Developing markets’ energy transition needs ‘investor diplomats’

The critical challenge of our time is building a more inclusive global economy that can lift the world’s most vulnerable people out of poverty, and allow a growing global middle class to enjoy the conveniences of life that we, in the developed world, take for granted. Access to electricity, mobility, heat (or cooling) should not lead to the depletion of what little is left of the planet’s total carbon credit, plunging us into climate bankruptcy with disastrous consequences.

It took our species 200,000 years to reach the first billion of global population, in the early 19th century. By comparison, it took fewer than 10 years to pile on the most recent billion, in June 2021. Population growth-rate peaked in the 1960s at 2 per cent per year and has now slowed to a mere 0.1%. Still, by 2050 — a year increasingly synonymous with national and corporate ‘net zero’ carbon strategies — the world’s total population is expected to be roughly 10 billion. 

Most of this explosive growth has been in developing countries in Africa and Asia, today representing 75% of the world’s population. An increasing share of that population is moving into the middle class. According to research group Brookings, in 2018, half of the world’s population had sufficient access to discretionary capital to reach that elusive status. Most of that middle-class transition has taken place in Asia, whereas sub-Saharan Africa still represents a disproportionately huge number of the financially poor or vulnerable.

To satisfy both the basic needs and expectations of that growing middle class, developing geographies will see huge demand for new energy infrastructure. While the industrialised world debates how to transition its old and existing energy systems to a new low-carbon reality, years of underinvestment in those developing economies could, if managed wisely, turn a curse into a blessing and lead directly to modern, digital, and sustainable low-carbon or renewable solutions.

The opportunities to finance that new energy infrastructure are guaranteed to attract global investors looking to diversify from US and European markets that are saturated with cheap capital and offer little or no returns. 

As investors enter into these new markets, they must be prepared to confront an unfamiliar and complex landscape of cultural, socio-economic and political risks. A wide body of research shows how failure to manage such risks leads to the ultimate failure of those large-scale infrastructure investments.

The winners will be those that adapt quickly and acquire the skills required to engage and secure a broad social license to operate across a wide range of stakeholders, including host-governments, affected communities, NGOs, donors and international financial institutions. Deep-seated trust deficits must be addressed. Capitalising on the energy transition in these growth markets will require risk management skills that go beyond financial matters, and a new breed of investor diplomats.

Rikard Scoufias is non-executive chairman at Greek state-owned energy company HHRM, former head of Europe’s TAP Pipeline and a member of BP's senior leadership team