The correlation that exists between a country’s economic growth and infrastructure failures is indubitable and enough evidence exists to prove the substantial impact on economies particularly by power interruptions.
Power failures have long run effects on the economic growth of a country. This impact is not just measured in terms of losses due to outages but also in terms of lost opportunities. The continent would achieve faster growth without power fluctuations.
At the turn of the century, Eskom, South Africa’s leading power utility company won international accolades for the provision of quality power. African countries looked up to this bastion of reliable supply and envied its track record until 2007 when the power outages begun. Since then it’s been a rocky road for the company as it sought to meet ever growing demand particularly from the rapidly expanding industrial sector.
Last year, less than half of its facilities were in good working order leading to a resumption of regular blackouts. The effect of these outages on its economic growth and particularly the mining sector has been huge. Jointly, mining and manufacturing contribute a fifth of the country’s GDP.
Power interruptions, in addition, a weak Rand, recently partly led the country to concede to Nigeria its position as the largest economy in Africa. Its prospects are not likely to fare any better if it doesn’t solve its electricity issues soon. Analysts predict that this problem will depress South African growth for the next decade in keeping with the long run effects earlier alluded to.
Other African countries like Ghana, Zambia, Comoros and Nigeria have all experienced weak economic growth due to power failures. In 2015, the World Economic Forum (WEF) ranked countries like Botswana, Mozambique and Nigeria lower than South Africa on reliability of electricity supply.
Nigerian businesses are known to run on generators, an expensive source of backup power. Zambia has a supply deficit running close to half of its demand at peak hours and outages are said to last up to 12 hours. Mining companies are now affected by the shortages and Comoros has to contend with undependable power in addition to other factors.
In the same WEF survey, Morocco and Namibia led in the continent in reliable power. Morocco is home to one of the largest solar plants on the planet securing its reliability even further as Solar is an unfailing source of energy whether the sun shines or not. Kenya ranked 97 globally coming in close behind Ivory Coast.
Kenyan industries have continued to bear the brunt of frequent power interruptions. The interruptions increased by over 70 percent in the first quarter of the year compared to the total average of 2015. On average, manufacturing companies are experiencing power outages at an average of 56 days per year resulting to losses of up to 20pc in sales revenue. This is a major pain to industries and we feel that this may not be sustainable in coming days.
Industry combined electricity consumption growth rate has dropped to 5pc for the period 2014/15 compared to 11pc for the same period in 2013/14. A survey carried out last year and this year amongst our members reveals that on average, manufacturers lost an equivalent of 5 per cent of the monthly electricity bill in certain sectors and as high as 18pc in some sectors. Areas that have frequent interruptions are Nairobi, Mombasa, some parts of Western Kenya and the North rift.
The cost in terms of production throughput, operation cost of generators and loss of equipment is immense. Compensation of damaged equipment takes a long time to be effected. The resulting products are highly priced lowering competitiveness of Kenyan products, limiting expansion and discouraging investors.
While Kenya Power has improved its services in certain aspects such as; the provision of alternative feeder lines to consumers to increase redundancy on supply lines, the initiation of active WhatsApp groups in different regions, the upgrade of substations across the country, frequent forums with stakeholders and the assignment of account managers dedicated to consumers for timely intervention, it still has some way to go.
We applaud these efforts but we need to safeguard the cost competitiveness of the manufacturing sector by putting in place policies to offset their impact. Under threat is our growth, productivity and competitiveness. Energy related investments estimated at USD450 billion are needed to cut power failures by half and provide access to all on the continent.
The 2015 Energy Bill which includes a clause to allow manufacturers to seek compensation for losses in production and sales due to interruptions should be passed into law. Indeed, Kenya Power as a rule includes penalty clauses in their power purchase agreements with power producers.
It is only prudent that Kenya Power extends the same to its customers as a way of ensuring efficiency in service delivery. This should instil some discipline in power utilities and help find innovative solutions to the problem.
It is high time that the service providers and particularly utility service providers embraced the culture of Service Level Agreements with defined minimum threshold standard of service below which penalty clauses kick in.
(The writer is the CEO of the Kenya Association of Manufacturers and the Global Compact Kenya Representative. She can be reached on firstname.lastname@example.org)