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Five risks to watch in Europe for 2024

EIU’s latest report dives into five risks that businesses should watch in Europe as uncertainty over the region’s political, economic and geopolitical outlook deepens. 

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Europe outlook 2024

Our report, Europe outlook 2024, outlines the trends that will shape the economic, political and policy landscapes in the region.

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What does "de-risking" from China mean for Europe?

EIU’s report takes a closer look at how the EU reduces the bloc’s security risks and provides forecasts for the future of EU-China relations.

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Turkey's critical elections

Discover EIU’s forecasts for Turkey’s elections, including how the possible outcomes could affect the country’s economic and business environments.

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European Parliament elections

EIU’s regional experts deliver an in-depth analysis of the potential outcomes of the European Parliament elections and provide insight into how to operate through political change.

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Europe outlook 2024

EIU’s economists discuss the trends that will shape the economic, political and policy landscapes.

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Global monetary policy in 2023

In this on-demand webinar, the team behind our global monetary policy report discuss the trends and threats affecting interest rates, inflation and economic activity in 2023.

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Europe’s energy crisis

In this webinar, EIU’s analysts assess how gas shortages will affect economies and industries in Europe this winter.

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Switzerland: industry analysis and forecasts

Expert insights and growth outlook for six major industries.

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Passenger vehicles, commercial and other vehicles, fuel sources and production

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Physical and online retail, food and drink and non-food products

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The post Switzerland Insights appeared first on Economist Intelligence Unit.

• Near-term risks to Europe’s energy security are rising, with natural gas prices (European Title Transfer Facility) increasing by 30% since the outbreak of the Israel-Hamas war. Israel has restricted gas flows from its Tamar and Leviathan gasfields to Egypt, which had been looking to ramp up its exports of liquefied natural gas (LNG) as European seasonal gas demand increases. However, Egypt has become increasingly reliant on Israeli gas not just for LNG feedstocks but also its own domestic energy needs. EIU expects the disruption to Egypt’s LNG exports to have only a negligible impact on global LNG supplies, but this will be enough to add to market jitters.
• The war adds to growing concerns about tight energy markets and the potential for more serious disruptions to European gas supplies. Although the EU does not import LNG from Australia, strikes by Australian LNG workers caused gas prices to spike in September. Recent damage to the Baltic pipe likewise added to price pressures in early October.
• EIU expects European gas prices to average around US$15/mmBtu during the 2023/24 European winter. We still expect a 10% year-on-year fall in the average price in 2024, with further falls in 2025 and 2026. Contract LNG prices, which broadly match crude oil price trends, are expected to climb from US$12.7/mmBtu in the third quarter of 2023 to US$16.4/mmBtu in the first quarter of 2024, before easing back to about US$13/mmBtu by year-end.
• European gas storage levels, at 98.7% on October 24th, are at record highs, and the EU met its November 1st target of 90% more than two months in advance. Gas consumption in September was down by 7% year on year, as EU voluntary measures—now extended until March 2024—have been effective in cutting demand. Member states are also considering extending the €180/MWh energy price cap into 2024.
• Europe’s energy outlook is increasingly precarious, but the bloc is sufficiently prepared for the coming winter. However, Russia (which still accounts for about 15% of total gas imports) could cut flows as part of its energy war with the EU. Add an unseasonably cold winter, and Europe could find itself facing another energy crunch as in 2022 (not our baseline forecast). Of more concern to markets is the situation in the Middle East, where escalation of the Israel-Hamas war into a regional conflict could threaten LNG supplies from Qatar or disrupt traffic through the Suez Canal, not to mention sending oil prices soaring. If these risks materialise, Europe would be able to rely on its extensive gas stocks, but would face rocketing gas and LNG prices, sparking a resurgence of inflation.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.

The post Is Europe heading for another energy crunch? appeared first on Economist Intelligence Unit.

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House prices in most advanced economies have been falling since late 2022 after increasing dramatically in value in the aftermath of the covid‑19 pandemic. Record-low interest rates and a change in housing preferences amid greater home working led to the sharp rise in house prices. Since then, slowing growth amid accelerating inflation has dampened demand for housing, while interest-rate rises by almost all major OECD central banks in 2022 have sent mortgage rates soaring and severely curtailed market transactions in most advanced economies. We expect that monetary tightening will continue until mid-2023, with a risk of further tightening later in the year if inflation remains elevated. High interest rates increase the cost of mortgage finance, decreasing demand for property and driving down prices. This has happened most rapidly in countries with a high proportion of variable-rate mortgages, such as Sweden (85% of the total), where interest-rate rises have immediately increased the interest repayment burden for a large chunk of mortgage-holders.

