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Africa is a continent in dire need of energy

Africa is a continent in dire need of energy

By Laura Gil

Years back, nuclear energy was a fancy option limited to the industrialized world. In due course, nuclear could be an energy source for much of Africa, where only South Africa currently has a nuclear power plant.

Governments across the continent are devising development policies to become middle-income countries in the medium term. Socioeconomic growth comes with a rise in energy demand—and a need for a reliable and sustainable energy supply.

For industrializing countries in need of a clean, reliable and cost-effective source of energy, nuclear is an attractive option.

“Africa is hungry for energy, and nuclear power could be part of the answer for an increasing number of countries,” said Mikhail Chudakov, deputy director general and head of the Department of Nuclear Energy at the International Atomic Energy Agency (IAEA), an international organisation that promotes the peaceful use of nuclear technology.

A third of the almost 30 countries currently considering nuclear power are in Africa. Egypt, Ghana, Kenya, Morocco, Niger, Nigeria and Sudan have already engaged with the IAEA to assess their readiness to embark on a nuclear programme. Algeria, Tunisia, Uganda and Zambia are also mulling the possibility of nuclear power.

“Energy is the backbone of any strong development,” said Nii Allotey, director of the Nuclear Power Institute at the Ghana Atomic Energy Commission. “And where do we get energy from? We have hydro, thermal, fossil fuels, and we have local gas—but these are dwindling. They are limited; fossil fuels could run out by 2030. And, the prices are volatile.”

For Africa, cost-effective, reliable electricity is the entry point to higher-value-added manufacturing and export-led growth.

For example, Ghana’s reserves of bauxite, the ore used to produce aluminium, are an important source of income, but for now it is exported raw. “We have a smelter, but it’s not operating at full capacity because electricity is too expensive,” Mr. Allotey said. “If we had cost-effective electricity, we would not be exporting raw bauxite but smelted bauxite at a much higher price.”

Power to the people

African governments are working to make electricity more widely accessible. Roughly 57% of the population of sub-Saharan Africa does not have access to electricity. For many, the electricity supply is characterised by frequent power outages, according to the International Energy Agency, an organisation of 30 mostly industrialised countries that have met a set of energy security criteria.

Kenya is considering nuclear to meet the demand generated by hooking up households nationwide, which is expected to contribute significantly to the 30% increase in electricity demand predicted for the country by 2030. “For a long time electrification levels were low, but the government has put in a lot of efforts towards electrifying the entire country,” said Winfred Ndubai, acting director of the Kenya Nuclear Electricity Board’s Technical Department. “Even those areas that were considered to be remote are now vibrant. Within a period of about 10 years we have moved from a 12% electrification rate to 60%.”

Is Africa ready for nuclear?

“Going nuclear is not something that happens from one day to the next. From the moment a country initiates a nuclear power programme until the first unit becomes operative, years could pass,” said Milko Kovachev, head of the IAEA’s Nuclear Infrastructure Development Section, which works with countries new to nuclear power.

“Creating the necessary nuclear infrastructure and building the first nuclear power plant will take at least 10 to 15 years. A successful nuclear power programme requires broad political and popular support and a national commitment of at least 100 years,” Kovachev added.

This includes committing to the entire life cycle of a power plant, from construction through electricity generation and, finally, decommissioning.

In addition to time, there is the issue of costs. Governments and private operators need to make a considerable investment that includes projected waste management and decommissioning costs. Mr Kovachev pointed out that “the government’s investment to develop the necessary infrastructure is modest relative to the cost of the first nuclear power plant. But [it] is still in the order of hundreds of millions of dollars.”

Financing nuclear energy

Without proper financing, nuclear is not an option. “Most countries in Africa will find it difficult to invest this amount of money in a nuclear power project,” Kovachev said. “But there are financing mechanisms like, for instance, from export agencies of vendor countries. Tapping into a reliable, carbon-free supply of energy when vendors are offering to fund it can make sense for several countries in Africa.”

Another aspect to consider is the burden on the electrical grid system of a country. For any country to safely introduce nuclear energy, the IAEA recommends that its grid capacity be around ten times the capacity of its planned nuclear power plant. For example, a country should have a capacity of 10,000 megawatts already in place to generate 1,000 megawatts from nuclear power.

Few countries in Africa currently have a grid of this capacity. “In Kenya, our installed capacity is 2,400 megawatts—too small for conventional, large nuclear power plants,” Ms Ndubai said. “The grid would need to increase to accommodate a large unit, or, alternatively, other, smaller nuclear power plant options would need to be explored.”

