The drag Africa’s digital economy cannot ignore

After a short hiatus, we’re back with our series on Africa’s digital economy and the hard-to-ignore physical, human and institutional components that make up this ecosystem. If you missed previous issues, find them here, here, here and here.

Last week’s guest contribution is also an important way to look at the digital economy from an investment perspective. After you’re done reading, come back to it here.

TL;DR- Africa needs energy, lots of energy if it is ever going to unlock its digital potential. At COP27 and beyond, policy makers need to take this seriously.

Yesterday, the Egyptian resort of Sharm el-Sheikh came alive as 30,000 people and 120 global leaders gathered for the 27th United Nations Climate Change Conference. The host — Egypt — and the international media described this meeting as a watershed moment” for climate negotiations. In light of the departure from policy and policy statements in practice since the last conference, “watershed moment” is too nice a way to describe the event in Sharm el-Sheikh.

It is true that the West can afford to be frivolous about such meetings. For Africa, however, COP27 should be more than just another “estacode” event. Africa is undergoing a rapid digital transformation in many ways. While the energy needs of industrialization are well understood, the conversation tends to skip over how much energy is needed to support Africa’s growing digital ecosystem to become a truly inclusive digital economy.

To truly digitize its economies, Africa must address its power issues. And energy is one of the basic physical components of the digital ecosystem. At the UN climate conference and at home, African representatives should emphatically address the continued need for energy to support the continent’s goal of inclusive digital economies.

The growing demand for electricity to support digital inclusion goals and the resulting pressure on existing energy infrastructure must be balanced with a costly transition to cleaner energy sources. As Africa seeks to integrate its parallel informal and formal economies through digitization, the continent will require significant investments in power.

In this edition of Next Wave, we look at the fundamental role of energy in Africa’s plans for digitization and increasing digital inclusion on the continent.

Fuel for digital life

Ever since Edison turned on the generators at Pearl Street Station, we’ve been moving toward an electrified economy. The advent of digital technology has led to an even greater demand for electricity. In Africa, for example, the rapid adoption of digital mobile technologies since the 2000s has coincided with the continent’s electrification.

Between 2000 and 2012, the pace of electrification in Africa nearly tripled. By 2014, electrification efforts exceeded population growth for the first time.¹

Despite the commendable growth, millions of Africans live without electricity every day. According to the International Energy Agency, about 590 million people, or roughly half of Africa’s population, still lack access to electricity.

Since the early days of Africa’s digital revolution, this inadequate power supply has remained a challenge for telecommunications infrastructure companies. It still represents a high operating cost and prevents the spread of digital inclusion. Hundreds of thousands of towers across the continent are located in areas without access to a reliable electricity grid.² As a result, a telecom tower powered 24/7 by a diesel generator can use around 28,000 liters of diesel each year, which accounts for 30% or more of operating costs.

Telecom operators are experimenting with solar energy. But as one telecom executive discovered, mini solar solutions are prone to vandalism and therefore cannot be consistently relied upon. His company has abandoned mini-solar solutions

While mobile networks cover about 83% of Africa’s population, only about 22% of the population has access to the Internet, according to data from the GSM Association.³ According to the World Bank, only 30% of people living south of the Sahara use the Internet,⁴ leaving approximately 800 million individuals outside the reach of the digital economy. Especially since the digital economy is becoming synonymous with the internet economy.

While the pandemic has accelerated digital adoption, the economic disruption has put pressure on many power grids, further jeopardizing access to the digital economy. The two main drivers of this usage gap are access to power and the affordability of internet-enabled devices and data packages. Because so many people do not use the Internet where it is available, the cost to those who do is higher, which ironically contributes to why many do not use the Internet or use it sparingly. PaiGo solar was a highly touted solution hoping to solve the electricity problem at least in homes, but it failed.

So far we have only talked about the costs of the digital economy from a telecommunications perspective. Adding other components like data centers makes the picture even sharper. While there is disagreement over whether the current demand in Africa requires the construction of more data centers, everyone agrees that an increase in demand is inevitable.

In this context, Africa will need 1,000 MW of data center capacity to expand digital services across the continent. The continent currently has about a quarter of this capacity.⁵

African COP27 participants should take note that “with power grids in trouble and long-term energy supplies at stake, data centers could make more use of diesel backup power in the coming months.”⁶

Microgrids and digital energy

Electric power is experiencing digitization at the distribution level.⁷ Digitized electricity grids encourage energy consumers to adopt cleaner energy through net metering. Digital networks can also help utilities maintain grid stability and reliability, monitor the grid and identify faults, reduce operation and maintenance costs, optimize and predict energy production, and extend asset life.

Data centers in Africa seem to be paying close attention to this. Last month, the African Data Center Association published a white paper detailing why microgrids that can coordinate different energy sources (including grid power and renewables) should be adopted to optimize costs and ensure power stability.

Data centers are big consumers of energy. Policy makers need to recognize the potential economic impact on energy companies when hubs have to be “islanded” to prevent outages in the public grid.

U Data Center Roadmap for Africa, I wrote: “Without more involved government action at the national, regional and local levels, it will be difficult to achieve Africa’s power, land and water needs for data center facilities at any significant scale.

African policymakers must recognize the centrality of reliable energy — at the grid level — to digital transformation at COP27 and beyond. Managing the status quo or relying on PaiGo solar to charge your phone won’t cut it.

References

[1] Rim Berahab, “Is digitalization the future of energy in Africa?” Polici Center for the New South, 2018, https://www.policicenter.ma/opinion/digitalization-future-energi-africa

[2] “The Future for African Telecom Tower” Communications Africa, 2018, https://vvv.communicationsafrica.com/pover/the-future-for-african-telecom-tover-pover

[3] “The State of Mobile Internet Connectivity 2022 Report.” GSMA, 2022, https://vvv.gsma.com/r/vp-content/uploads/2022/10/The-State-of-Mobile-Internet-Connectiviti-Report- 2022.pdf

[4] World Bank data (2020), https://data.vorldbank.org/indicator/IT.NET.USER.ZS?locations=ZG

[5] “Data centers are taking root in Africa” ​​The Economist, 2021, https://vvv.economist.com/middle-east-and-africa/2021/12/04/data-centres-are-taking-root-in-Africa

[6] Peter Judge, “Backup Comes to the Fore” Data Center Dynamics, 2022, https://vvv.datacenterdinamics.com/en/analisis/backup-comes-to-the-fore/

[7] “Digitalization of Energy Systems”, Bloomberg NEF, 2017, https://about.bnef.com/blog/digitalization-energi-sistems