Anglophone countries will see the biggest falls, but the economic impact will be greater in Europe

The impact of the housing market downturn will depend on the size of the price decline, the level of household debt and the importance of the housing sector to the consumer economy. We expect Canada and New Zealand to see the biggest price declines, with the Netherlands and Australia not far behind. This assessment is based on how much house prices increased in the aftermath of the pandemic and the size of the interest-rate rise, which increased leverage for households on variable-rate mortgages. Countries with a higher proportion of variable-rate loans are generally seeing larger, faster decline in house prices as household affordability comes under pressure immediately through higher mortgage costs, even prompting forced sales in some cases.

The housing market decline’s impact on the consumer sector will weigh most heavily on the economy in countries where households are most highly leveraged. These include Norway, Sweden, Denmark, the Netherlands and Switzerland, as household debt is over 200% of GDP in all of these countries. Markets where most homes are bought with a mortgage, such as the Netherlands, will also see significant feed-through from falling prices to the real economy as households see a negative wealth effect. Countries that will be less affected include those in southern and eastern Europe (where most homes are owned outright as compared to ownership with a mortgage) and in German-speaking central Europe (where the rental sector is significantly larger than the owner-occupied sector).

In aggregate, we believe that Canada, Australia, the Netherlands and New Zealand will have been the most affected by the global monetary tightening cycle, which began in early 2022. The largest housing market in the OECD, the US, has seen rapid interest-rate tightening and a significant rise in house prices since the pandemic; however, the 30-year standard duration of most mortgages, and the relatively low level of mortgage debt compared with peer countries, will limit the macroeconomic impact by comparison.

New construction is experiencing a chill

The decline in house prices is also affecting the construction sector. The combination of strengthening economic growth, low interest rates and rising asset prices led to an increase in homebuilding across many OECD economies in the late 2010s. After a brief cessation during the initial stages of the pandemic, this trend accelerated in 2020 and 2021, exacerbated by changing consumer preferences for more space. This in turn led to global shortages of building materials and supply-chain congestion for various home appliances. More recently, the combination of still-high input costs (for both commodities and labour), stagnant or falling house sale prices, and higher borrowing costs have led to a slowdown in the sector in most markets.

We expect construction activity to slow year on year in 2023 in the context of the broader economic slowdown and higher interest rates, which have dampened demand for housing. This will have a macroeconomic impact in countries in which construction is a significant portion of the economy. On average, construction makes up 5.6% of the EU economy, although this ranges from 7.6% in Cyprus and 7.2% in Germany and Finland to 1.3% in Greece. This compares with 4.3% in the US.

When can we expect prices to stabilise?

We expect house prices to continue to fall over most of 2023 and stabilise by 2024, lagging the stabilisation in interest rates that we currently forecast for the middle of this year. As the outlook for interest rates becomes less uncertain and market risk premiums begin to narrow, mortgage lenders will be able to lower lending rates somewhat. However, the ongoing risk of sustained high inflation and further interest-rate rises will limit the room for lower rates in the short to medium term. Sustained low demand and negative real wage growth will also slow any rebound.

House price growth will remain subdued in 2024 as interest rates remain high. We do not expect monetary easing to begin in the US or EU until at least mid-2024. However, the construction industry is also likely to remain depressed for several years, as high reliance on leverage and exposure to volatile commodity prices make the industry vulnerable to boom and bust cycles. Financing and materials cost conditions will therefore have to remain benign for several years before we see a sustained uptick in construction activity, without government subsidies. Supply-side restrictions such as planning laws will also continue to constrain construction in many markets.

Countries are likely to see their housing markets stabilise at different times, depending on several factors: the extent of monetary tightening, the amount of household wealth tied up in the housing stock, and the share and maturity structure of fixed-rate mortgages. As a result, countries like the US are likely to see a longer, slower slump than countries such as the Nordic states. By the mid-2020s, the combination of normalising monetary policy and constrained supply growth due to a slump in construction will provide upward pressure on demand. This should result in house prices picking up again.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the economic, political and policy outlook for nearly 200 countries, helping organisations identify opportunities and potential risks.

