Efforts to improve the delivery of power to end-users is motivating the expansion of generation capacity as well as infrastructure in Southern Africa. This intensive investment programme will continue over a period of five to fifteen years and will not only boost the Southern African development community (SADC) transmission and distribution (T&D) markets but will also transform the competitive landscape in the region.
Frost & Sullivan finds that the SADC T&D Markets earned revenues of $4.84 billion in 2005 and estimates this to reach $6.83 billion in 2012 as development in the SADC power pool and faster rural electrification takes place.
“Despite the increase in GDP in many African countries, further growth is being stifled as a result of outdated infrastructure and the lack of skilled employees,” notes Frost & Sullivan Research Analyst Cornelis van der Waal. “However, augmented spending on T&D grids is helping create new opportunities in developing areas such as in SADC and will significantly boost the T&D market in this region.”
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Moreover, after a long period of over supply of electricity, SADC is fast moving into a period of electricity shortage. To avoid this situation, governments are spending more on developing new capacity as well as on maintaining existing infrastructure. Eskom is planning to spend $13.77 billion over the next five years even as local municipalities increasingly expand their T&D infrastructure to make up for poor spending levels since 1999.
A number of key projects, identified by the Southern African power pool (SAPP) are currently under development. While most of these revolve around creation of new generation capacity, they will inevitably include spending on T&D infrastructure to supply electricity to areas of demand.
“Investment in access to mineral rights by foreign companies is also associated with investments in local infrastructure,” comments Van der Waal. “Since the demand for energy and commodities worldwide are rising, African countries will gain increasing access to investment partners willing to develop local infrastructure.”
Although most SADC countries have embarked on bold expansion programmes, funding remains a problem and the announcement of new projects does not necessarily guarantee their completion. This will result in serious production planning challenges for local T&D equipment companies and international participants. Despite the positive outlook for the region as a whole, certain countries still face an uphill battle due to poor economic and political positions.
“Afro-pessimism remains a challenge to African governments when trying to access capital for expansion and risk premiums on borrowed money are high,” adds Van der Waal. “This reduces purchasing power while increasing debt.”
Social barriers like customs and language also continue to pose a challenge and using South Africa as a foothold into Africa is probably the best route to market entry although it offers additional challenges such as finding key skilled employees. Besides, corruption remains high in many countries and bribes are commonplace outside South Africa.
In addition, risk premiums of over 10 percent are quite common. For instance, Zimbabwe is facing inflation of over 1,000 percent and is unlikely to invest in new electricity grids.
“A long-term focus on relationships in Africa can help improve planning and enhance awareness about potential projects,” advises Van der Waal. “Bodies such as SAPP can help implement better management practices when choosing key projects and also counsel project managers about accessing investment capital. Creating worldwide centres for production will enable economies of scale, while ensuring consistent quality.”
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