Regional interconnections and oil discoveries are expected to drive the transmission and distribution industry’s (T&D’s) growth in East Africa, the second-fastest growing region in Africa, global growth consulting firm Frost & Sullivan said on Tuesday.
The region’s power sector was currently highly underdeveloped and had the lowest electricity access rate on the continent, the firm stated while highlighting that East Africa’s electricity demand was projected to grow faster than the expected expansion rate of its T&D networks.
Despite other key challenges – such as unreliable and weak infrastructure, inadequate project funding, non-cost-reflective tariffs and a critical skills shortage – Frost & Sullivan noted that the T&D industry in Kenya, Tanzania and Uganda had high potential owing to the solid macro- and socioeconomic policies that had led to increased investment in the countries.
Recent analysis of the East African T&D industry by Frost & Sullivan reported that as members of the East African Power Pool (EAPP), Kenya, Tanzania and Uganda had embarked on regional interconnection projects to enhance the T&D industry and foster cooperation and economic growth. Several major projects were under way, including the $1.26-billion, 1 045 km Eastern Electricity Highway between Kenya and Ethiopia, and the $1.12-billion, 1 600 km Zambia-Tanzania-Kenya Interconnector.
“This type of integration benefits all the member States because it allows countries with a power deficit to easily import power. It also allows countries with surplus power production to export excess power and generate income,” said Frost & Sullivan energy and power systems research associate Thembie Chehore in a media statement. “EAPP projects require huge investments but, simultaneously, present an opportunity for all T&D industry participants.”
Among the key growth drivers for the T&D industry in East Africa was the steady growth of the industrial sector in Kenya, Tanzania and Uganda. This had a direct effect on the T&D sector owing to increased demand for power. In addition, the three countries had attracted and were expected to continue attracting increasing foreign direct investment (FDI). Power sector-specific programmes, such as the Power Africa Initiative announced by US President Barack Obama in June 2013, would also drive FDI into the East African T&D industry and the region’s power sector as a whole.
Another major growth factor for the T&D industry, although indirect, was the discovery of oil and gas in the region. “Significant oil and gas discoveries in the region will increase interest and investment,” explained Chehore, adding that the oil and gas industry was dependent on the power sector and, as a result, this presented a huge opportunity for the investors and governments involved.
Frost & Sullivan concluded that, despite several challenges, Kenya, Tanzania and Uganda had a T&D industry filled with potential and that it was an industry ripe for investment.
“Recent political developments in some of the countries have led to fears within the international investor community,” Chehore pointed out. “However, sound policy implementation and further industry liberalisation will result in strong socioeconomic gains for the countries, and financial gains for investors that are swift and knowledgeable enough to invest in the region.”