The post Global housing market decline will slow growth worldwide appeared first on Economist Intelligence Unit.

Why does it matter?

Israel is accelerating an initially slow adoption of renewables, having focused in the 2010s on developing newly discovered gas resources. The National Electricity Authority reported an additional 1.15 GW connected to the grid in 2022, taking renewables capacity to 4.4 GW and enabling a goal to generate 10% of electricity from renewables (originally set for 2020) to be met.

The climate bill will almost double the 2030 emissions-reduction target from the current target of 27% (from a 2015 baseline) to 50%, but the legislation is currently stalled, partly over its opponents’ contention that the intermittency of solar- and wind-based electricity production would jeopardise energy security. The isolation of the country’s electricity system (without cross-border interconnections to smooth out supply volatility) means that the issue of renewables’ intermittency is especially significant for Israel. Boosting storage is thus a priority, with about 2 GW/8 GWh calculated to be required to meet the target to have renewables account for 30% of generation by 2030 (from less than 20% currently).

The government started addressing the issue in 2020-21, awarding around 1.1 GW of ‘solar-plus-storage’ projects to developers, and in April amended feed-in tariffs to incentivise the use of storage in distributed solar. On May 2nd the Ministry of Energy and Infrastructure announced that the National Planning and Building Council had approved installation of 800 MW/3,200 MWh of battery energy storage system (BESS) facilities in the northern Gilboa area (close to a major transmission line and several existing renewables projects), comprising four 200‑MW plants. No timetable or procurement strategy has been reported.

Critics of the climate bill argue that an accelerated shift from fossil fuels to renewables will create energy insecurity. A government debate on the legislation in early May failed to resolve the impasse between the Ministry of Environmental Protection (which put forward the bill) and opponents in the energy ministry, which opposes putting climate targets in law on the basis that it reduces policy “flexibility”.

What next?

We expect the adoption of renewables, mainly solar, to accelerate in 2023‑27 as the government plays catch-up on emissions reduction while aiming to free up gas for export. Nonetheless, internal political divisions and government instability will remain a drag on consistent and effective energy policymaking, slowing the deployment of renewables projects and the meeting of sustainability targets.

Explore more energy sector insights:

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Baltic states ramp up investment in energy sector

The Baltic states are rapidly moving ahead with plans to diversify energy supply through new liquefied natural gas (LNG) infrastructure, as well as scaling up investment in renewables. 

Iran refocuses on renewable energy projects

Iran’s Renewable Energy and Energy Efficiency Organisation (SATBA) has announced plans to retender 2.2 GW of solar power capacity during the current Iranian fiscal year.

The post Israel contemplates energy-storage options appeared first on Economist Intelligence Unit.

• In March consumer price inflation started to ease in Germany and the US. Germany’s consumer price index (CPI) increased by 7.4% year-on-year, down from 8.7% in February, while the US inflation rate of 5% in March was the lowest since May 2021. Data from France will probably show a similar trend as the impact of higher interest rates on consumption starts to take effect.
• However, food prices remain largely immune to the inflation slowdown, particularly in Europe. The food, beverages and tobacco component of CPI rose by 22.3% year on year in Germany in March, following similar growth in January and February. In Poland and other eastern EU members, annual food price inflation has been even higher in recent months. US food inflation is lower, at 8.5% in March, but it continues to outpace overall CPI. 
• The rise in food prices comes despite recent declines in the global prices of key food commodities. EIU’s food, feedstuffs and beverages (FFB) price index soared by 22% in 2022 as the war in Ukraine fuelled price spikes for fertilisers, grains and other foods. However, prices for food commodities have decreased in recent months and we expect the index to decline by 10.5% in 2023 as global supply-chain concerns ease.
• The mismatch suggests that, having initially swallowed the impact of higher commodity prices, food producers, wholesalers and retailers are now passing on the costs to customers. This will help them to maintain (or even increase) sales values and margins even as sales volumes fall. This trend has led to rapid gains in share prices for agrifood companies, with the FTSE 350 index for food and drug retailers doubling to record highs on April 11th.
• European governments are trying to address this issue, which is fuelling social discontent. In March the French government responded to February’s high food inflation by striking a deal with retailers to cap prices for some basic food staples. However, we believe that this will not affect pricing strategies significantly. Comparison of the food price indices for producers, importers and consumers in France suggest that food producers have been raising prices more rapidly than retailers, generating substantial profits as commodity prices fall.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.

