The Covid-19 crisis has highlighted the need for Africa to develop flexible energy systems in which renewables and decentralised technologies play a far larger role, according to Standard Bank Group.
The pandemic has led to a global decline in electricity demand as commercial and industrial activity slows and people work from home. In South Africa, for example, electricity demand reduced by as much as 7,500MW on average in March and April – the height of the national lockdown. In response, power stations were taken out of service to keep the system stable.
However, demand is recovering in most African states as economies are reopened. Considering that numerous African countries entered the crisis with a shortfall of energy supply, governments will need to procure more power in the months ahead. The fastest and most cost-effective way to address the supply gap is through more flexible technologies e.g. renewable power projects – meaning the crisis may prompt African nations to deploy renewables at a much faster rate than before.
“Given that renewables are currently the most economically viable source of energy in most countries, we expect that the Covid-19 crisis will accelerate the pace at which these technologies are adopted on the continent, with hydro, wind and solar being the most attractive technologies,” says Rentia van Tonder, Head of Power at Standard Bank.
According to the International Energy Agency (IEA), the pandemic has led to a global decline in electricity demand, with solar and wind generators best placed to weather the storm due to cost competitiveness and the flexibility they offer – renewables are able to adjust more easily to fluctuations in demand.
“In this respect, the renewables segment is proving its resilience in the face of a crisis, and this further strengthens the case for economic recovery strategies to be underpinned by investments in renewable energy,” according to Ms van Tonder. “Increasing the participation of renewable technologies in the energy mix will also ensure a more flexible system in general.”
While renewable energy units have historically only been able to provide an intermittent supply of electricity, they will become increasingly reliable thanks to rapid advancements in storage technologies, which are becoming more affordable. For the time being, there are no utility-scale battery storage facilities in Africa.
With electricity demand recovering, South Africa’s Department of Mineral Resources and Energy recently announced that it is preparing bid documentation for the emergency procurement of 2,000MW of generation capacity. Given the time constraints, renewables may be best suited to plug the gap, and there are signs that these projects could include investments in storage technologies, which would further enhance the flexibility of these systems. Gas to power projects will also be able to provide dispatchable power solutions, complimenting renewables.
Alongside launching bid window five of the Renewable Energy Independent Power Producer (REIPP) programme, finalising plans to enable the private sector and municipalities to secure their own power supplies would also be a welcome development in South Africa.
Decentralised green-energy solutions, which promote innovation as they are purpose-built and not connected to national grids, will continue to gain momentum as municipalities, mining houses and industrial firms seek to ensure cost certainty and reliability of supply. Some mining groups in Africa are even turning to hydrogen power to diversify their electricity mixes – an indication that the fledgling hydrogen economy is garnering more interest.
“In countries such as Nigeria – where the electricity self-generation market is 55% larger than the main grid – we expect the country will start to seriously consider pivoting to decentralise renewable solutions as oil subsidies near an end, so as to decrease the supply shortfall and better service the large and geographically fragmented population,” van Tonder says.
Meanwhile, African nations are well placed to implement a ‘green stimulus’ strategy, as the European Union and other markets have done. “This approach would increase the potential to secure additional green funding for the continent’s Covid-19 recovery measures,” says Greg Fyfe, Head of Energy & Infrastructure Finance at Standard Bank.
“With government finances under strain amid the pandemic, public-private partnerships will be essential for the energy infrastructure build programme to be a success. Banks will need to work closely with governments, development finance institutions and other financiers to mobilise funds and expertise,” says Mr Fyfe.
“Given the heightened focus on environmental, social and governance (ESG) factors as well as sustainability, we would also expect global investors and financiers to continue to pursue opportunities in the renewables space,” he adds. Standard Bank is of the view that the addition of more modular, decentralised energy solutions will diversify current technology mixes and ensure greater flexibility of supply going forward.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.