One option is to invest in small modular reactors (SMRs), which are among the most promising emerging technologies in nuclear power. SMRs produce electric power up to 300 megawatts per unit, or around half of a traditional reactor and their major components can be manufactured in a factory setting and transported to sites for ease of construction.

“One of the things we are very clear about in terms of introducing nuclear power is that we do not want to invest in a first-of-a-kind technology,” Ndubai said. “As much as SMRs represent an opportunity for us, we would want them to be built and tested elsewhere before introducing them in our country.”

Joining a regional grid is another option. “Historically, it has been possible to share a common grid between countries,” Kovachev continued. “But, of course, this requires regional dialogue.” One example of such a scheme is the West African Power Pool, created to integrate national power systems in the Economic Community of West African States into a unified regional electricity market.

Another factor militating against a headlong rush into nuclear power is popular rejection of projects that are costly and hard to finance. Also, countries are wary that in the event of a nuclear power plant accident, released radioactive material will harm the environment and lives.

IAEA assistance

While the IAEA does not influence a country’s decision about whether to add nuclear power to its energy mix, the organisation provides technical expertise and other pertinent information about safe, secure and sustainable use to countries that opt for nuclear energy.

Safety and security are key considerations in the IAEA Milestones Approach, a phased method created to assist countries that are assessing their readiness to embark on a nuclear power programme. The approach helps them consider aspects such as the legal framework, nuclear safety, security, radiation protection, environmental protection and radioactive waste management.

“Many, many people ask the question: Why nuclear?” Mr Allotey asked. “To me, it’s not about nuclear being an option. It is about energy being an option. Do you, as a country, need energy? And the simple answer is yes. So if you need energy, you need to find cost-effective electricity that is clean and reliable.”

“With a rapidly expanding population and plans to grow our economies, we need to work within these constraints. We are a continent that is in dire need of energy,” he concluded.


United Nations Africa Renewal


 

About The Author

Sanlam 2018 Annual Results

7 March 2019

 

Sanlam’s 2018 annual results provides testimony to its resilience amid challenging operating conditions and negative investment markets

Sanlam today announced its operational results for the 12 months ended 31 December 2018. The Group made significant progress in strategic execution during 2018. This included the acquisition of the remaining 53% stake in SAHAM Finances, the largest transaction concluded in the Group’s 100-year history, and the approval by Sanlam shareholders of a package of Broad-based Black Economic Empowerment (B-BBEE) transactions that will position the Group well for accelerated growth in its South African home market.

Operational results for 2018 included 14% growth in the value of new life insurance business (VNB) on a consistent economic basis and more than R2 billion in positive experience variances, testimony to Sanlam’s resilience in difficult times.

The Group relies on its federal operating model and diversified profile in dealing with the challenging operating environment, negative investment markets and volatile currencies. Management continues to focus on growing existing operations and extracting value from recent corporate transactions to drive enhanced future growth.

The negative investment market returns and higher interest rates in a number of markets where the Group operates had a negative impact on growth in operating earnings and some other key performance indicators. This was aggravated by weak economic growth in South Africa and Namibia and internal currency devaluations in Angola, Nigeria and Zimbabwe.

Substantial growth in Santam’s operating earnings (net result from financial services) and satisfactory growth by Sanlam Emerging Markets (SEM) and Sanlam Corporate offset softer contributions from Sanlam Personal Finance (SPF) and Sanlam Investment Group (SIG).

Key features of the 2018 annual results include:

Net result from financial services increased by 4% compared to the same period in 2017;

Net value of new covered business up 8% to R2 billion (up 14% on a consistent economic basis);

Net fund inflows of R42 billion compared to R37 billion in 2017;

Adjusted Return on Group Equity Value per share of 19.4% exceeded the target of 13.0%; and

Dividend per share of 312 cents, up 8%.

Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with our performance in a challenging operating environment. We will continue to focus on managing operations prudently and diligently executing on our strategy to deliver sustainable value to all our stakeholders. The integration of SAHAM Finances is progressing well. In addition, Sanlam shareholders approved the package of B-BBEE transactions, including an equity raising, at the extraordinary general meeting held on 12 December 2018. Our plan to implement these transactions this year remains on track.”

Sanlam Personal Finance (SPF) net result from financial services declined by 5%, largely due to the impact of new growth initiatives and dampened market conditions. Excluding the new initiatives, SPF’s contribution was 1% down on 2017 due to the major impact that the weak equity market performance in South Africa had on fund-based fee income.