The post Rising cost of food defies inflation slowdown appeared first on Economist Intelligence Unit.

Air pollution, which typically peaks in Thailand during the dry season (November-February) and sometimes extends into April, is a major economic and public health issue. The main cause is slash-and-burn farming, exacerbated by forest fires. The problem has recurred and worsened in recent years, coinciding with the spread of commercial farming, under which, for example, large agricultural producers commission local farmers to produce cash crops for animal feed. The farmers who work on larger projects resort to slash-and-burn farming to clear their land quickly to prepare it for the next crop.

The problem that Thailand currently faces is similar to the haze pollution that affected Singapore in the 2010s, which originated from commercial farming on the Indonesian island of Sumatra. Singapore had to seek Indonesia’s help to tackle the problem. The cost of air pollution is enormous, according to a study by the local Kasetsart University, which put it at about Bt2trn (US$60.2bn) or more than 10% of GDP, through negative effects on the economy and public health such as loss of output, income and premature death.

Air pollution is also increasingly curbing tourism revenue during Thailand’s high season. Hotel occupancy in Chiang Mai, the country’s third-biggest city and a popular tourist destination, was just 45% ahead of the important Thai New Year holiday, compared with the usual level of 80% during the same period.

With a general election looming on May 14th, the government and some political parties have been nudged into taking a stance on the issue of air pollution. In practice, very little has happened to address the haze problems of recent years.

Better awareness and a more coordinated effort between Thailand, Laos and Myanmar to tackle the problem of haze is a good start, but it will not lead to a speedy solution to the problem, given the low government effectiveness in Laos and Myanmar. Thailand will raise the issue of transboundary haze to be taken up at the next meeting of the Association of South-East Asian Nations (ASEAN) in May. The problem will recur during the dry season and will continue to cause economic and health problems, in northern Thailand in particular, for the foreseeable future.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.

The post Thailand to tackle transboundary haze as pollution worsens appeared first on Economist Intelligence Unit.

Following a meeting of the Counter Ransomware Initiative in Washington DC in November 2022, Australia has taken the lead in creating the International Counter Ransomware Task Force, which includes 37 countries. This shows that nation-states are understanding the risks of a cyber attack, and getting much more involved in trying to prevent these. However, cyber risks also go beyond geopolitics. The challenge is no longer about being attacked (which has a very high probability) and the chances of an attack being successful (low to moderate impact) but rather about the chances of a major attack (low to moderate probability) on a specific target that might have a high to very high impact. 

Different types of attackers and targets

Inter-state cyberwar remains one of the major risks facing the global economy, but it only represents one part of the vulnerabilities of the digital world. Cyber attacks have become ubiquitous, happening as often as every 11 seconds (according to a Cybersecurity Ventures estimate), but the majority fail. Microsoft reports that the most basic cyber security protection can stop as many as 98% of these attacks. 

It is important to think of the type of attackers, and the types of targets. 

An attack from a lone hacker or a criminal enterprise is the most likely, and they seem to gain financially from the attack. But neither have the same capabilities as a state. In any case, one of the primary challenges in cyber security is the difficulty in prosecuting an attacker from a different country. 

A state’s objective is to disrupt its adversary, and this feeds into the types of targets:

• An attack on a commercial business, such as a media company, will have a narrow impact beyond the company itself. This has happened with the Guardian, which suffered a ransomware attack in December 2022. 
• An attack on a public service (even if privately owned), such as hospitals or the postal service, will have a bigger but limited impact, as it will not fully disrupt an entire country. For example, this has happened with hospitals in France, where the proliferation of ransomware actions has led the government to take action, or the Royal Mail in the UK, whose attack in January 2023 disrupted its international deliveries 
• Cyber attacks will have the largest impact if they target critical infrastructure (electricity, water, digital for instance), especially if the impact on businesses and populations is both immediate and long-lasting. A December 2015 attack on the Ukrainian power grid, attributed to Russia led to several hours of power outages and remains the best example of this risk so far.

