Keeping the Lights on in Africa

Deals to build power plants are win-win for Americans and Africans.

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In this photo taken Monday, Nov. 21, 2011, the cooling towers at Eskom's coal-powered Lethabo power station are seen near Sasolburg, South Africa. Eskom is Africa's biggest power utility, accounting for more than 60 percent of all the electricity generated on the continent, according to the World Bank. It also exports across southern Africa. Critics and even supporters say Eskom should have started its move toward renewable sources of energy earlier, and now needs to set its ambitions higher.

There is a new focus on Africa that will continue through 2014 and hopefully beyond. President Obama, during his recent trip to Africa, announced that African heads of state would be invited for a U.S.-Africa summit in 2014, and he announced new programs designed to develop young leadership, primarily through mentorships with U.S. companies and institutions. He also proclaimed new programs to address Africa's critical development issues through economic assistance and trade.

One of the biggest challenges facing Africa is the lack of an adequate power system.  There is no country in Africa, including South Africa, that is meeting its current power needs, let alone its future projections. For instance, Africa's two most populous countries, Nigeria and Ethiopia, are meeting only about 20 percent of their current power needs. This figure alone means that millions will remain in poverty over the next decade. Adequate power supplies means more investment, more jobs, more hope and security, and less despair and violence.

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To partially address this issue, Obama announced the PowerAfrica Initiative. While the administration announced $7 billion dollars of financing support, the reality is that the investment must come from the private sector. The U.S. government, through its principal financing institutions, the Export-Import Bank of the United States (Ex-Im), and the Overseas Private Investment Corporation, will guarantee the funding, but the expectation of failure is minimal, and both institutions should earn money from interest payments on the guarantees.

Neither do the two institutions actually loan the money, but allow other banks to make the loans with guarantees against failure. The institutions only lose if the projects fail. If the projects do not fail, the interest payments go to the U.S. Treasury.

Some congressmen, particularly tea party Republicans like Pennsylvania Sen. Pat Toomey, see this as corporate welfare, but such guarantees are absolutely necessary if U.S. companies are to reduce the risks on their investments. The higher the risk, the less likely the investment.  The government backing also puts the weight of the U.S. government behind the projects, which further reduces risks in dealing with countries with less than stellar records on payments. General Electric alone is investing $2 billion dollars in African power systems, especially in Tanzania and Nigeria.

One of Ex-Im's largest guarantees is in South Africa, where it has guaranteed financing of around $1 billion dollars for American company Black & Veatch in a deal with Africa's largest power company, State-owned ESKOM. The deal is for construction of essential power plants. Many of the parts for the plants will be built in the U.S., and the engineers on the job will be American. The deals made through Ex-IM and OPIC both mean jobs for Americans, and allow us to compete more effectively against our international competitors.

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The $7 billion dollar guarantee for PowerAfrica is important. It does not match the commitments of some other countries, but no country can support the development of Africa alone. It is good to see other countries such as Japan and China, making huge investments in the infrastructure of Africa. However, it is important that the U.S., for the sake of its own economy, not fall behind in its economic engagement with Africa. 

America needs far more support at a far faster pace from such institutions as Ex-Im and OPIC. We may also need need models that allow the U.S. to compete more effectively in the global market, for in too many cases, the processes deemed necessary at Ex-IM can be tediously long, effectively negating companies who need quicker responses for their applications, lest they lose out to far more nimble institutions in other countries.

Stephen Hayes is president and CEO of the Corporate Council on Africa.

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