Human

African middle class?

 By Chris Dalby

Rwanda is rapidly becoming one of Africa’s main success stories. The country is aiming to speed up its development and leave the memory of the 1994 genocide well behind it. President Paul Kagame has made energy independence one of his priorities, tapping up solar, hydropower and geothermal to reach that goal. To do this, the country is setting up investment best practices to attract investors while mandating that projects benefit local populations, helping to alleviate poverty…

(Cover Photo Credit: Dylan Walters|Flickr)

Rwanda is rapidly becoming one of Africa’s major success stories. The country is aiming to speed up its development and leave behind memories of its troubled past. To do this, the government has set out several objectives, including the creation of investment best practices to attract foreign capital. It is hoped that resulting energy projects will benefit local populations and help to alleviate poverty. For President Paul Kagame establishing energy independence is more than just a pipe dream.

“Energy development is definitely the top priority of the Rwandan government right now,” says Daniel Klinck, the CEO of Afritech, one of Rwanda’s main private energy companies. “Kagame’s government recognized very early on that substantial early investment in infrastructure, especially in the energy sector, would be key to attracting investment and development in every other major economic sector in the country and driving the economic growth Rwanda has sought after and is achieving.”

In 2014, Rwanda became the second African nation to build a solar power plant — an 8.5 MW facility east of the capital, Kigali. The path to the project’s success depended on key issues, including attracting foreign investment. This was no easy feat — after the genocide of 1994, the country lacked virtually every essential.

(Imagine by www.theguardian.com)

The first move was to set up investment best practices which will make Rwanda a model for foreign investors. The Kagame government enshrined into law several initiatives to make investing an appealing prospect:

  • Payment for the expansion of the transmission grid to link up to any new energy project.
  • Funding for road access, water supply and other needed infrastructure.
  • Tax exemption for power equipment.
  • Compensation for the purchases of land used for energy projects.

The privatization of the Rwandan utility company, Rwanda Energy Group, was also a big sign to international markets that the country had come to play. Rwanda’s Energy Private Developers Association now has nearly 100 Rwanda active private sector companies, up from just a few mere years ago.

Angela Homsi was one of the early international investors in Rwanda. “Through the partnership with various public and private partners, we were able to make sure that Rwanda has one of the cheapest access across the world for the provision of grid solar,” she explained.

Despite having one of Africa’s largest solar plants, Afritech sees hydropower as remaining the anchor for Rwanda’s grid for years to come. While the contribution of fossil fuels, which stood at 38 percent in 2015, is dropping, Afritech COO Brad Sanders warns that “the energy mix remains highly reliant on hydropower for its base load of power. Solar makes up close to 5 percent and is expect to remain below 10 percent of the energy mix in the coming five to ten years.”

 

Source: World Bank Group

The company already has a joint venture with Rwanda’s East African Power to build four hydropower plants. The four plants, Bihongora, Karambo II, Gatare-Sebeya and Muregeya Cascades will all be at different phases of development in 2016, contributing a total 11.5 MW of power to the Rwandan grid.

Such projects will be crucial to help Rwanda meet its power generation targets, set out inVision 2020, a government development program that was launched in 2000, and updated in 2012. The plan of action calls for scaling up from 186 MW in 2015 to 563 MW by the end of 2018 and 1,000 MW by 2020.

However, these projects must also be set up in such a way that the local population directly benefits. The Rwandan government has outlined sustainable development guidelines, which energy companies must follow to invest. This has guaranteed a meeting of the minds between a forward-thinking government and the companies who pass Rwanda’s investment criteria.

In following these rules, Afritech’s projects aim to empower local communities, not just with temporary jobs and energy, but with libraries, schools, agricultural projects and other sources of economic independence. For example, the company’s Bihongora Hydropower Project will see a women’s aquaculture cooperative established at its intake with facilities for processing, preserving, and distributing fresh fish to the region, all powered by the electricity generated by the plant.

“The smaller scale nature of the available projects in the country make Rwanda ideal for smaller, more localized development of energy projects. It is these types of projects that can often bring about maximum impact in local communities, which is a central passion and tenet of Afritech’s motivation and mission,” explains Klinck.

Credit: Reuters/Akintunde Akinleye

Alongside such developments, the Kagame government views the energy sector as capital to build longer-term sources of employment and steadily building up the Rwandan middle class. As Rwanda’s energy capacity rises, examples in other countries shows that new industries will spring up, manufacturing facilities will be built and thousands of jobs should be created, thanks to affordable access to electricity.

While Rwanda still ranks fairly low on Africa’s GDP per capita rankings (37th in 2014 with $722), this statistic does not reflect the country’s real status. When adjusted for purchasing power parity, GDP per capita rose to $1,655 in 2015. It is also the 3rd easiest place in Africa to do business and 44th on Transparency International’s Corruptions Perceptions Index 2015, above a number of EU countries and behind only Botswana in continental Africa.

These advantages are considerable but another challenge lies ahead for Rwanda, a challenge arguably no other African economy has been able to meet: ensuring the healthy growth of a middle class. Despite years of double-digit growth in many African countries, investors have found that the middle class remains very small.

“We thought Africa was the new Asia, but we discovered that the middle class is extremely small and not growing,” Cornel Krummenacher, chief executive for Nestle’s equatorial Africa region, told the Financial Times.

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Northern Africa

However, Afritech is making a difference. The company has created created over 1,500 jobs between long-term contracts and short-term construction positions. Its Rubagabaga hydropower project, set to be accompanied by a micro-industrial center, also aims to show how local energy infrastructure can be an engine of direct and indirect employment. The company’s Empowering Villages program also seeks to create over 100 full-time jobs by 2025 through the development of local community-based organizations.

But this is not a battle Kagame, Afritech or international energy investors can fight alone. Renewable sources of energy must become one of the first vital components that reshapes Rwanda’s entire industrial supply chain. Manufacturing, tourism and other opportunities must rapidly be developed for a country which still sees 90 percent of its people depend on agriculture.

Out of the 47 indicators set out in the original Vision 2020, 12 have already been achieved. According to the Kagame, these “successes come as a result of a collaborative effort between Rwanda and our partners. It is a demonstration of what can be achieved when we give value to ourselves and the work we do, when we strive to find solutions from the strengths of our culture. “

about the author
Chris Dalby
Journalist. Editor. China, Mexico, Latin America, Asia, place branding, Olympics, oil and gas, mining, renewable energy, international politics.