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Open letter to investors

Alex Wilson, CEO

24 May 2024

Why investing in the electrification of public transport in Africa makes sense

Dear Investors,

If you're exploring impactful investments in the e-mobility sector, consider the electrification of transportation in Africa. This region offers a prime opportunity not just for solid returns, but for making a significant impact on economic and environmental fronts. Let's unpack why this is especially pertinent in Africa, and how the financial and environmental dynamics differ notably from those in developed countries.

African economies are particularly sensitive to fluctuations in global oil prices. The sharp increases following events like the war in Ukraine have a more pronounced effect here than in many other regions. As net importers of oil, African countries face escalating costs that drive inflation and currency devaluation. This is especially challenging for landlocked countries where everything—including oil—must be transported over long distances in diesel powered trucks

In response, many governments resort to subsidizing fuel prices to shield consumers from the immediate price shocks. However, these subsidies divert funds from crucial services like healthcare and education, exacerbating economic vulnerabilities.

Africa is urbanising at an unprecedented rate and is home to some of the world's fastest-growing cities. Despite this rapid urban growth, the public transport networks in many cities have not kept pace. The number of public buses on the roads has declined over the last decade, even as the urban populations have expanded dramatically. Diesel costs significantly contribute to this trend, as running a diesel-powered bus fleet becomes increasingly unfeasible. Without subsidies, the fares needed to cover diesel costs can require buses in some countries to operate at over 60% capacity consistently—a threshold rarely met during off-peak hours. Consequently, renewing or expanding bus fleets has become prohibitively expensive, leaving many of the buses that are on the road well over 20 years old.

This inadequate public transportation capacity leads to severe traffic congestion, which in turn exacerbates air pollution. Traffic emissions significantly impact air quality, particularly in densely populated urban areas.

The replacement of older diesel buses, specifically those only meeting  Euro III standards or worse, with electric buses in Africa could arguably have a greater impact on climate change mitigation than replacing newer, cleaner Euro VI buses in Europe.

Diesel buses operating under Euro III standards emit significantly more pollutants than those meeting Euro VI standards. These pollutants include nitrogen oxides (NOx) and particulate matter (PM), both of which have severe environmental and health impacts. Specifically, Euro III buses emit over ten times more NOx per kilowatt-hour than Euro VI buses. The reduction in emissions from transitioning from such high levels is considerably more impactful in terms of immediate air quality improvements and long-term climate benefits.

Investing in electric buses in regions where the most polluting vehicles operate presents a cost-effective approach to emissions reduction. The cost per ton of pollutant removed from the atmosphere is lower when replacing higher-emitting vehicles like those meeting Euro III standards. This makes the investment in electric buses not only environmentally but also economically advantageous.

Africa possesses immense potential for renewable energy, which remains largely untapped. With an estimated 2.4 million terawatt hours (TWh) of renewable energy potential annually, the continent could lead globally in clean energy adoption. The average solar radiation received is about 2100 kilowatt hours per square meter per year, alongside significant wind, hydropower, and geothermal resources. This renewable capacity not only positions Africa as a potential powerhouse in clean energy but also provides a solid foundation for electrifying its transportation sector.

Electrifying transportation in Africa is not just environmentally prudent; it also makes compelling economic sense. For instance, in countries like Rwanda, Tanzania, and Ethiopia, the cost of electricity is markedly lower than in many European countries. To illustrate, while the price of business electricity per kWh in the UK might be USD 0.43, it is only USD 0.075 in Rwanda, USD 0.089 in Tanzania, and USD 0.006 in Ethiopia. This disparity means that the operating costs for electric buses are significantly lower.

In Rwanda, transitioning from diesel to electric buses can reduce operational costs from as high as USD 0.50 per km for diesel to only USD 0.05 per km for electricity. This significant reduction in cost per kilometre highlights the economic benefits of electrification in an African context, where the savings are not just incremental but transformative.

Investing in the electrification of transportation in Africa can significantly improve the quality of life for its rapidly growing urban populations. A more reliable, affordable, and efficient public transport system can enhance mobility, reduce congestion, and significantly cut air pollution. These improvements, in turn, foster better health outcomes, increased productivity, and broader economic opportunities.

Moreover, the reduction in dependency on imported diesel mitigates the economic impact of global oil price fluctuations, allowing for more stable financial planning and development. Every dollar invested in electrification can yield up to ten times the savings in fuel costs and emissions compared to traditional diesel buses. This cost efficiency, coupled with environmental benefits, creates a powerful incentive for deploying electric buses across the continent's urban centers.

In conclusion, the case for investing in the electrification of transportation in Africa is compelling both economically and environmentally. The unique combination of high renewable energy potential, escalating urbanization, and the disproportionate impact of diesel costs makes Africa an ideal candidate for transformative investments in electric public transport solutions. For investors in the e-mobility sector, Africa offers a chance to drive significant impact, yielding substantial returns both in financial terms and in social and environmental benefits. This investment not only aids in the immediate improvement of urban mobility but also contributes to the long-term sustainability and resilience of African economies.

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