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Africa’s bumpy road to sustainable energy

Africa’s bumpy road to sustainable energy

By Eleni Mourdoukoutas

For years, Kenyans freely used and disposed of plastic bags. The bags were ubiquitous in the markets, in the gutters and in the guts out of 3 out of every 10 animals taken to slaughter.

Nakuru, a town northwest of Nairobi, was a particular eyesore, with a poorly managed dump site that left bags strewn across the roads. It drove Nakuru resident James Wakibia to desperation and then to activism. Wakibia wrote letters to local papers, posted on social media, launched the hashtag #banplasticsKE and joined local group InTheStreetsofNakuru to petition the Kenyan government to ban single-use plastic bags.

It got people talking.

Finally, in August 2017, Kenya passed a landmark law banning the purchase, sale or use of plastic bags. Offenders risk four years in prison or a $40,000 fine.

“Plastic bags were virtually all over the place,” Mr. Wakibia told Africa Renewal. “But now the once-clogged drains are flowing and roadsides are free from plastic bags. There is a visible change.”

The trash and plastics nightmare can be found across the continent. Sub-Saharan Africa produces approximately 62 million tonnes of waste per year, including plastic waste, according to the World Bank. With Africa’s rapid urbanisation and economic growth, environmentalists expect that figure to double by 2025.

New uses found for waste

Yet Africa’s epidemic of waste may very well contain the seeds of a solution to another stubborn problem—the energy shortage.

In sub-Saharan Africa some 609 million people (6 out of 10) have no access to electricity, and about 80% of those in rural areas lack electricity access, according to 2017 data by the World Bank. Manufacturers in sub-Saharan Africa experience an average of 56 days of shutdown time per year due to power outages, the African Development Bank noted in 2017.

To achieve universal energy access, Africa requires an investment of more than US$1.5 trillion in the energy sector between 2018 and 2050. Without such an investment, sub-Saharan Africa will be home to an estimated 89% of the world’s energy poor by 2030, according to a 2017 report by the International Energy Agency (IEA), an organisation that advises governments on energy policy.

To meet demand, exploration is underway to convert the mounting piles of rubbish into much-needed energy—and some countries are already showing how that can be done.

This year Ethiopia completed the Reppie thermal plant, Africa’s first waste-to-energy plant, which has the capacity to incinerate 1,400 tons of waste per day. The plant handles 80% of Addis Ababa’s waste and converts it into electricity that, when the plant becomes fully operational, will serve 3 million people—thus providing 30% of the capital city’s needs.

To execute the US$120 million project, the Ethiopian government partnered with China National Electric Engineering Co., which worked with Cambridge Industries and its managing director Samuel Alemayehu, a Stanford-educated engineer and former Silicon Valley entrepreneur.

“The Reppie project is just one component of Ethiopia’s broader strategy to address pollution and embrace renewable energy across all sectors of the economy,” Zerubabel Getachew, Ethiopia’s deputy permanent representative to the United Nations, told UN Environment. “We hope that Reppie will serve as a model for other countries in the region and around the world.”

With only 4% of the continent’s wastes being recycled, Africa’s waste management is still in its infancy, according to a 2018 report by UN Environment and the Council for Scientific and Industrial Research, a South Africa–based research organization.

South Africa may be an outlier. PET Recycling Company, a South African recycling company, reported in 2016 that plastic bottle recycled tonnage has grown by 822% in the country since 2005.

“Currently South Africa does not have mandatory punitive legislation in place which makes separation of recyclables [from the waste stream]… in homes, offices, restaurants and bars compulsory. Mandatory separation at the source will ensure greater recycling success in years to come,” said Shabeer Jhetam, executive director at the Glass Recycling Company.

Without legislative backing, Mr. Wakibia is skeptical about sustainable practices across Africa.

“I think the biggest hindrance to environmental protection is when politicians have vested interests,” he told UN Environment.

“For example, many politicians are shareholders of companies engaged in lumbering, or are shareholders in companies dealing with plastics. So it becomes hard for them to support any initiatives calling for sustainable forestry or a ban on single-use plastics.”

“I’m glad the government of Kenya has called for massive tree planting across the country,” he continued. “I hope they will walk the talk.”

Morocco tops in solar energy

The sun could be another source of sustainable energy in Africa. Africa has 117% more sunshine than Germany, the global leader in solar energy.

Due to its decreasing cost and increasing convenience, solar energy is projected to become the world’s largest source of energy by 2050, states a 2017 report by the International Renewable Energy Agency, an intergovernmental organisation promoting sustainable energy.

Lighting Africa, a World Bank–supported project started by music icon Akon, his childhood friend Thione Niang and Malian philanthropist Samba Bathily, is tapping into Africa’s vast solar resource. The group hopes to provide solar energy solutions to 250 million people across sub-Saharan Africa by 2030.

Since its establishment in 2014, Lighting Africa has provided electricity access to nearly 29 million people in 25 African countries, including Benin, Guinea, Mali, Niger and Sierra Leone.

Morocco leads the pack in solar energy in Africa. With 32% of its energy needs currently coming from renewable sources, the country is on track to hit 44% by 2020.

Morocco’s solar energy ambition is anchored on the US$9 billion Ouarzazate Solar Power Station (OSPS), also called Noor Power Station (noor means “light” in Arabic), located in the Drâa-Tafilalet region. The OSPS is expected to produce electricity for over 1 million homes by the end of 2018. The Spanish consortium TSK-Acciona-Sener is helping to develop the project.

Oil reigns supreme

However, some countries’ reliance on fossil fuels for energy and revenue may be hampering investments in renewables. Nigeria, for example, produces and sells about 2.2 million barrels of oil per day, which accounted for 69% of its revenues in 2017, reported Nigeria’s Central Bank.

Without the capacity to refine sufficient oil for domestic consumption, Nigeria subsidizes fossil fuel production by up to US$2.5 billion yearly, notes the IEA, which warns that such subsidies put undue strain on governments’ budgets and create obstacles for emerging low-carbon businesses and the renewables sector.

Angola, Côte d’Ivoire, Mozambique, Tanzania, Zambia, and Zimbabwe, among other countries, each subsidized fossil fuel production by more than US$1 billion in 2015, states the International Centre for Trade and Sustainable Development (ICTSG), a Geneva-based organization that promotes sustainable development through trade-related policies.

Even South Africa increased its subsidy for fossil fuels from US$2.9 billion in 2014 to $3.5 billion in 2016, despite a commitment the country made at the 2009 G20 summit to phase out subsidies, notes the the Organisation for Economic Co-operation and Development, whose members are the world’s richest nations. South Africa is also home to 31 billion tonnes of recoverable coal, the sixth largest in the world.

Both the Paris Agreement and Goal 12 of the 2030 Agenda for Sustainable Development require countries to focus less on fossil fuels and more on renewables. African governments are concerned that phasing out subsidies could trigger hikes in the cost of petroleum products and electricity, leading to social unrest.

“Subsidies to fossil fuel power are provided [by African countries] to compensate for electricity tariffs, which cover only 70% of the cost of power production,” stated ICTSG.

Fingers crossed, Morocco’s success in solar energy development, Ethiopia’s Reppie thermal plant and renewables successes elsewhere may encourage other African countries to pay attention to sustainable practices. https://www.un.org/africarenewal/


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.