Africa: Walk on the water

4 min
Stéphane Colliac
Stéphane Colliac Senior Economist for France and Africa

Increased water usage is contributing to Africa’s take-off

They’ve got the power

Infrastructure development is a structural driver of Africa’s economic growth. Filling in the infrastructure gap comes with urbanization and industrial innovation, as long as these two engines are triggering higher production capacity and income growth.

African economies can need to streamline their use of natural resources, particularly water. Hydroelectricity can contribute to increased and more efficient power generation to fulfill growing producer and consumer needs.

Hydropower already accounts for 21% of power generation in Sub-Saharan Africa (excl. South Africa).

But the significant unused water capacity and the expected rise in power consumption will together fuel new investment in dams. As such, many new projects in the region have been planned, some of which are already approaching completion.

Dams: East coast vs. West coast

In Ethiopia, only one-third of the population currently has power connectivity. The country’s most notable project, the Grand Ethiopian Renaissance Dam (6000 MW) is currently under construction. The new dam is designed to increase Ethiopia’s hydroelectric capacity from 3800 (in 2016) to 37000 MW by 2037 (and 17000 by 2020), an initiative that is needed in order to sustain the country’s high GDP growth rates (9.5% on average during the last 5 years) .

In Côte d’Ivoire, the Soubré dam was inaugurated in last November. As the inception of the project, which will increase the country’s hydroelectric capacity by 50%, was 50 years ago, this is testament to the country’s improved political stability and business climate over the past years. Côte d’Ivoire advanced in the World Bank’s Doing Ease of Doing Business ranking to 139th in 2018 from 177th in 2013. This achievement has also attracted additional investments: The dam was fully financed by a Chinese investor.

Issues for implementation

Such projects are growth-supportive in structural terms, but better if the 3 following risks are addressed:

Debt: If the financing triggers a too strong increase in terms of debt levels. External debt in Africa has increased to 35% of GDP in 2017 from 20% in 2012, but was 57% in 2012. So while this is not a limitation at present, watch for future trends.

Social cohesion: Since dams are benefitting some populations in their ability to change the repartition of water resources, they may trigger dissatisfaction among some, particularly in regions that are still quite fragile politically.

Geopolitics: Dams may change the level of water available in downstream parts of a river. This is precisely the concern expressed by Egypt, as a result of the construction of the Grand Ethiopian Renaissance Dam on the Blue Nile.

Access to electricity, in % of the population

Sources: World Bank, Euler Hermes