Africa’s Vast Solar and Mineral Resources at Risk of Being Left Untapped, IEA Warns
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Africa’s Vast Solar and Mineral Resources at Risk of Being Left Untapped, IEA Warns

High costs have put off most investors from buying into the continent’s plentiful clean-energy reserves

By WILL HORNER
Mon, Sep 11, 2023 10:20amGrey Clock 3 min

Energy investment in Africa needs to more than double by the end of the decade if the continent is to meet its energy and climate goals. However, high costs are putting off much-needed investment in the region’s plentiful clean-energy resources and huge reserves of critical minerals, the International Energy Agency said.

“African countries have huge energy potential, including a spectacular range and quality of renewable-energy resources,” said Fatih Birol, executive director of the Paris-based agency in a report published jointly with the African Development Bank on Wednesday. “But these riches are largely untapped and they will remain so without greatly improved access to capital.”

Africa is home to more than half of the world’s best solar resources as well as possessing great potential for hydroelectric and wind-power projects, according to the IEA. It is also uniquely placed to contribute to industries behind the transition away from fossil fuels. It accounts for 80% of the world’s platinum reserves, half of all cobalt reserves, and 40% of manganese reserves, all of which are expected to be crucial to technologies such as autocatalysts and electric batteries, the agency said.

The report’s figures also pose a challenge for the West and the U.S. in particular, which is seeking to secure diverse sources of critical materials. In recent years, the West has lost clout in Africa as China has become the continent’s largest trading partner and fourth largest investor. Much of China’s investment in Africa goes toward energy projects and the nation’s lead in renewable technologies will likely see it grow as a funder of African renewable energy projects, the IEA said.

“Energy investment on our continent has fallen short,” wrote William Ruto, president of Kenya, in the report’s foreword. “It is imperative we take bold steps to more than double energy investment here in the next decade, with a primary focus on clean energy.”

From around $90 billion today, annual spending on Africa’s energy needs must more than double to $200 billion by 2030, two-thirds of which will need to go toward clean energy projects, the report said.

Despite the investment goal—which the IEA says will allow African nations to meet their agreed climate targets as laid out in the Paris Agreement and achieve universal access to modern energy systems—energy spending in Africa has been falling over the past five years as investment in fossil fuels has declined and spending on renewable energy projects has flatlined. The continent makes up just 3% of global energy spending.

The indebtedness of many African nations is holding back public spending on energy projects while private investors are reluctant to invest because of a prevalence of fragile states, absent regulations and perceptions of political or reputational risks.

All of these are pushing up the cost of capital which makes many African energy projects financially unviable despite ample local resources and proven technologies such as wind or solar power, the report said.

The cost of capital for a large-scale renewable energy project in Africa is up to three times higher than in advanced economies and China, the IEA said. For smaller projects, which will be crucial in rural areas, the costs are even higher.

Concessional financing—in which lenders such as international development banks offer developing nations more generous terms such as lower interest rates or longer repayment periods—will be crucial to overcoming those obstacles, the IEA said.

The IEA estimates that only half of electricity grid projects in Africa are commercially viable without such assistance, while most clean cooking projects would be unaffordable.

Despite accounting for 20% of the global population, investment in African energy projects is far too small, leaving much of the continent lacking basic access to electricity or clean cooking fuels, the IEA said.

Currently, 600 million people across Africa lack access to electricity and almost one billion have no access to clean cooking fuels.

$25 billion a year alone would be enough to provide basic access to electricity and clean cooking fuels to all Africans, equivalent to the cost of installing one LNG terminal, something European nations have done in record time following Russia’s invasion of Ukraine.

The report came as African leaders met in Nairobi for the third and final day of the Africa Climate Summit, which has seen calls for debt relief for African nations facing the effects of climate change and hundreds of millions of dollars pledged to Africa’s nascent carbon credits initiative.

