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Ethiopia’s Clean Energy Surge & International investment

 5 min read / 

At times, Foreign Direct Investment (FDI) in Africa is portrayed as predatory, immoral and detrimental to the concept of ‘African independence’. Notions such as African solutions to African problems entice the grand Pan Africanist vision of black hands freeing poverty and inequality as opposed to handouts from Chinese or Western chequebooks. While this is a noble cause, Bloomberg has recently reported that “U.S. private equity and hedge funds” are “channelling at least $4 billion into geothermal” energy projects. This serves as a vital reminder that Ethiopia’s surge in clean energy projects are being heavily funded by western institutions and, to a great extent, rightfully so.

The Potential in Africa

From West Africa’s Senegal to East Africa’s Ethiopia, western institutions such as the European Investment Bank, the IMF & the World Bank, have made numerous financial contributions and political endorsement towards African nations that are trying to reinvigorate their troubled economies. On the contrary, Ghana’s president, Nana Akufo Addo, shocked the world when he publicly rebuked western loans in front of France’s premiere Emanuel Macron. However, are African countries actually listening to Nana’s rhetoric?

No. Well not in its entirety. The reality on the ground is that Africa is marred with systemic woe after systemic woe that requires immediate financial attention if nations such as Ethiopia are to capitalise on the prospects of clean energy.

In spite of the security and human rights concerns presented by Human Rights Watch and the United Nations, Addis Ababa has maintained an average “GDP growth of about ten percent in the last decade” according to the IMF. Ethiopia’s growth has been spurred by private sector liberalization and ambitious energy projects to match the World Bank’s hope of it becoming “a regional power hub.”

However, regional competing nations such as Kenya and Tanzania that also have the potential to become key energy hubs in Africa, are competing for land investments. Foreign direct investment into Ethiopia will help to prevent a disastrous scenario whereby its neighbours dominate the energy market, and Addis Ababa misses out on lucrative opportunities to benefit from environmentally friendly energy. In light of the multiple economic opportunities that have been spurned on the African continent for decades, it would appear rather counter-intuitive to turn down FDI, particularly when one considers the environmental implications of clean energy.

A testament to this claim, Ethiopia has landed loans and investment deals to develop its clean energy projects. Of late, Gigawatt Global, an Israeli company has pledged to invest “500 million USD in Ethiopia in renewable energy and human resource development”. Furthermore, France’s Agence Française de Développement (AFD) has “cofinanced the country’s first wind farm” back in 2009 and has recently provided assistance to Ethiopia’s Geothermal project. Moreover, the World Bank previously approved a “US$178.5 million credit from the International Development Association (IDA*) and a US$24.5 million grant from the Scaling-up Renewable Energy Program (SREP) Trust Fund to help the Government of Ethiopia develop its geothermal energy resources”.

Such figures presented is a testament to the fact that Ethiopia is serious about development no matter what geographic region it is stimulated by. Having previously been engulfed in decades of war, and faced with returning drought, Ethiopia and a list of African nations cannot afford to buy into Pan African dreams and liberal western warnings about the dangers of neoliberalism. In other words, Ethiopia and African nations in this current moment in time are in a political checkmate. They can either accept large-scale investment and expertise from international investors to make a huge potential change or depend upon African based avenues that may not offer the same scale of finance at the same speed and efficiency.

The Next Stage of the Debate

Does the African Union, the African development bank or any other African based financiers possess the will, technical know-how or capital to invest significantly throughout Africa to deter nations from turning to international backers? Unfortunately, the very blunt answer is no. The African union often struggles to attain the required sum of internal financing, let alone to muster the capital to finance projects throughout the continent. According to an African Union report:

“On average, 67 percent of assessed contribution is collected annually from Member States. About 30 Member States default either partially or completely on average, annually. This creates a significant funding Gap between planned budget and actual funding, which hinders effective delivery of the African Union’s agenda.”

Moreover, it is important to remember that the African Union could not secure internal funding for the construction of its own headquarters that was built by China. Ironically, this construction is now being scrutinised as a hub of Chinese espionage. Irrespective of whether such accusations are true or not, squandered opportunities of the past have led African nations into deeply entrenched globalisation to which the bitter pill of dependency may very well have to be swallowed in order to secure a stable and bright future.

Overall, most African nations desire to break free from the charity basket image that Africa engenders at times. Particularly now more than ever, since President Trump described African nations in such a pejorative tone. Nonetheless, until African start-ups, Sovereign Wealth Funds and other internally based sources are able to secure and finance projects on a grand scale, turning to the West and other regions seems like the only viable option left. Current and previous African leaders must understand that missed opportunities of the past due to war, coups and corruption have left Africa relatively hamstrung, a position that seems contradictory to the visions of anti-colonial 20th-century activism. Ethiopia has a genuine chance to transform itself and the region for the better. Whether this is funded by international parties and nations to some extent is irrelevant.

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