By Cecilia Springer and Magalie Masamba
A November 2020 report found the Southern African Development Community (SADC) region could achieve full energy access and 53% renewable energy (RE) installed capacity by 2040 with an investment of nearly $53 billion.
Since the report’s release, the continuing effects of the COVID-19 pandemic have had serious repercussions for the SADC region’s energy sector. Lockdowns disrupted the energy industry, with effects felt across the whole electricity value chain. RE projects under implementation were delayed due to supply chain disruptions, import restrictions and disruptions and delays in equipment procurement logistics. Renewable projects also could not fully benefit from policy initiatives designed to stimulate private sector engagement and RE project development and implementation slowed overall.
The pandemic has also caused constraints in the public finances of Africa broadly and in the SADC region, in particular. Some SADC countries have experienced declines in national revenues due to declining exports and shrinking national economies, while others are struggling with unsustainable debt and, in some cases, sovereign downgrades. In particular, Angola, Malawi, Mozambique, Tanzania, Zambia, and Zimbabwe have high debt exposure to China. Debt levels are only anticipated to grow from the continued impacts of the health crisis.
Electrifying SADC countries with clean energy from renewable sources is a major regional goal, but how can it be financed when countries are unable to repay existing debts or justify accumulating more debt? What is the role of development finance institutions (DFIs) in supporting RE in the SADC region? And in particular, how could China help close the financing gap?
A new report by the SADC Centre for Renewable Energy and Energy Efficiency, the University of Pretoria Center for Human Rights, and the Boston University Global Development Policy Center examines the impacts of the COVID-19 pandemic and debt distress on the expansion of renewables in the SADC region and charts possible pathways forward, with a focus on DFIs.
The policy and regulatory environments remain a major challenge, but with DFI support, an enabling environment could unlock private sector investment in the SADC region’s RE sector.
First, DFIs should fill the financing gap directly and by developing instruments to de-risk projects—such as guarantees for RE projects—to address credit risks, and currency risks, among others. DFIs should also mobilize and catalyze private resources; for example, through support for mechanisms to better leverage private investment. Additionally, pre-investment support is needed to identify, prepare and develop bankable projects. To mobilize resources for RE projects, DFIs should also explore local financing options that leverage the capacity of local institutional partners, such as pension funds and insurance companies. Increasing investment in small-scale RE projects could also enhance energy access and energy security. DFIs should enable technical support and capacity building to increase the pool of bankable projects in the SADC region.
On the Chinese side, Chinese companies have to date invested in just 344 MW of wind and solar in SADC countries, in Zimbabwe and South Africa. In contrast, China’s policy banks have financed nearly 14,000 MW of power capacity in SADC countries, the vast majority in coal in South Africa, as shown in our China’s Global Power Database. In light of recent commitments and guidance, China is gearing up to support green and low-carbon energy overseas; the SADC region should be a focus of such efforts.
The SADC countries with high debt exposure to China can also work with China to explore the prospect of debt-for-climate swaps, in which organizations and/or government creditors work with government debtors to cancel or reduce debts in return for commitments to achieve their climate targets, such as through installing renewable energy. Of SADC countries, Angola, Malawi, and Zimbabwe have potential for debt-for-climate swaps with China, based on their debt exposure to China and their costs of achieving RE targets.
Access to clean, dependable, inexpensive, and readily accessible energy is essential for socio-economic growth and development in the SADC region. Major investment gaps must be overcome by consolidating technical and financial resources, and DFIs – including China’s policy banks – have a key opportunity to explore innovative approaches to financing and de-risking projects and to improve their overall contributions toward economic development.
Cecilia Springer is the Assistant Director of the Global China Initiative at the Boston University Global Development Policy Center.
Magalie Masamba is a Global China Post-doctoral Research Fellow with the Boston University Global Development Policy Center and a Post-doctoral Fellow with the University of Pretoria Centre for Human Rights.
