africa electricity infrastructure ground rent


Electricity for Africa

by Fred E. Foldvary, Senior Editor, 20 July 2013

Africa is rapidly developing its electricity infrastructure. An exhibition and conference on “Africa Electricity” takes place in October 2013, and Power-Gen Africa takes place in March 2014, both in South Africa. President Obama’s called for more investment in his recent excursion in Africa. Obama proposed a $7 billion program, mostly as Export-Import Bank export credits, to upgrade electric power systems in several African countries. Much investment is already taking place, including financing from Japanese banks and projects by Chinese companies.

More than half of the African population still lacks access to electricity grids. The cost of providing electricity to all of Africa has been estimated at $300 billion. The help provided by US and other countries is small compared to the total needed. Africans are already spending over $45 billion per year in infrastructure, according to the World Bank, much of it to expand the power supply.

Unfortunately, Africans have not learned the economic lessons of past infrastructure booms. When electricity is generated, something else is generated: greater rent. Higher rent is a byproduct of greater productivity.

In the German territories obtained in Africa during the latter 1800s, development in roads and harbors was accompanied by land speculation. Much of the gains from economic development were captured by the owners of the land. But this did not happen in the German colony of Kiaochow in China.

The Imperial Commissioner for Kiaochow, Ludwig Wilhelm Schrameier, was a member of the German Land Reformers. At the founding of the colony in 1898, Schrameier established a land-value tax of six percent. The collection of the rent not only served as the source of government revenue, but successfully prevented land speculation as the capital Tsingtao (Qingdao) developed into a modern city.

The electrification of Africa will greatly increase production, and that will benefit families as well as enterprise. However, families and enterprises which seek to rent or buy land will have to pay higher prices. Africans will benefit from the electricity, but much of the gains, the “surplus” of the economy, will go to landowners who, in that role, contribute nothing towards the developments that generate the added rent.

Foreigners are now buying up much of the best land in Africa. In many cases, the traditional subsistence farmers are forced to leave, replaced by commercial agriculture for export. Since the non-African owners pay little rent to the local communities or national governments, they will reap much of the harvest from economic development.

The development of electrical power in Africa will benefit from coordination with NEPAD, the New Partnership for African Development. As stated in its web site, NEPAD provides an “African Union strategic framework for pan-African socio-economic development.”

“NEPAD was adopted by African Heads of State and Government of the OAU in 2001 and was ratified by the African Union (AU) in 2002 to address Africa's development problems within a new paradigm. NEPAD's main objectives are to reduce poverty, put Africa on a sustainable development path, halt the marginalization of Africa, and empower women.”

Development projects such as NEPAD need to confront the central issues of governance, land tenure, and public finance. Taxes and trade barriers are hindering development. The best action NEPAD could take is to promote the equalization of the benefits from development, and at the same time, promote rapid growth, by replacing current taxes with public revenue from land rent. Otherwise, growth will not eliminate poverty as Africans pay twice for electricity: first in their utility bill, and secondly from paying higher rent to the landlord.

-- Fred Foldvary


Copyright 2010 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.

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