SPF’s new business sales increased by 4%, an overall satisfactory result under challenging conditions. Sanlam Sky’s new business increased by an exceptional 71%. Strong growth of 13% in the traditional individual life channel was augmented by the Capitec Bank credit life new business recognised in the first half of 2018, and strong demand for the new Capitec Bank funeral product. The Recurring premium and Strategic Business Development business units also achieved strong growth of 20%, supported by the acquisition of BrightRock in 2017. Glacier new business grew marginally by 1%. Primary sales onto the Linked Investment Service Provider (LISP) platform improved by 5%, an acceptable result given the pressure on investor confidence in the mass affluent market. This was however, offset by lower sales of wrap funds and traditional life products.

The strong growth in new business volumes at Sanlam Sky had a major positive effect on SPF’s VNB growth, which increased by 7% (14% on a comparable basis).

Sanlam Emerging Markets (SEM) grew its net result from financial services by 14%. Excluding the impact of corporate activity, earnings were marginally up on 2017 (up 8% excluding the increased new business strain).

New business volumes at SEM increased by 20%. Namibia performed well, increasing new business volumes by 22% despite weak economic conditions. Both life and investment new business grew strongly. Botswana underperformed with the main detractor from new business growth being the investment line of business, which declined by 24%. This line of business is historically more volatile in nature.

The new business growth in the Rest of Africa portfolio was 68% largely due to corporate activity relating to SAHAM Finances, with the East Africa portfolio underperforming.

The Indian insurance businesses continued to perform well, achieving double-digit growth in both life and general insurance in local currency. The Malaysian businesses are finding some traction after a period of underperformance, increasing their overall new business contribution by 3%. New business production is not yet meeting expectations, but the mix of business improved at both businesses.

SEM’s VNB declined by 3% (up 6% on a consistent economic basis and excluding corporate activity). The relatively low growth on a comparable basis is largely attributable to the new business underperformance in East Africa.

Sanlam Investment Group’s (SIG) overall net result from financial services declined by 6%, attributable to lower performance fees at the third party asset manager in South Africa, administration costs incurred for system upgrades in the wealth management business and lower earnings from equity-backed financing transactions at Sanlam Specialised Finance. The other businesses did well to grow earnings, despite the pressure on funds under management due to lower investment markets.

New business volumes declined by 13% mainly due to market volatility and low investor confidence in South Africa. Institutional new inflows remained weak for the full year, while retail inflows also slowed down significantly after a more positive start to the year. The international businesses, UK, attracted strong new inflows (up 57%).

Sanlam Corporate’s net result from financial services increased by 4%, with the muted growth caused by a continuation of high group risk claims experience. Mortality and disability claims experience weakened further in the second half of the year, which is likely to require more rerating of premiums in 2019. The administration units turned profitable in 2018, a major achievement. The healthcare businesses reported satisfactory double-digit growth in earnings, while the Absa Consultants and Actuaries business made a pleasing contribution of R39 million.

New business volumes in life insurance more than doubled, reflecting an exceptional performance. Single premiums grew by 109%, while recurring premiums increased by a particularly satisfactory 56%.

The good growth in recurring and single premium business, combined with modelling improvements, supported a 64% (71% on a comparable economic basis) increase in the cluster’s VNB contribution.

Following a year of major catastrophe events in 2017, Santam experienced a relatively benign claims environment in 2018. Combined with acceptable growth in net earned premiums, it contributed to a 37% increase in gross result from financial services (41% after tax and non-controlling interest). The conventional insurance book achieved an underwriting margin of 9% in 2018 (6% in 2017).

As at 31 December 2018, discretionary capital amounted to a negative R3.7 billion before allowance for the planned B-BBEE share issuance. A number of capital management actions during 2018 affected the balance of available discretionary capital, including the US$1 billion (R13 billion) SAHAM Finances transaction. Cash proceeds from the B-BBEE share issuance will restore the discretionary capital portfolio to between R1 billion and R1.5 billion depending on the final issue price within the R74 to R86 price range approved by shareholders.

Looking forward, the Group said economic growth in South Africa would likely remain weak in the short to medium term future, and would continue to impact efforts to accelerate organic growth. The outlook for economic growth in other regions where the Group operates is more promising. Recent acquisitions such as the SAHAM transaction should also support operational performance going forward.

“We remain focused on executing our strategy. We are confident that we have the calibre of management and staff to prudently navigate the anticipated challenges going forward,” Mr Kirk concluded.

Details of the results for the 12 months ended 31 December 2018 are available at www.sanlam.com.