Africa’s large deposits of minerals are vital to powering the boom in renewable energy projects, but the continent is struggling with developing its own energy systems. Only 43% of the African population have access to energy⁶. Political instability, military coups, civil unrest, and geopolitical tensions present barriers and heightened risk for investors in Africa’s energy infrastructure, critical to the local population and the ability to mine these increasingly important and valuable minerals.
If Africa’s role in the global energy transition is to be realised, providing various vital rare earth minerals that are the building blocks of the world’s ambitious push to net-zero by 2050, it needs investment in building renewable energy sources of its own. Currently, its energy systems remain underdeveloped and are increasingly unable to support its businesses and growing population let alone support a burgeoning mining industry. Pivotal to Africa’s electrification development is securing the finance and investment to enable projects and infrastructure to be developed.
“Challenges for international investors are leaving swathes of the population in Africa unable to harness the growth opportunities provided by electricity. If overcome, there is a golden opportunity to turbocharge the transition and Africa’s development.”
Roddy Barnett Head of Political Risk and Trade Credit, Beazley
There is a big opportunity to facilitate growth with Africa holding vast deposits of minerals and metals which enable the development of renewable energy. However, without investment, the continent’s development will be held back, and the energy required to power key industries such as mining will not be readily available.
Instability and unrest
Challenges across the continent have deterred many investors from committing to large-scale energy infrastructure projects. Sudden political and regime change, corruption scandals in government, and local civil unrest have worked together to heighten the perceived risks associated with African energy investments.
In 2022, our research showed that 25% of global business executives believed political risk was their top political and economic concern. Since then, this has increased to 30% in 2024, revealing a marked deterioration in the political landscape and a heightened concern over political risk among boardrooms worldwide.
For investors, this instability and unrest can prevent them from committing to projects, particularly in areas where it is unclear how new governments or military regimes will operate and whether energy plants might be targeted. To attract the investment required to increase electrification, robust strategies are needed to overcome these risks.
Going beyond Power Purchase Agreements
Power Purchasing Agreements (PPAs) have been a key tool for increasing energy generation in Africa, enabling long-term contracts for corporates to secure a steady supply of clean electricity at a competitive pre-negotiated price. Yet, a challenge for companies has been determining how long these agreements will last.
Many PPAs are poorly negotiated by African Governments and some companies have been left managing unprofitable investments. The implications of this situation have left some countries looking to renegotiate or cancel existing agreements.
Working with local companies and communities directly to get their buy-in to energy projects helps to reduce the possibility of local friction and government intervention or the cancellation of deals. Furthermore, these deals enable international companies to collaborate locally with partners to create good relations and assist in local environmental and social projects. As investors look for greater certainty, these merchant PPAs have the potential to reduce risks and provide a gateway for investors to support electrification projects in Africa.
“Positively, we are seeing solid bilateral relations emerging on the African continent with Middle Eastern countries like the UAE and Saudi Arabia playing a large role in trade and investment financing. However, at the same time, a lot of local conflicts and government changes have emerged, which is creating fragmentation and regulatory change across Africa.”
Thea Fourie
Head of sub-Saharan Africa, Global Insights and Analysis, S&P Global Market Intelligence
Moving forward
While efforts are being made to power Africa’s electrification, significant risks remain before the continent’s potential is realised. Even, at a local level, a lack of real-time data presents enhanced risks for potential mismanagement or poor reporting of information. While these risks pose a considerable challenge for investment in new projects, there is an opportunity for investors to meet rising demand in the years ahead with the right protections in place.
Our data shows that 23% of global leaders are planning to review the security of their overseas operations. For investors, understanding the risks created by political instability locally is the first step in building a strategy that can manage a fast-changing risk landscape across frontier markets.
Embedding resilience across operations, working closely with experienced specialty political risk and trade credit brokers and insurers, in addition to taking a proactive approach to establishing reliable local partners on the ground is vital for investors seeking to back electrification projects. These local partners can ensure investors have effective relationships with officials and regulators, positioning them as businesses that want to support the local region in reaching its potential.
Several mines have now developed their own energy agreements rather than relying on government-mandated supply to keep projects moving forward. New energy brokers have also emerged to help connect projects with energy suppliers and assist with the complex insurance requirements.”
The information set forth in this document is intended as general risk management information. It is made available with the understanding that Beazley does not render legal services or advice. It should not be construed or relied upon as legal advice and is not intended as a substitute for consultation with counsel. Beazley has not examined and/ or had access to any particular circumstances, needs, contracts and/or operations of any party having access to this document. There may be specific issues under applicable law, or related to the particular circumstances of your contracts or operations, for which you may wish the assistance of counsel. Although reasonable care has been taken in preparing the information set forth in this document, Beazley accepts no responsibility for any errors it may contain or for any losses allegedly attributable to this information. BZCP050.
“Positively, we are seeing solid bilateral relations emerging on the African continent with Middle Eastern countries like the UAE and Saudi Arabia playing a large role in trade and investment financing. However, at the same time, a lot of local conflicts and government changes have emerged, which is creating fragmentation and regulatory change across Africa.”
