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Monica_55905 Jul 07

African energy investors fear Covid-19 fallout 

African energy investors fear Covid-19 fallout  image
Over 50% of African energy market participants polled by African Business Magazine say that Covid-19 will have an impact on their investment strategy in 2020/2021, but participants remain bullish about the prospects for renewable energy and continue to see the continent as an attractive opportunity. 
African Business Magazine sought the views of 176 professionals in the energy sector including project developers, investors, policymakers, technologists and legal and regulatory staff. 

52% of respondents said that Covid-19 will impact their investment strategy, compared to 32% who said it might and 17% who said that it would not. 40% believe that Covid-19 will lead to investments in the energy sector decreasing, compared to 37% who predict they will remain stable and 23% who say they will increase. 52% predicted that the pandemic will negatively affect customers’ ability or preparedness to pay for electricity, compared to just 10% who disagreed and 40% who found it debatable. 39% believe that factor will restrict overall investment in the short term, with 46% finding it debatable.   

The price of oil and other commodities have plunged across the world in recent months as the combined effects of government-enforced Covid-19 lockdowns and a Saudi-Russia oil war triggered a devastating slump in demand and glut in supply. There is significant uncertainty over the future of major oil and gas projects around the world given the challenging global growth outlook, subdued economic activity in China, and fears of a looming worldwide recession.  

As a result, just 35% of those polled say that they are most likely to invest in oil and gas and just 22% in liquified natural gas (LNG), two areas that remain critical to Africa’s energy mix today.

Yet despite the decline in fossil fuels, participants remain attracted by the lure of renewable energy given the continent's huge generation needs, with almost 90% saying they are most likely to invest in solar.

66% say they are most likely to invest in smart and off-grid energy solutions as investors increasingly bypass traditional state-owned power generation and distribution, while 48% are likely to invest in micro-grid solutions which can offer often inaccessible rural communities ready and reliable access to energy. Investors expect Covid-19's impact on the renewable sector to be muted, with 30% disagreeing that off-grid and mini-solar markets are in danger of collapse from the pandemic and 53% finding the proposition debatable. With African energy investment turning gradually towards renewables, 56% say that is right that European and US organisations limit fossil fuels investments and financing. Nevertheless, 43% predict that Africa will only develop with an energy mix that involves fossil fuels.  

Given the outlook for renewables, investors say that Africa’s value proposition remains relatively strong, with 43% saying that it is better than other regions, 34% saying it is about the same and 24% saying it is better elsewhere. 42% rank the continent’s landscape as very good and another 42% as good. They expect that the continent’s future as an attractive energy investment destination will be impacted by a complex mix of climate change, population growth, the aftermath of Covid-19 and political and security considerations.  

Risk 

While those factors could give rise to significant opportunities, investors’ risk perceptions towards the continent remain high, underpinned by a restrictive business environment, regulatory and policymaking constraints and difficulties in accessing finance. Overall, more than 70% of market participants cite policy and regulatory constraints as the main obstacle to investment in the sector in the next three years, with 57% citing access to finance. 61% say that it is debatable that energy projects in Africa are less risky than in other emerging markets, while 51% disagree that energy financings in Africa are generally easier to arrange than in other markets. Several specific concerns remain high on the agenda of those polled. 68% said that Africa's tariffs and regulation need reviewing, while 71% say that a lack of capacity in public bodies impacts the pace and ability to close deals. 52% say there is an increasing political risk of intervention in projects, while 44% say that a clear determination around the role of renewables is lacking. 43% call for new financial policies to encourage foreign direct investment, while 30% are prospecting but finding it hard to discover projects, suggesting that much more needs to be done to link developers and financiers. 42% strongly agree that African governments bear too much of the risk in energy deal structures.  

Looking forward 

Despite the historic challenges and the immediate difficulties thrown up by Covid-19, investors remain generally positive about the continent’s prospects. 47% say they are investing and will continue to invest. On a scale of 1-5, with 5 the most attractive, 42% ranked the continent as 4 when asked how they would rate the energy and power sector as an investment opportunity in 2021 and 2022. 30% ranked the continent as a ‘5’ while just 3% granted it the lowest score. 37% say they are very likely to increase their investments on the continent in the next three years, with a further 29% choosing the next highest category. 41% believe revenues from Africa in the next three years will grow, 31% believe they will be flat and 27% see a decrease.


With thanks to David Thomas and African Business Magazine who have supplied this article. For more content like this, please visit https://africanbusinessmagazine.com/