African nations are seeking redress for the effects of climate change they experience despite contributing little to carbon emissions, the main driver of global warming. The continent accounts for around 2% to 3% of global carbon emissions but is particularly exposed to extreme weather.



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Why Prices of the World’s Most Expensive Handbags Keep Rising

Designers are charging more for their most recognisable bags to maintain the appearance of exclusivity as the industry balloons

By CAROL RYAN
Tue, Mar 5, 2024 3 min

The price of a basic Hermès Birkin handbag has jumped $1,000. This first-world problem for fashionistas is a sign that luxury brands are playing harder to get with their most sought-after products.

Hermès recently raised the cost of a basic Birkin 25-centimeter handbag in its U.S. stores by 10% to $11,400 before sales tax, according to data from luxury handbag forum PurseBop. Rarer Birkins made with exotic skins such as crocodile have jumped more than 20%. The Paris brand says it only increases prices to offset higher manufacturing costs, but this year’s increase is its largest in at least a decade.

The brand may feel under pressure to defend its reputation as the maker of the world’s most expensive handbags. The “Birkin premium”—the price difference between the Hermès bag and its closest competitor , the Chanel Classic Flap in medium—shrank from 70% in 2019 to 2% last year, according to PurseBop founder Monika Arora. Privately owned Chanel has jacked up the price of its most popular handbag by 75% since before the pandemic.

Eye-watering price increases on luxury brands’ benchmark products are a wider trend. Prada ’s Galleria bag will set shoppers back a cool $4,600—85% more than in 2019, according to the Wayback Machine internet archive. Christian Dior ’s Lady Dior bag and the Louis Vuitton Neverfull are both 45% more expensive, PurseBop data show.

With the U.S. consumer-price index up a fifth since 2019, luxury brands do need to offset higher wage and materials costs. But the inflation-beating increases are also a way to manage the challenge presented by their own success: how to maintain an aura of exclusivity at the same time as strong sales.

Luxury brands have grown enormously in recent years, helped by the Covid-19 lockdowns, when consumers had fewer outlets for spending. LVMH ’s fashion and leather goods division alone has almost doubled in size since 2019, with €42.2 billion in sales last year, equivalent to $45.8 billion at current exchange rates. Gucci, Chanel and Hermès all make more than $10 billion in sales a year. One way to avoid overexposure is to sell fewer items at much higher prices.

Many aspirational shoppers can no longer afford the handbags, but luxury brands can’t risk alienating them altogether. This may explain why labels such as Hermès and Prada have launched makeup lines and Gucci’s owner Kering is pushing deeper into eyewear. These cheaper categories can be a kind of consolation prize. They can also be sold in the tens of millions without saturating the market.

“Cosmetics are invisible—unless you catch someone applying lipstick and see the logo, you can’t tell the brand,” says Luca Solca, luxury analyst at Bernstein.

Most of the luxury industry’s growth in 2024 will come from price increases. Sales are expected to rise by 7% this year, according to Bernstein estimates, even as brands only sell 1% to 2% more stuff.

Limiting volume growth this way only works if a brand is so popular that shoppers won’t balk at climbing prices and defect to another label. Some companies may have pushed prices beyond what consumers think they are worth. Sales of Prada’s handbags rose a meagre 1% in its last quarter and the group’s cheaper sister label Miu Miu is growing faster.

Ramping up prices can invite unflattering comparisons. At more than $2,000, Burberry ’s small Lola bag is around 40% more expensive today than it was a few years ago. Luxury shoppers may decide that tried and tested styles such as Louis Vuitton’s Neverfull bag, which is now a little cheaper than the Burberry bag, are a better buy—especially as Louis Vuitton bags hold their value better in the resale market.

Aggressive price increases can also drive shoppers to secondhand websites. If a barely used Prada Galleria bag in excellent condition can be picked up for $1,500 on luxury resale website The Real Real, it is less appealing to pay three times that amount for the bag brand new.

The strategy won’t help everyone, but for the best luxury brands, stretching the price spectrum can keep the risks of growth in check.

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