July funding rises 4x from the previous month

From the newsletter

In July, African countries secured a record $13.6 billion in energy funding, nearly four times the amount from June. The bulk of this financing went to hydropower and grid infrastructure projects, which are increasingly attracting large-scale investments. The single largest pledge was a $6.4 billion commitment from the World Bank for a hydro project in Mozambique.

• The increased funding, however, is not evenly distributed. Only 14 countries received support, with the top four —Mozambique, Kenya, Mauritania, and South Africa —accounting for over 80% of the total funding in July.

• Development finance institutions and multilateral banks continue to provide concessional loans and grants, offering hope for the sector’s growth by de-risking large-scale projects to attract private capital.

More details

• Since the start of the year, the energy sector has attracted at least $96 billion in funding and commitments. Most of this has been directed toward solar, grid infrastructure, and hydropower. While solar’s dominance is not new, grid infrastructure and hydropower had historically received less attention. However, the growing pipeline of intermittent renewable projects is creating greater demand for grid expansion and stable baseload generation, bringing hydropower back into focus.

• The renewables sector’s growing attractiveness is drawing capital from a wide range of countries, with Gulf nations being the latest to step up their investments. So far, much of this focus has been on North Africa, where mega deals have been struck with countries such as Morocco, Egypt, and Algeria. This month, the Arab Coordination Group, which includes a combination of several Arab funds, pledged to invest $2 billion in Mauritania across key sectors including energy, water, and transportation.

• On the other hand, the China Development Bank (CDB) and the Development Bank of Southern Africa (DBSA) signed a 2.1 billion yuan ($290 million) loan agreement, marking the first yuan-denominated financing cooperation between the two institutions. This deal comes as China, South Africa, Brazil, and Russia step up efforts to strengthen cooperation among BRICS countries in key areas such as infrastructure, energy, information and communications.

• Traditional lenders such as the World Bank, the African Development Bank (AfDB), and the German state-owned development bank (KfW) continued their dominance in providing concessional loans and grants. The AfDB approved a $476 million loan to support South Africa’s infrastructure and green growth, as well as $202 million for Rwanda’s energy sector program aimed at modernising the electricity network and expanding access to clean energy. Meanwhile, KfW provided a $582 million loan to South Africa to support its energy transition.

• Solar home system companies are making a strong comeback with major funding deals. Sun King secured a $156 million securitisation to finance 1.4 million solar products and smartphones for low-income households and businesses in Kenya. The company also raised $80 million in local currency in June to expand in the Nigerian market. Meanwhile, Candi Solar, which operates in India and South Africa, raised $24 million from Norfund and the Energy Entrepreneurs Growth Fund, bringing its total capital raised to $140 million.

Our take

• With the funding being concentrated in just a few countries, many smaller economies risk being left behind. Unless financing mechanisms are designed to reach more countries, the energy transition will deepen regional disparities instead of closing gaps.

• The yuan-denominated loan agreement is a sign of changing financial alignments. African countries stand to benefit from alternative financing pools beyond the dollar-dominated system, which has proven to be costly in global inflationary pressures.

• African countries should also pursue local currency–denominated financing, which can help reduce exchange rate risks. Alternatively, the World Bank and other development finance institutions could provide currency de-risking facilities to lower the overall cost of capital.