THE African Development Bank (AfDB) has cited an unstable political environment and the risk of expropriation as some of the reasons unnerving potential investors from injecting capital in Zimbabwe’s energy sector.
BERNARD MPOFU
Since the turn of the millennium, the country has faced intermittent power outages due to ageing equipment, limited investment as well as droughts affecting power generation at hydro-electric power stations.
Limited access to concessionary funding has also resulted in other key infrastructure such as road network being run down.
Farai Kanonda, the regional sector manager at the AfDB, said while Zimbabwe has enormous potential in the capital-intensive energy sector, a plethora of challenges were unsettling investors despite a flurry of independent power producers over the past few years.
“Risk perception on the part of investors will be high, and so will be the cost mitigation, which will invariably drive PPA (power purchase agreement) prices,” Kanonda told delegates during the virtual launch of the AfDB Zimbabwe Country Brief (2021-23).
Over-reliance on hydropower and coal; non-cost reflective tariffs; financially weak off-takers and sector policy and reforms constraints were also presenting challenges in the country’s energy sector.
According to the regional bank, following the political transition of November 2017, which led to the ouster of long-time leader Robert Mugabe, President Emmerson Mnangagwa’s new administration requested the African Development Bank to update the 2011 Zimbabwe Infrastructure Flagship Report, to aid in investment planning as part of the government’s Vision 2030 blueprint.
The government also requested the bank to prepare an urgent economic report, to assist and advise on re-engagement with the international community, launched in November 2019. The report projects that the country will need to invest US$3.3 billion per year to 2030 in order to restore infrastructure.
Experts say poor infrastructure is a critical barrier to accelerating growth and poverty reduction in Africa.
Studies have shown that increasing the stock of infrastructure by 1% can add up to 1% to gross domestic product.
Infrastructure is considered a key component of the investment climate by reducing the costs of doing business and enabling people to access markets. It is a precondition for private sector development and a key enabler of integration of regional sub-regional markets for intra-African trade, and positioning of a competitive Africa in world markets.
Investments in infrastructure are critical to advances in agriculture and fundamental to human development, including the delivery of health and education services to poor people. Infrastructure is an enormous untapped potential for the creation of productive employment.
