East Africa’s Energy Sector Attracts Investment

East Africa’s need for energy development is attracting investment but are they really ready to do business?
Published: Fri 22 Apr 2016

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East Africa’s energy market is attracting a great deal of interest among investors as a result of its steady economic growth and its potential to become one of the largest producers and exporters of oil and natural gas globally.

This is according to research firm Frost & Sullivan which points out in its report, ‘East Africa Energy’, that countries including Tanzania, Kenya, Ethiopia and Rwanda are beginning to turn their backs on biomass for their energy consumption to more modern energy sources so as to meet the growing demands of the expanding urban population and the rising per capita income levels.

East Africa’s energy potential is large

The analysis also highlights that East Africa would have more than 50,000MW of generation potential by 2030, with hydropower, coal, wind, geothermal power and natural gas-based generation systems dominating the mix. Over 80% of the potential gas reserves in this region are situated around Mozambique and Tanzania.

While liquefied natural gas exports from these countries are expected no earlier than 2020, rapid development of gas power projects will provide a short-term solution to growing electricity demand in the region. Companies specialising in oil and natural gas exploration and production, power generation and associated infrastructure, as well as renewable energy technology commercialisation can expect to find mammoth opportunities in this region.

Frost & Sullivan energy and environment senior research analyst Neeraj Sanjay Mense added that energy development is gaining priority as East African economies work towards a middle-income status over the next decade. "In view of this objective, governments in the region are adopting strategies to diversify the energy mix, as well as encourage private sector participation,” he said.

East Africa’s energy challenges

Investment from the private sector is also critical as the East Africa energy reserves requires substantial funding to reach its full potential, which could not be met by government subsidies alone. [Africa Finally Embraces Private Power.]

However, the report emphasises that issues pertaining to finance, political stability and security could limit private sector participation within the region, and private players would, therefore, need to align investment strategies with the developmental plans of the respective regions to be successful.

Inadequate critical infrastructure is obviously a major obstacle for the region. Currently, 4 out of 5 East Africans are living without access to electricity. The social, economic and political implications of this are vast. Overall system losses in Kenya, Uganda and Tanzania are way above the global average of 10%. This situation that has left the power utilities- Kenya Power, Umeme and TANESCO- grappling with spiralling operating costs that are passed on to consumers, making power more expensive in the region.

The potential for cross border trade, increased GDPs, job creation, infrastructural development and rural electrification will energise provincial East Africa, changing lives and putting the region on the map. Without effective transmission, generated power will go to waste. In our article East African Transmission and Distribution Industry Grows Steadily, we point out that East Africa’s transmission and distribution industry is certainly filled with potential and is ripe for investment.  

There is also a lack of skilled resources which often result in project delays and unnecessary financial loss. Therefore, training local workers would ultimately aid the long-term sustainability of energy businesses in East Africa. "An adoption of mechanisms to share technical knowledge through international cooperation will ensure steady growth. Collaboration with experienced project developers will also be imperative to accelerate technological advancements and implement the respective plans within the East African energy sector," observed Mense.

While there is no question that East Africa is rich in natural resources and offers great investment potential in the energy sector, we wonder if the region will be able to overcome the various challenges so that they can be really and truly “open for business.” [African Utility Week - Is Africa Open for Business?]

Further reading

Frost&Sullivan-East Africa Energy