Regulation enters the fray

As part of a hybrid strategy, states will continue to target their adversaries through cyber attacks. Ukraine has suffered 4,500 attacks from Russia in 2022, three times more than in 2021. States will also continue to increase their regulatory scrutiny on cyber risks, especially when it comes to critical infrastructure. The EU is at the forefront, having announced the Cyber Resilience Act, with rules to ensure greater security, especially for Internet of Things (IoT) devices; the NIS2 Directive, which harmonises rules and widens the definition of essential services operators; and the Digital Operational Resilience Act, which focuses on the financial sector. In the US, the Biden administration is also planning to introduce rules in 2023. 

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.

The post Cyber risks go beyond geopolitics appeared first on Economist Intelligence Unit.

Kenya’s electricity generation grew at a brisk pace in 2013-22, by 4.9% a year on average—outpacing average real GDP growth of 4.5% a year—driven by major investment from both the public and the private sectors in geothermal and wind power, and more recently in solar power, which is now the fastest-growing segment. Off-grid solar is also booming, both in isolated locations and in grid-connected areas. Grid-generation capacity doubled in 2013‑22, from 1,800 MW to 3,600 MW, while electricity production, in GWh, climbed by 51%. A switch in the main source of baseload power from hydroelectricity to geothermal—tapping steam resources in the Rift Valley—means the system is now more stable and drought resistant, but not totally immune to low rainfall, as shown in 2022. Domestic power supply is augmented by low-level imports of hydropower from Uganda and Ethiopia: the latter could become more important as part of East African power-pool plans.

The current state of play

The latest data from the Energy and Petroleum Regulatory Authority (EPRA, the sector regulator) show that electricity available for distribution rose by 4.5% to 12,700 GWh in 2022, including a near 10% rise in geothermal (to 5,520 GWh) and an 8% rise in wind (to 2,140 GWh), giving them respective shares of 45% and 17%. Solar power’s share is smaller, at 3% in 2022, but output more than doubled from a year earlier. Hydroelectricity, formerly Kenya’s main source of power, fell by 17% in 2022, cutting its share to 24%, a multi-year low, because of a lengthy drought. The hydropower plunge led to a steep, 26% jump in thermal (diesel) generation in 2022, raising its share to 13%, its highest level since 2018. The temporary uptick in thermal power—which is generated entirely by old-style IPPs on generous contracts linked to fuel prices—helps to explain the upward pressure on electricity tariffs in 2022. The impact was mitigated by temporary government subsidies, but power costs will rise faster in 2023, including in real, inflation-adjusted terms.

Full steam ahead

Several recent developments underline high levels of investor interest in Kenya’s renewable energy potential. The most recent deal, signed in mid-March between the government and Fortescue Future Industries (Australia)—a unit of the Fortescue Metals Group—envisages the construction of a 300‑MW geothermal plant in Naivasha, geared to power supply and “green” fertiliser production (with a low carbon footprint), which would also support food security. The proposed plant, potentially one of three, aims to harness power from the nearby Olkaria region, the main source of Kenya’s geothermal energy. The full details of the plan, including the cost, remain unclear. The state-owned power producer, KenGen, has been the leading investor in geothermal to date, but the private sector is also participating, as illustrated by a 150‑MW geothermal plant (Olkaria III), which is owned and operated by Ormat (US), as well as the planned deal with Fortescue.

Adding to the list, Globeleq (UK) contracted Toyota Tsusho Corporation in February to build a geothermal plant costing US$108m and generating 35 MW near Menengai, Nakuru, Kenya’s next geothermal hotspot. The deal, which is part of a broader UK‑Kenya green investment plan, secured funding in December 2022 from multilateral and bilateral sources. Construction will start in 2023 for completion in 2025. Two other geothermal IPPs are in development in Menengai, one by Ormat and the other by Sosian (a local firm), which is expected to come on stream in June. In all cases, the state-owned Geothermal Development Company (GDC) drills the wells, and investors build the plants to harness the steam.

Riding the wind

In a major acquisition bid in mid-March, BlackRock Alternatives (a part of the US investment fund BlackRock) and its partners hope to secure a 31.25% stake in Lake Turkana Wind Power (LTWP), a world-scale, 310‑MW wind farm in northern Kenya. Developed by a private consortium at a cost of US$700m—the largest private investment in Kenya to date—the LTWP was completed in 2017, but delays in laying transmission lines (after a government-appointment contractor went bust) mean that power generation failed to start until 2019. The delay obliged the government to pay compensation to LTWP for lost earnings, via a surcharge on consumer tariffs. BlackRock and development finance institutions in France, Germany and Japan—working together as the UK-based Climate Finance Partnership—will acquire the stakes currently held by development finance agencies in Finland and Denmark, and Vestas, a Danish wind turbine manufacturer, pending EPRA approval. The acquisition bid highlights the appeal of Kenya’s renewable energy assets, which offer the prospect of earning carbon credits and offsets. Wind generation gained an additional boost in 2021 following the start-up of the 100‑MW Kipeto wind farm, owned by Actis (UK) and BioTherm Energy (South Africa).

