Frost: Rising Demand for Electricity Spurs African Power Generation Industry

July 31, 2006

Greater engagement with a globalized economy is energizing the African power generation industry. According to Frost & Sullivan, rising economic growth in the region will allow the power generation industry to achieve additional sustained turbines capacity.

Notwithstanding the risks involved with operating in Africa, the power generation industry will continue to grow, especially in Nigeria, South Africa and some countries of North, Central and East Africa.

Recent analysis from Frost & Sullivan found that the African steam and gas turbine markets earned revenues of $982.2M in 2005, with estimates to reach $1,235.2M in 2012.

Current supply levels are incapable of meeting the ever-increasing demand for electricity, analysts said. As a result, African countries are seeking to expand the installed capacity of their power plants.

The presence of large, proven reserves of fossil fuels and natural gas will complement the growth of conventional power plants, particularly that of steam and gas turbine power plants.

"Owing to the sudden impetus in economic growth caused by various factors and the growing population, the demand for electricity has been increasing at a rapid pace," said Frost & Sullivan research manager Harald Thaler. "In order to meet these escalating demands, a considerable amount of capacity needs to be installed throughout the continent, thus providing a boost to the African power generation market."

Considering the vast opportunities apparent in the long term, analysts said market participants will need to view growth opportunities in a pan-regional, rather than country-specific, manner. Enhanced external support in terms of funding mechanisms and trade are expected to rise due to the ongoing developmental phase, thereby cementing the basic fundamentals needed for the turbines market to move ahead.

However, political instability and lack of security will cause serious concerns to foreign participants entering the African markets. Analysts said such volatility might deter prospective entrants, despite the exciting opportunities that exist in the region.

"Although the political situation may be reasonably favorable in some countries, the numerous risks associated with doing business in Africa, especially the lack of security for equipment and people, is seen as a key challenge," said Thaler. "Due to this reason, foreign investors and multinational companies are wary of entering the African market."

Analysts said potential entrants need to establish themselves in stable markets initially before moving to capitalize on the opportunities existing in other countries with relatively higher risk profiles. As the situation improves, they could foray into newer markets, thereby gaining a competitive edge.

Source: Frost & Sullivan.