Regulation of the electricity industry in Africa: In search of an optimal model – where and when the next model?

Abstract

Purpose

Regulatory and institutional changes, restructuring and/or privatization of the erstwhile vertically integrated electricity networks have been adopted by all Sub‐Saharan African (SSA) countries in their pursuit of rural and urban electrification, poverty reduction and economic growth. But advances with the reforms remain limited and the results are at best debatable. The purpose of this paper is to examine the reasons for the unsuccessful implementation of deregulation in Sub‐Sahara electricity markets.

Design/methodology/approach

The paper examines the experiences with deregulation of the electricity industries in developed and developing economies and surmises on the factors that have contributed to the success of reforms in some industrialized countries and identifies the factors that have contributed to the failure of reforms in SSA. The “evidence‐based economics” (EBE) methodology is used to analyze the existing models of regulation and their differences particularly as they are practiced in SSA and developed economies. A gap analysis is realized by highlighting the differences between best practices and the existing level of knowledge. Two case studies are analyzed and the collection of information is assessed in a way that is useful for the development and implementation of the most appropriate models of regulation for SSA.

Findings

The paper finds that the current trend to the regionalization of the electricity markets in SSA and the creation of regional power pools make possible the creation of a genuine regional electricity market which would provide new opportunities for the adoption and adaptation of more advanced models of regulation (2‐G and/or 3‐G) similar to the ones currently employed by some developed economies in Europe and North America. To do so, regulators in SSA need to adopt a more dynamic approach to regulation.

Research limitations/implications

Given the comparative approach of this paper, it is not possible to prove that SSA countries will succeed in their electricity reforms by adopting the 2‐G and 3‐G regulatory models. Nonetheless, if they do follow the dynamic approach to regulation, as suggested in the paper, their chances to succeed are much better.

Practical implications

The analysis of this paper has major implications for governments, regulators, shareholders, customers and employees of the electricity industry. A better understanding of the reasons for the failure of previous reforms and the identification of major advantages and disadvantages of the electricity markets in SSA provide new opportunities and challenges. The success of the application of the 3‐G model may increase the competitiveness of the electricity industry and productive capacity of Sub‐Saharan countries.

Social implications

Electricity is an essential input in any industrial and commercial process. Its availability reduces costs, enhances productivity and creates jobs in other sectors. The social well‐being of Sub‐Saharan countries would increase by adopting the 3‐G model suggested in this paper.

Originality/value

To the best of the author's knowledge, there are no recent studies dealing with the same issues particularly for Sub‐Sahara Africa. This paper fulfils the gap that exists in the literature.

Citation

Gentzoglanis, A. (2013), "Regulation of the electricity industry in Africa: In search of an optimal model – where and when the next model?", African Journal of Economic and Management Studies, Vol. 4 No. 1, pp. 34-57. https://doi.org/10.1108/20400701311303140