German Start-Ups in the Energy Sector: Ethics for Investing in the African Market

Ahead of the African Energy Week 2021, which will take place in Cape Town in November, German start-ups and investors who contemplate investing into the African energy market might want to assess best practises with regard to their respective strategies. Arguably, the latter must show respect for a ‘just transition’ and beyond be inclusive of a view for energy democracy and social justice. This article serves to draw up valuable lessons about ethics for investing in the African market. Especially since the World Economic Forum (WEF) has recently criticized investors for failing African entrepreneurs, understanding the broader perspective is necessary when pushing for mid-and longer-term changes!

Making Tough Decisions: About Gas and Regional Development

Investing into the African market as a foreign start-up or investor might be accompanied by the following initial questions: 1) Whether to invest into projects that run by gas and; 2) Whether to run your companies’ business operations and production from abroad or from Africa. While to investors and start-ups, who have a profound interest in their own environmental impact, it might seem lucrative to exclusively focus on the African renewable energy sector, a 2020 article published by the WEF might motivate founders and investors to think twice – at least about natural gas…

On the Consequences of Banning Gas

As energy experts Mark Thurber and Todd Moss have argued, banning gas:

Will be ineffective – Relying on natural gas in African countries would only add to 1% of global emissions.

Will drive up poverty, raise energy costs, have a negative effect on the most vulnerable populations, reduce incomes and limit job creation.

Will take away an effective tool for energy-intensive adaptation technologies needed to address climate change and build climate resilience.

Drive up a need for large initial capital investments since coal, geothermal, nuclear and hydro power stations are expensive compared to gas turbines, which are less polluting.

Will take away an effective material (i.e. for fertilizer etc.) in building up different industries at a time where African countries seek to industrialize.

In a nutshell, whereas it has been illustrated that for the ‘net zero pathway’ there is no need for new natural gas fields, this argument needs to be pondered against regional contexts and challenges according to the above authors. As the African Energy Chamber (AEC) has recently announced, the International Energy Agency’s (IEA) “Net Zero by 2050” roadmap for the global energy sector fails to carefully consider the impact of the following aims to cut:

Investments in new fossil fuel supply (i.e. oil and gas) after 2021;
Sales of fossil fuel boilers after 2025;
Internal combustion engine (ICE) car sales after 2035;
Down sales of cars run by fuels with 60% of car sales being electric by 2030, and 50% of heavy truck sales being electric from 2035.

Especially considering that 592 million Africans currently do not have access to electricity and clean cooking, a decade might be a too small timeframe for a just transition.

How Start-Ups Can Promote a Just Transition

Similarly, a just transition might be hindered through companies who heavily rely on imports and the production of equipment outside of Africa. Learning from the past decades and the development of the African energy sector, German, European and international start-ups should consider:

To aspire broad-scale projects in cooperation with SMEs, because of the need to relocate the production of equipment to Africa on the long-term with the broader aim to be a small vehicle in Africa’s industrialization process;

To invest their skills and expertise in the African market even when they can only offer to build up singular parts of the infrastructure needed to become self-sufficient;

To make diversity and inclusion a central part of their business plan with the aim to train local personnel to run operations on the long-term;

To start-up with a multinational team of diverse experts both for networking purposes, to understand local context first-hand and to measure their impact in cooperation with local institutions;

To undertake impact measurements which address how a company’s environmental footprint correlates with its impact on local livelihoods.

How Investors can Promote a Just Transition

With the latter constituting few suggestions about best practises for start-ups, investors should also consider their role in the context of promoting a just transition in the African energy sector and beyond. The following recommendations might serve to inspire investors to accelerate the future impacts of: 1) the German start-up scene on the development of the African energy sector and development in Africa and, 2) Africa’s renewable energy sector on powering Europe. In short, investors should arguably take a lead in…

Strengthening the cooperation between start-ups and SMEs in the German energy sector and, therethrough, provide attractive funding and networking opportunities for German start-ups with the aim of creating a co-benefit for both Germany and Africa in the long-term. The core idea of this suggestion is that more complex networks of cooperation can affect broad-scale changes in Africa provided that they rely on sufficient and sustainable funding.

Lobbying for the latter to additionally become a political project. Especially, because a further cooperation of such a project through relevant ministries could pave the way to strengthening diplomatic ties, actively guiding a knowledge exchange between the two regions and proactively working on labour market challenges with a view for creating employment opportunities in both regions, making the development of Africa’s energy sector a political project appears relevant.

Monitoring how the ‘Net Zero Pathway’ addresses regional contexts in Africa through a cooperation with knowledge institutions (i.e. universities, think tanks, consultants) in Africa and actively working towards scaling down political ambitions where incoherent with a just and environmental friendly transition. The latter does not only create additional local employment opportunities, but puts a profound emphasis on revaluing African and local knowledge.

In a Nutshell

While above, it was shown that promoting a just transition in the African energy sector cannot go along without assessing the impact of net zero strategies on local livelihoods, more information about what a just transition is can be obtained through a recent article published by the Energy Transition Center of the Centurion Law Group. Overall, both one of the mottos of the African Energy Week 2021 and the motivation behind the arguments of this article are to “making energy poverty history by 2030”.

Centurion Plus

Whether you are a start-up in the pre-seed-, seed-, growth stage or in one of the venture capital funding rounds (i.e. Series A, B, C, D) or, whether you are an investor with the wish to understand particular local impacts of a potential investment, our team of legal and business experts can assist you with competent and comprehensive advice both with regard to the expansion of your business to Africa or your business operations in Africa. Specifically, because of our profound expertise and networks in the African energy sector, our on-demand legal and business services meet all needs for tailor-made support. Even if you are unsure whether we are the right contact point, do not hesitate to drop us a line, make an individual request and discuss how we might be able to help you!