The European Union acknowledges that the overall goal of providing electricity to over 2 million people in sub-Saharan Africa cannot be met by the bloc on its own, without help from the private sector.
“The private sector … needs to be considered as a partner and not as a something considered antagonistic,” said European Development Commissioner Andris Piebalgs, who sat down with Devex on the sidelines of last week’s EU-Africa Business Forum in Brussels. The forum brought together more than 500 high-level representatives from European and African business, politics and public institutions for 2 days of discussions on building a better business relationship.
Piebalgs admitted that for most companies in the energy sector, it’s truly a challenge to do business in a region where enormous investments are required and many projects still lack consumers that can afford to pay for the power — a potential “Catch 22” situation he hopes to avoid through strong donor commitments and offers by South African firms to buy some of the capacity.
Check out our full interview below for more insights from Piebalgs, including how he believes the private sector can step in to fill the gap between sub-Saharan Africa’s urgent demand for electricity and insufficient official development assistance funds from traditional donors:
You’ve consistently highlighted the key role of the private sector to accelerate the creation of decent and productive jobs, and the need to modernize EU support for strengthening its role to achieve inclusive and sustainable growth. Regarding the recent private sector consultation in advance of the forthcoming Communication, how are things progressing and what feedback have you garnered thus far from the business community?
Things are moving, we’ve started what we call here at the European Commission the" inter-service consultation" and we’re trying to formulate an approach based on a couple of elements: One is that the private sector … needs to be considered as a partner and not as a something considered antagonistic. Second, that supporting the private sector — or private sector initiatives — increases not only their level of investment, but also increases democracy, rule of law and all the issues that we try to reach through governments … Third, there are aspects where we’ve done quite substantial things and basically we have the architecture in place but they need to be scaled up: we have supported education of small and medium-sized businesses, we’ve [supported] equity investments and we’ve used our blending schemes for infrastructure — we now just need to scale up and build on the experiences that we’ve already had.
Can you give us any specific Commission proposals for businesses or SMEs that we should look out for in the coming months?
Well, we’ll continue to work with the investment facilities — the EU-Africa Trust Fund, or the Neighborhood Investment Facility — we’ll continue to increase financial support, and we’ll use a lot of “open windows” to increase investment in the so-called social areas and in support to public-private partnerships.
And this approach to engaging with and strengthening the role of the private sector — is it really about aid, or is it rather about getting EU private sector actors front and center in emerging markets?
The final and primary objective and focus of EU aid has, is and will always be the eradication of global extreme poverty. In this context, our focus is to make sure that we use part of our development support to encourage Africa’s or our other partners’ private sector to invest more in those countries and sectors where more investment are needed to break the cycle of extreme poverty. If you take the big enterprises, they’ve got good finance, they’ve got good interest rates — but the challenge starts with SMEs. One of the new challenges that we’ve got in Africa is that you’ve got a lot of young people coming onto the labor market with no chance of getting a job. So as a result, you need to look at where you create a job. The private sector is recognized as creating 9 out of every 10 jobs — and jobs are mostly created through SMEs. So it’s a new challenge emerging.
One big sector is the energy sector, which is a fast-growing sector in Africa. But given the needs for sub-Saharan Africa alone total some $40 billion per year, how central is securing energy supply, creating jobs in the sector, and partnering with Africa on energy?
Energy is one of the central sectors of our cooperation, but I wouldn’t say it’s the [only] sector. Promoting Human rights and good governance will remain the cornerstone of our cooperation, but energy is one of the bottlenecks to growth and the provision of social services. For us, it’s not just recognizing this, but also starting to make investments. And we’re doing this: We’ve mobilized investment for the biggest solar power plant in sub-Saharan Africa that is now being constructed in Burkina Faso. We’ve also approved 16 projects for access to energy in rural areas giving 2 million people access to electricity … We continue to leverage through our planning facilities on energy, particularly with our [exploration and production] partners, because they have all the specialist knowledge on energy. Most of the money usually goes to the inter-connectors and transport network, but also to distribution networks. In energy generation, we’ve been rather shy because it’s also important to recognize that generation is usually part of a business — and that means that if there is no investment in generation, in some countries there will be bottlenecks. For dealing with these bottlenecks, we’ve already created good technical facilities and we’re working with African countries to give the necessary technical advice. And last but not least, in some countries we’re beginning a new cycle: We never had nearly any country where we’ve had energy as a focal sector, but now we will have with Rwanda … there will be €200 million available on the ground for supporting the energy sector. The same for Burundi, which although [it has] a different starting level, it is also a focal sector … so in some countries we’ve made moves to provide significant financial means.
