The vast majority of finance for energy is not reaching local actors but is going to multinational companies that are based in Europe or North America or led by entrepreneurs from these regions. The result is that profits are largely not remaining in Africa according to a new report by research and advocacy group Oil Change International.
The report highlights the benefits of locally-owned and -operated distributed renewable energy initiatives relative to those run by companies based abroad. Locally owned initiatives result in the creation of more local jobs, better integration with local economic activity and a higher proportion of revenue circulating locally.
It makes strong calls for a code of conduct between donor countries, donor
institutions, and African governments to help ensure local recipient communities have oversight and receive the bulk of. This because international public finance institutions have immense influence on the
energy sector because they can offer concessional (“below-market”)
rates that make projects or sectors more attractive to other actors. The report makes some recommendations for future action.
1. Design early-stage finance for local distributed renewable energy companies to have grant-to-debt sequencing and reporting requirements aimed at strengthening internal processes.
2. De-risk investment by establishing catalytic first-loss capital particularly through first-loss guarantees for local financial institutions.
3. Include local banks, and distributed renewable energy enterprises in the design of guarantee facilities to ensure they are fit-for-purpose and accessible to small-to-medium locally owned and led entities. This is because these measure are frequently underutilized due to stringent lending criteria that do not match local contexts.
4. Fund the generation of adequate market information including feasibility studies, standardized metrics and advisory services for project preparation.
5. Communicate and coordinate work by IFIs on on distributed renewable energy for energy access and also with related sectors such as agriculture
and water to avoid duplication and maximize impact.