Harnessing resources for industrialization – SADC talks energy infrastructure investment
Southern African leaders are expected to discuss measures to mobilise resources for developing energy infrastructure as a key enabler for the region’s industrialisation thrust as well as discuss other pertinent regional issues when they gather for their annual summit in Swaziland from 30-31 August.
The 36th Summit of SADC Heads of State and Government comes at a time when southern Africa is vigorously pursuing an initiative to industrialise the economies of the 15 Member States.
Industrial development has been identified as one of the main drivers of the integration agenda in southern Africa as the region moves away from an economic path built on consumption and commodity exports onto a sustainable developmental path based on value-addition and beneficiation.
SADC Member States acknowledge that industrial development is central to the diversification of their economies; development of productive capacity; and the creation of employment in order to reduce poverty and set their economies on a more sustainable growth path.
The challenge facing most countries in the SADC region is to transform their economies from being raw resource-dependent to ones that enjoy beneficiated products and are knowledge-driven, dynamic and diversified.
To address this situation, a special Summit of SADC leaders last year approved the SADC Industrialisation Strategy and Roadmap 2015-2063 and has since started the process of developing a costed action plan for the strategy.
The strategy and its roadmap aim to allow the region to harness the full potential of its vast and diverse natural resources.
To encourage creation of regional value chains and participation in global processes, the region has identified five priority areas where value chains can be established and for which regional strategies should be developed by 2020.
These are in the areas of agro-processing, minerals beneficiation, consumer goods, capital goods, and services.
One of the issues that SADC leaders are expected to discuss when they meet in Mbabane, Swaziland at the end of August is the need to reduce structural impediments to industrialisation.
Running under the theme “Resource Mobilisation for Investment in Sustainable Energy Infrastructure for an Inclusive SADC Industrialisation for the Prosperity of the Region”, the 36th SADC Summit is expected to discuss measures to improve power generation capacity and facilitate an increase in the development and use of renewable sources of energy as well as ensure adequate water supply.
The SADC region has faced power shortages since 2007 due to a combination of factors that have contributed to a diminishing generation surplus capacity against increasing growth in demand. The prevailing instability in the sector is compounded by many other factors that include tariff levels that are not cost-reflective and caught between the viability and access conundrum; capacity issues at both national and regional levels; and energy sector reforms that are generally perceived to be moving at a sluggish pace.
Current available operating capacity stands at 46,910MW against demand of 55,093MW, which includes peak demand and suppressed demand as well as reserves. This gives a generation capacity shortfall of more than 8,000MW, which includes a shortfall in reserves for emergencies and system stability.
According to the SADC Regional Infrastructure Development Master Plan (RIDMP) of 2012, assuming an average economic growth rate of eight percent per annum, the forecast peak load is expected to rise to more than 77,000MW by 2020 and to over 115,000MW in 2030.
With total peak demand plus reserves of more than 55,000MW as of September 2015 (the figure drops to about 52,000MW when only Southern African Power Pool operating member countries are considered), the region will have to invest in new generation capacity of up to 25,000MW by 2020 to meet rising demand.
The precarious electricity supply situation calls for urgent action to promote investment in the energy sector in order to support the industrialisation drive by the region.
The RIDMP’s Energy Sector Plan estimates the total cost of additional electricity generation capacity up to 2027 to be in the range of US$114 billion to US$233 billion.
Related transmission investment costs to support new generation capacity are estimated at about US$540 million. This transmission investment does not include planned transmission interconnectors and national backbone lines.
Another key enabler for the industrialisation agenda is investment in the water sector where a number of water supply and sanitation projects are ongoing. These include the Kunene Transboundary Water Supply, the Lesotho Highlands Phase II Project, the Sengwa River Basin Project and the Lomahasha-Namaacha Transboundary Water Supply.
Several investment and financing options are available to the region for funding infrastructure to support its industrialisation.
The conventional source of funding for infrastructure in SADC Member States is public funding in the form of national budgets and this is considered important in delivering the needed energy infrastructure.
Private sector participationin various forms is a feasible method of financing large infrastructure projects. This participation may take different forms such as Build‐Operate‐Transfer, Build‐Own‐Operate, Build‐Own‐Operate‐and‐Transfer, or public-private partnerships.
Infrastructure bonds and pension funds are another source that can be mobilised to finance infrastructure projects or leverage more financing from other sources, including from commercial banks or multilateral banks such as the African Development Bank.
International Cooperating Partners have been a major source of financing for “soft” projects such as studies, formulation of policy/regulatory frameworks, planning and capacity-building. Their resources can also be used to leverage financing from banks.
Close cooperation with the emerging economies of China, India and Brazil will yield new financial resources.
Following the SADC China Infrastructure Investment Seminar held in Beijing in July 2015, Chinese investors and financiers expressed interest in various SADC infrastructure projects in the areas of power generation, transmission and interconnectors; and water infrastructure development relating to water supply and hydro-generation as well as irrigation and related projects.
Other issues to be discussed during the 36th SADC Summit include the food security situation in the region. Southern Africa experienced a devastating drought episode associated with the 2015/16 El Nino event that led to drier-than-normal conditions.
This has resulted in a significant reduction in agricultural production in most Member States, particularly since 2015/16 was the second successive season where drought was experienced in many parts of the region.
The regional vulnerability assessment indicates that over 40 million people within SADC will require humanitarian assistance.
To address these challenges, a Regional Logistics Team was established at the SADC Secretariat in April to coordinate a regional response.
The SADC Secretariat with the support from United Nations agencies issued a regional humanitarian appeal, launched by SADC Chairperson, President Seretse Khama Ian Khama of Botswana, on 26 July.
The Summit is also expected to discuss a costed Regional Agriculture Investment Plan (2017-2022) that was approved by the Ministers Responsible for Agriculture and Food Security in Swaziland in July.
The investment plan is part of measures to implement the Regional Agriculture Policy and aims to promote sustainable agricultural production, productivity and competitiveness; improve regional and international trade and access to markets of agricultural products; and reduce social and economic vulnerability of the region’s population in the context of food and nutrition security and the changing economic and climatic environment.
Another issue for Council and Summit will be the review of the SADC Protocol on Gender and Development to align it to global processes and emerging issues, following recommendations by Ministers responsible for Gender and Women Affairs who met in Gaborone, Botswana in June.
The security situation in the region will also be discussed during the Summit, mainly the political challenges in the Kingdom of Lesotho.