My expectation is that for most of the countries, we could expect rather fast acceleration towards each person [having] access to electricity. In some countries, it will be more challenging. Take the example of Nigeria where the country has a lot of energy and resources, but access to energy is still a problem. There are some structural challenges that perhaps will take more time, but I believe energy is an issue that can be dealt with.
There is also an interesting project with the Inga [III] dam [in the Democratic Republic of the Congo] that is something that could provide a lot of electricity for reprocessing. But the challenge is where do you start? Do you have industries that use electricity or do you start investment in enormous electricity projects that still need to find a consumer?
So it’s a “Catch 22” situation?
It could be, but government is very committed, USAID is very much committed, there are also some South African consumers that say that they are interested — at least to buy some of the capacity — so it sounds like at least there is some light at the end of the tunnel and it’s one of the flagship projects that at some stage needs to be implemented.
And given that it is seen as a future flagship project, how strongly does it send out the signal that the EU can do good business in Africa, in energy, or in other sectors?
Well, a lot of Europeans are already making good progress and good profits in Africa. I just wish that there would be many more investors going [there], because a lot of them will make profits. But not all of them will make a profit, because it’s still business and there’s some risks. Any business investment needs to be well considered, but definitely we’re trying to pass on the message that for anyone who would like to diversify from his or her market and invest, that it’s worth considering Africa.
Different African countries have different levels of supporting investments, but it’s improving in all of the countries so I think it’s very important to consider risks as well as profits that it will give. But in my opinion, it’s definitely time to mobilize more European investments for Africa — also for our own good.
In other words, it’s a case of “risk and reward” for Europe?
Well, we’re trying to minimize the risk as much as we can and address some bottlenecks, but there will always be some risk … At the end of the day, if you don’t take some risk, you have no interest to calculate your investment and you’d just make investments to recover the premium. I don’t think that this is not our purpose — it’s to smooth the way, but not to fully replace the risk.
What are your main takeaways from the forum that may affect the way you’re engaging and building relationships with the private sector?
Well, from an EU perspective, we expect that our grant support for Africa for the next 7 years will be over €28 billion. I also hope that some [EU] member states will make their own announcements on support to Africa, because in a lot of member countries — due to the ongoing situation in Syria and Ukraine — Africa is not the most pressing issue. But we shouldn’t forget that Africa is an enormous continent with enormous ongoing challenges. I assume that [member states] could increase their ODA, but also their support from private investors towards investments to Africa. So we could make a lot of individual announcements, but we haven’t planned this conference as a pledging conference — that was not the purpose of this event.
But you’re optimistic that the private sector can plug the gap left behind by declining EU ODA levels?
Well the ODA figures will never be enough. So that’s why I would say that any private sector investment is crucial, but it’s not replacing ODA. I don’t see them coming in and supporting education or health systems, I don’t see them investing in roads, I just see that what they need to do is to bring capital forwards — and particularly their expertise — to provide some business where they make a profit. This could be tourism or another service provision, or investments supporting the agricultural sector, or reprocessing some of the natural raw materials in the countries — it depends, but these are areas where official development aid will never [play a role]. Our task is to support government and the social sectors, for example to increase the quality of education. At some stage our support could be used to support infrastructure and access to finance, but that’s it. We will never try to go and make a profit and never try to mix our role with that of the private sector.
Later this week you’ll attend the strategic dialogue event with the European Parliament and this will obviously set the tone for the coming 7 years of EU work. I wondered how strongly you’d be pushing for a role for the private sector in this dialogue and how it will impact on your legacy as a European commissioner?
Well with parliament it’s rather challenging, because [MEPs] will rightly ask ‘Have you changed the poverty education strategy?’ and my answer will be ‘No, it stays as a goal, but we need to look at how to make it sustainable.’ And this is through creating growth and employment — otherwise you can’t expect to win against poverty. So I think I still need to convince parliament that it’s the right thing to do, because I think most of the parliament would like us to continue to do health and education and stay out of more risky areas. But I think that’s wrong, because we need to look at the core problems of poverty.
And about legacy, well I would say that it’s important that development aid does not rest encapsulated in doctrines. In response to the changes the world has been witnessing and other important global trends, we launched the “Agenda for Change” that transformed for good the way in which we provide aid and fight poverty. Gone are the days when, in attempting to do everything everywhere, we sometimes spread our aid too thinly, across many sectors and countries. Now we have a policy fit to take on development challenges in the modern world, We have looked at how the world is changing — and also looked at the good examples. If you see the Chinese example, it went through a very difficult process of growth [with its emerging] private sector. You can’t avoid it, because to get out of poverty you need to have growth — and this is controversial for many. So I think legacy will be that we really tried to make European development policy focused even more than before towards the objective of the eradication of poverty — not the alleviation of poverty, because this can only work for [a limited] time. So I think that it’s important that we have this ambition and we should continue to support this ambition.
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