Iain Elder, partner at Shearman & Sterling and Head of the Africa Group, highlights some of the key themes from the Inaugural UK-Africa Investment Summit in London on January 20.
“There were a number of significant practical and policy announcements made at the Summit, which are intended to provide opportunity for not just a change of direction, from the U.K. Government's perspective but which will also support real change and development across the continent. Of particular interest are the following:
Change of approach with official development assistance: The U.K. Government pledged, with immediate effect to stop any new direct Official Development Assistance, investment, export credit or trade promotion support for any new thermal coal mining or coal power plants overseas and to support the transition to lower and zero carbon alternatives. While this will intensify interest in opportunities for solar, wind and hydro projects, all of which were specifically mentioned by the Prime Minister, and clean oil and gas extraction projects will still have a role.
A continued role for gas? However, until scalable and economically efficient electricity storage solutions exist, challenges remain with relying solely on renewable energy sources to expand baseload electricity supplies (e.g. the risk of climate change variations to rainfall which affect the performance of hydropower and the intermittency and variability of solar and wind). Therefore, oil and gas will continue to have a role as a base load fuel source for Africa in order to close the electricity supply gap and meet the UN's Sustainable Development Goals. Commentators have already said that Africa's energy future ‘necessarily’ includes natural gas and opportunities will continue to exist for projects meeting high environmental standards, which in turn will make them easier to finance. This will also provide opportunities for African countries to utilise their own natural resources both domestically and regionally.
The role of finance in promoting infrastructure development: It was also observed at the Summit that banking will enable Africa to realise its potential. A significant obstacle to realising this potential has been a general lack of infrastructure across the continent. The announcement of a new U.K. Government programme to support African governments to obtain sustainable and affordable financing will help facilitate the ongoing delivery of much needed public-sector infrastructure. So too the reinforcement of its commitment to the African Development Bank – the African Development Finance Institution which funds over £2.3 billion of infrastructure a year. However, more than just finance is needed to successfully implement large-scale infrastructure projects – expertise in the provision and management of government infrastructure projects is key and the announcement of a new facility in Nigeria to support this is to be welcomed.
Is this a turning point for Africa? It was said at the Summit that Africa is where the future lies and that the world needs to pay attention. It was also suggested that by 2050, Africa's net worth could be equal to that of India and China combined. Whilst that may be optimistic, the potential of Africa has long been recognised but unfortunately is often thwarted by challenges in equal measure. It must be hoped that the practical policies announced at this summit will go some way to supporting African countries to realise their full potential, thereby improving the quality of life of its citizens whilst at the same time meeting both environmental and climate change goals.”