A changing landscape for IPPs

Kenya was an early adopter of the IPP model, with the first deals—offering 20‑year power purchase agreements (PPAs) to supply Kenya Power—dating to the late 1990s. The largely diesel-fired IPP plants supplemented hydropower, reducing Kenya’s vulnerability to drought, but the contract terms were generous to investors and costly to the government and consumers. The IPPs require payments (in foreign currency), even if their power is untapped, leading to the imposition of fuel-charge tariffs—and exchange-rate adjustment tariffs—on monthly power bills, which remain in place. Power tariffs consequently remain high and volatile, despite a downward trend in reliance on thermal power. By contrast, new-style IPPs in wind, geothermal and solar offer more competitive electricity prices and have fairer overall terms. The diminished contribution of thermal power, alongside growing criticism of the cost burden, led to rising government pressure on thermal IPPs in 2021‑22, including demands for cheaper power, but operators resisted. The government, unwilling to breach IPP contracts—which is positive for the business environment—is instead letting them lapse as they expire, as happened to Tsavo Power in September 2021.

As part of the dispute, the former president, Uhuru Kenyatta, suspended the award of new PPAs in October 2021, pending a review—marking a temporary setback for projects under development—but the new president, William Ruto (elected in August 2022), lifted the suspension in February, giving a timely reprieve. In another potential boost for investors, reforms to public-private-partnership (PPP) laws in 2021 allow for longer terms for new concessions, of up to 30 years, although it remains uncertain if the extension will apply in the electricity sector. Controversy about thermal IPPs will continue, illustrated by a new investigation in parliament, but their contribution will fall to zero by 2030, as Kenya moves towards total reliance on renewables.

Weak links in the chain

The main weaknesses in Kenya’s electricity sector are the parastatal firms responsible for distribution (Kenya Power) and transmission (Ketraco). Kenya Power—which handled both functions until Ketraco was spun off in 2008 as a separate entity—is the most vulnerable, given frequent government interference, alongside corruption and crime (including illegal connections), leading to heavy system losses, weak financial performances and debt accumulation. In 2018‑22, losses in distribution and transmission amounted to 22% of power generation a year on average—compared with a global average of less than 10%—underlining the scale of the problem. On the transmission front, underinvestment by Ketraco means the network is vulnerable to periodic outages, as shown by a nationwide blackout lasting several hours on March 4th. To help relieve transmission problems, the EU and the German Agency for International Co-operation (GIZ) unveiled plans in March to invest US$20m in a Green Resilient Electricity System, intended to strengthen the fragile network, which is a major limiting factor in the expansion of power generation and consumption. In a positive and innovative development, Kenya advanced plans in February for private-sector investment in transmission lines, via a PPP model. A mooted U$300m deal would see a pan-African investment vehicle, Africa50, partner with India’s Power Grid Corporation to build two transmission lines with a total length of 237 km. Despite these positive steps, distribution and transmission will remain weak links in the power chain in the medium term.

What next?

Blessed with ample solar, wind and geothermal resources, Kenya will remain a regional pioneer in renewable energy, bolstered by growing private-sector investment in key projects and the availability of global financing to support climate change mitigation. Highlighting the opportunities, the European Investment Bank unveiled a plan in March to provide seed funding of US$1.9m for onward lending to investors in “green” hydrogen, a key future energy source with significant potential in Kenya, given the country’s wealth of renewable energy feedstock. Apart from exploiting frontier technologies, Kenya will also need high levels of investment in primary electricity supply, as demand will continue to climb in line with national growth and development. Provided Kenya maintains an accommodating stance towards private investment and PPPs—and continues to respect contract terms—foreign investment will play a significant role in expanding the electricity sector, to the benefit of all stakeholders.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.

The post Investor interest in Kenya’s renewable energy sector rises appeared first on Economist Intelligence Unit.