Leveraging Private Sector Investment
Private sector investment is a crucial component in achieving SDG7 in Africa. This update report once again shows the key role the private sector plays.
A new data source provides this report with a more robust method for capturing private sector involvement, and the extent to which investments were mobilised by public donors. This new methodology, devised by the OECD, operates under the assumption that the vast majority of private investment into Africa’s SDG7-compliant sector involves a percentage of public contribution; in contrast, private investments in non-SDG7 (fossil fuels) projects take place with less public investment.
Overall, EUR 13.9 billion private SDG7- compliant investments were mobilised by public donors over the study period. Multilateral institutions, followed by EI & MS, mobilised the largest amounts of private finance through various leveraging instruments. Guarantees and direct investments in companies were the most prominent leverage mechanisms, driving the highest volumes of private finance to SDG7-compliant projects.
Three-quarters of the SDG7-compliant private finance mobilised in the period went to renewable generation. By contrast, independent transmission projects (ITPs) remain in their infancy, with many utilities either reluctant, or lacking the organisational capacity to open this strategic infrastructure to private sector participation. Mobilised private investments to SDG7-compliant projects over the period mostly benefited Lower, Middle Income Countries (LMICs), followed by Upper-Middle Income Countries (UMICs).
Given the limitations of public international funds, and the limited borrowing capacity of national governments, the private sector is expected to play an increasing role in Africa’s energy sector development. The planned massive increases in RE capacity, but also advancements in electricity access and clean cooking, will not be achieved without significant private capital. Instruments dedicated to reducing perceived risks and facilitating access to adequate finance for the private sector are therefore crucial.