment in infrastructure, in energy practically, is coming from FDI, is coming from IFI, it’s coming from government and the African private sector. It’s not enough, it’s not enough.
We have huge resources. They are long-term resources that could be mobilized through pension fund and other instruments, but we need to do it well, because we don’t want to jeopardize the excellent work that has been done by countries during the last decade of having sound macroeconomic policies and protect those resources which are resources of future generations.
So to do that, we are starting now a reflection with countries to see how we can build financial instruments, and we will bring the private sector to help us think through that, which are well-backed by good securities and good guarantees from our institution to be able to give paper which is sound, which has good guarantees, and therefore mobilize part of the savings that are accumulated by institutional investors in Africa and translate the investment in that.
Other good news is that it’s started happening in Southern Africa. Some pension funds in South Africa have decided now to put a small percentage, but that’s a good beginning, of the resources in investment in long-term, in long term investment in infrastructure and particularly energy. Botswana is starting doing it. We need to expand that experience, to translate that experience in other countries and make it happen soon.
I will just conclude, by saying that we are, I’m very optimistic as I come to the continent again, about the future and possibilities, but we need all of us here to have this coalition around really having energy in Africa. It’s a shame. It’s a disgrace to have our continent still at this level of access of energy.
We will not achieve the MDGs, we will not have growth, we will not have inclusive growth in our continent if we don’t work towards this objective of bringing electricity at an acceptable price, at a price which is consistent with the political economy at the level of development for our countries and therefore have inclusive, sustainable and peaceful growth in Africa.