Balancing Profit and Purpose: Addressing Energy Poverty in Africa

The concept of ‘profit for purpose’ integrates economic objectives with social and environmental goals. It aligns seamlessly with the United Nations Sustainable Development Goals (SDGs), especially SDG 7, which calls for ensuring access to affordable, reliable, sustainable and modern energy for all. This alignment is particularly critical in Africa, where over 500 million people lack reliable electricity access.

According to the International Energy Agency (IEA)’s World Energy Outlook 2023 report: "As of 2023, approximately 570 million people in sub-Saharan Africa still lack access to electricity, which underscores the region’s substantial energy access gap."

This figure is consistent with other sources such as the World Bank’s Energy Progress Report 2023: "Around 575 million people in sub-Saharan Africa live without access to electricity, highlighting the ongoing challenges in achieving universal energy access."

Profit for purpose therefore seeks to balance financial returns with social impact, ensuring that businesses contribute to sustainable development while remaining economically viable. This approach supports the African Union's 12 priorities, including the commitment to universal access to clean and affordable energy. By focusing on underserved markets, businesses can play a pivotal role in advancing these goals, demonstrating that financial success and societal benefit are not mutually exclusive.

However, investing in energy solutions for poverty-stricken areas clearly presents unique financial challenges and opportunities. The challenges revolve around the high initial costs. Developing infrastructure in underserved regions often requires substantial capital investment. In addition, these areas may also pose higher risks due to political instability, economic volatility or poverty. Furthermore, there is limited access to traditional financing, as many of these markets are considered too risky by conventional investors, resulting in limited access to commercial funding.

This creates the opportunity for innovative financing models. Multilateral finance institutions and climate finance mechanisms offer potential for blending funding sources. Hybrid models, such as combining donor funds with private investments, can mitigate risks and attract capital to high-impact projects. By combining these different sources of funding - climate finance mechanisms and multilateral finance institutions - the financial burden is shared, and the overall risk is reduced. This blended approach can make investments more attractive and financially viable.

Shared value mechanisms offer companies the chance to align social impact with business success. By incorporating social responsibility into their core operations, businesses can unlock new market opportunities and strengthen their competitive position. For example, investing in off-grid renewable energy solutions enables companies to tackle energy poverty while simultaneously entering an expanding market. This approach allows the investment in energy solutions to generate new revenue streams and foster business growth, ultimately becoming self-sustaining through the increased market potential.

Solving energy poverty has profound implications for economic growth and social development. Expanding access to energy stimulates local economies by creating jobs in the energy sector and associated industries. This economic activity can boost livelihoods and support small businesses. As businesses and households benefit from reliable energy, they can engage in more productive activities and small-scale enterprises, which can generate additional economic activity. This increased economic activity in turn leads to higher income and investment returns, thereby supporting the self-financing of energy projects.

Reliable energy access improves productivity by enabling businesses to operate more efficiently and by providing households with the means to engage in productive activities, such as small-scale enterprises.

Access to energy enhances living standards by providing basic amenities such as lighting, heating, and cooking. This, in turn, supports better health outcomes and educational opportunities. Energy access can empower marginalised communities, particularly women and rural populations, by providing them with the resources needed to improve their socio-economic conditions. Improved quality of life can lead to stronger, more resilient communities that are better able to support and sustain economic activities, further contributing to the financial viability of energy projects.

Closing the energy gap in Africa can become self-financing through such innovative mechanisms and strategies. By leveraging these strategies, the initial investment in closing the energy gap can be offset by the economic and social returns generated, demonstrating that such initiatives can indeed be self-financing in the long term.