The race for Africa has become like the California gold rush of 1848, with everyone scrambling in to get a piece of the action.

At least, that’s what Robin Saunders, the American financier and managing partner of Clearbrook Capital, told the 2015 annual Investing in Africa Mining Indaba in Cape Town on February 10.

Saunders wasn’t the only one. Robert Hersov, founder and CEO of Invest Africa, told one of the panel discussions at the Indaba that “a tsunami” of American money was starting to flood into Africa.

“People know the rewards are immense in Africa. But they have always perceived huge risk. And I think what has happened over the past five years is that the perception of risk is changing. Because as people enter the markets… they are realising that actually the risk is way higher in Russia or China than it is in most African countries.”

Kenya is one such country. Analysts including Adam Smith International believe that Kenya’s 600 million barrels of oil reserves could provide up to 10 per cent of GDP to the country’s economy — more than South Africa’s minerals do.

Despite that bullish stance, the week-long jamboree for the mining industry, attended by around 7,000 delegates representing governments, industry and NGOs, came at a difficult time for the sector.

Slumping prices have hit the commodity sector hard, mining stocks have been particularly hard hit and the fall in the price of oil from over $100 per barrel to below $50 has already prompted job cuts in East Africa and elsewhere.

Australian banking giant Macquarie estimates that mining firms will reduce their investment by up to $20 billion this year.

On February 10, Tullow Oil, which has led the way in oil exploration in Kenya and Uganda, became the latest firm to announce cutbacks, stating that it would reduce its rig count in Kenya from four to one this year, delaying its plans to get to production point. The region’s first oil exports are now unlikely until 2020 at the earliest.

The mood among energy executives at a gathering organised by the UK High Commission earlier this month in Nairobi was sombre, with Deputy High Commissioner John Carver quipping that the reception was a chance for them to “cry into their beer.”
Yet there are a number of reasons to be sanguine about the impact of the industry slowdown on East Africa.

At the start of the Indaba, the World Bank presented a report stating that mining’s demand for power in sub-Saharan Africa will probably triple between 2,000 and 2020 to reach over 23,000MW.

Energy production is low across the region but the consumer demand, and potential supply, is large. The entire installed generation capacity across sub-Saharan Africa’s 48 countries totals 80 Gigawatts, equal to Spain.

Meanwhile, more than 30 African countries regularly experience power shortages — which cost the continent around two per cent of GDP — and regular interruptions in service, leading many to rely on costly leased generating plants as an emergency stopgap.

Two-thirds of people in the region live entirely without electricity. Without new investment and with current rates of population growth, the World Bank projects that there will be more Africans without power by 2030 than there are now.

Delegates at the Indaba got first hand experience of this as Cape Town saw a series of electricity blackouts during the week.

The report found that geothermal energy potential of about 17 GW per year is present in six countries, including Kenya and Uganda, along East Africa’s Rift Valley. Meanwhile, the region’s gas resource base, a third of which is constituted by new finds in Mozambique and Tanzania, is estimated at 329 trillion cubic feet, enough gas to generate 100 GW of power a year for more than 70 years.

The World Energy Outlook estimates that nearly $400 billion of investment will be needed to achieve universal access to electricity across Africa by 2030, which points to increased infrastructure spending by governments as well as by the mining sectors.

“The mining sector remains absolutely vital for Africa, even with the sharp decline in prices,” said former British prime minister Tony Blair during a keynote speech to the Indaba.

Africa’s fledgling industry has seen its progress checked by the slumping oil price, but investors are growing in confidence that they will find a healthy supply of oil and gas in the region when they set up their rigs.