Why Africa could be seen as an attractive investment's destination for Indian companies?
Africa has the fastest growing population in the world, and it is said to double by 2050 thereby pushing the need for sustainable energy for the continent
The continent to meet its growing energy needs and counter the climate change must capitalize upon the renewable resources which are present in abundance. Therefore, a “just” transition in this segment shall open opportunities for investors across the globe. For Indian companies also this shall present credible opportunities to expand beyond the country to ensure global footprints and outclass the counterparts from Asia, Europe and Americas.
Need for energy in Africa may get doubled by 2050 as its population is set to get doubled in coming three decades. Further, the rate of industrialization shall also push the energy needs further, with the continent's manufacturing output is pegged to grow by more than 6 percent come this 2025. If Africa shifts to more efficient and cleaner technologies over the next three decades, the increase in final energy consumption – the total energy consumed by end users in homes, industry, and agriculture can be limited to 50% increase from current levels by 2050.
Mr. Ravi Shekhar, Director & Head,
of Eninrac Consulting says “Africa is likely to present immense investment opportunities for Indian investors especially in fields of renewable generation and hydrogen apart from creation of power transmission and distribution infrastructure. On immediate basis the renewable generation and power transmission and distribution infrastructure creation would require low-cost development along with sustainability being a key factor which automatically translates to the strengths of Indian market participants. Africa, is quiet like India in terms of market stricture and the advantage which the Indian players would have against their counter parts is delivering high quality projects under controlled costs benchmarks which shall hold the key for Africa.
Moreover, with the world not being anymore as flexible as it was a decade back for Chinese products or companies' Indian companies may stand a chance to outshine them. In fact, most of the big companies active in India in power transmission & distribution infrastructure creation are focusing on Africa as growth market with allied expansions in the horizons of renewable generation and hydrogen trade coupled with localized production as well. Undoubtedly, Africa will be lucrative for investments for at least coming 3 decades and presents promising investments landscape in energy domain”
Why renewables present significant investment opportunity in Africa?
To enable the electrification of Africa and reduce the carbon intensity of the energy supply, a change in energy mix is required vis-à-vis generation or production. In this context the role of renewable in the continent’s generation mix shall become more crucial in a progressive manner. If the ramping up follows the current pace and anticipated growth, then the generation mix shall see a contribution of 65% by 2030 from renewables and 90% by 2045.
As for renewables, solar and wind will grow much faster than hydropower, with around 70% of installed capacity coming from solar, 20% from wind, and 10 percent from hydro by 2050. Gas is likely to play an important supporting role over the short to medium term by providing flexible capacity as renewables scale up and battery storage becomes more cost-effective. Demand for gas supply and infrastructure is, therefore, likely to continue to rise in the short term, with African gas demand projected to increase by 3 percent annually until 2030 and gradually decrease thereafter.
Global gas demand is also expected to increase between now and 2030, and investment in African gas can be expected to help meet this demand. For example, North African countries with relevant capabilities can export gas through pipelines to Europe, and liquefied natural gas (LNG) projects currently being developed, such as the Likong’o-Mchinga LNG project in Tanzania and the Nigeria LNG Train 7 project, can contribute to exports.
What tune of investments shall be required by Africa by 2050?To enable dramatic shifts in the energy transition of Africa around $2.9 trillion of cumulative capital expenditure in coming 3 decades and would be driven by the green-energy space only. Therefore, this would mean a significant renewable energy capacity addition thereby driving huge quantum of investments in the continent. In 2022, annual investments in energy amounted to $70 billion, 58 percent of which were derived from oil and gas activities and much of the rest from investment in renewables. By 2050, the annual investment required is expected to more than double, reaching $160 billion, and the focus of investments will likely shift, with 43 percent of capital expenditure spent on hydrogen, 38 percent on renewables, and 17 percent on power transmission, distribution, and minigrids.
Although growth in renewables and green hydrogen is only expected to ramp up from 2030, financial institutions have an opportunity to move early. To earn a seat at the table in the long term and to enable the development of the necessary competencies, financial institutions could consider investing in the African green-energy transition as early as possible. Indeed, some investors are already moving in, and funding is beginning to spur significant green-energy projects on the continent.
- Communications Team