Determining energy investment strategy on africa region by using governance and electrical consumption

In this decade, energy has gained more power and is taking now much more attention than any other decade. With the rapid increment of the world's population, the extent of energy and its significance is much more expanding. To those that have it, modern energy unlocks access to improved healthcare, improved education, improved economic opportunities and, even, longer life. The primary purpose of our energy system is to contribute to a better quality of life. Among all the types of energy, electricity is one of the most favored kind in the entire world and it is considered as an indicator of development since when it is analyzed the consumption of electricity in world, it is observed that the more developed your country is, the more electricity you consume. In the world's biggest continent, Africa, the importance of accession of energy and electricity is becoming much more crucial since a severe shortage of essential electricity infrastructure is undermining efforts to achieve more rapid social and economic development. For the minority that has a grid connection today, supply is often unreliable, necessitating widespread and costly private use of back-up generators running on diesel or gasoline. Besides in Africa, there occur so many Electrical outages that affect regions's economy and economical growth tremendously. Currently Africa is the only country that has people getting lesser access to electricity. Almost 650 million people in Africa has no access to electricity which corresponds to approximately % 60 of total Africa population. That lack of electricity access, attracts energy and electricity generator investors; however, shortages on governance in African countries hampers and hesitates investors. Therefore, exact and efficient planning is really important for those countries that has political and investing risks. Forecasting, projection, and other analysis are therefore extremely important for Africa, particularly for Sub-Saharan Region. The purpose of this study is to provide a strategy for energy investors while considering different aspects such as examining the relations between governance and electricity, electricity consumption projection based on times series and political risks. It will be the first study ever prepared that includes to provide strategy to investors of electricity manufacture and it will be the first study that covers Mo-Ibrahim data in Africa that examine the relations of governance and electricity consumption. In this study after some literature reviews and examining methodology, 5 different countries were taken in to account and for each country, at least 7 forecasts are made. These 5 countries are chosen to investigate different development level and regions in Africa such as Nigeria for West Africa, Zambia for South Africa, Algeria for North Africa, and so on. For each country the best result of forecasting methods are taken into account and 5 year long projection is made thereafter. During the study, annual observations beginning from 1973 to 2014 are used. For each country, first original data is analyzed to interpret the data well. Periodogram analysis is performed for the reason of analyzing whether there occurred a trend or not. Afterwards, Moving Average, Exponential Smoothing, Holt's Method, Linear Regression, Quadratic Regression, ARIMA models including all combinations of p d, and q changing between 0 to 2. For sure, the data include and upward trend because technology has grown so fast that triggers consumption of electricity. Therefore, almost all time series have trend properties. In the result, ARIMA and Holt's method together is considered the best models in comparison with others as hey had lower error rates. With this 2 methods, next 5 year's electricity consumption projection is applied for all that 5 countries. Afterwards, Ibrahim Index of African Governance data are used to see the countries' governance situation. This index is composed by Mo Ibrahim foundation and it covers all the countries within the Africa continent over 15 years period from 2000 to 2014. Index comprised of almost 92 sub-factors that provide data to higher-class indicators. A pooled data has been composed in order to investigate the governance effects of each country's electricity consumption. Four main categories of governance (Human Development, Sustainable Economic Opportunities, Participation and Human Rights, Security and Rule of Law) are determined and panel data analysis is applied following the co-integration test to see that if there is a relationship between these variables or not. Before that, unit root test is performed for all variables to meet the requirement of co-integration test. After implementing the co-integration test, the results show that there is a long run relationship between variables; therefore, it is meaningful to implement panel analysis among variables. Panel analysis is preferred rather than other regression methods, since it has more flexibility and ability to control the omitted and constant factors within the model of which cause to reduce the endogeneity. Besides, with this method, countries' self-characteristics are considered. In panel analysis, 2000-2014 pooled data is gathered for 5 countries. Overall, 75 observation is applied in panel analysis. After making Hausmann test, it is founded that using Fixed Effects Model seems more logical that other types. According to fixed effects model, it is founded that "Human Development" is the most related and influential indicator for electricity consumption, which is followed by "Sustainable Economic Opportunities". "Participation and Human Rights" is other positively-correlated factor. The only indicator that reduces electricity consumption when it has increment is "Safety and Rule of Law". In the consequences part, results are interpreted by considering both investors and countries future strategies. Additionally, the more analysis are conducted on the most effective two parameters, "Human Development" and "Sustainable Economic Opportunities", to see that if these two parameters increases quite a lot, will the effects on electricity consumption still continues? The results show that, these two parameters will still be positively correlated with electricity consumption, however, the slope of the increment in consumption will decrease when comparing with the original values. In terms of investors perspective, both 5 years forecast, governance interaction with electricity consumption and Marsh's political risks factors are considered when making interpretation about sustainable investment. According to Marsh risk report, "Participation and Human Rights" and "Safety and Rule of Law" is two major factors that increases political risk when htese two indicators weakens. By considering both sides, evaluations are made. When doing so, countries' 3 year trend is considered and for different risk appetites, different options are given. With regards to low risk appetite, it found logical to invest Zambia rather than South Africa since they both have almost same political risk; whereas, it seems more sustainable to invest Zambia. With regard to high risk appetite options, investing on Egypt or Nigeria seems logical since they have higher political risk, on the other hand, they have more sustainability and efficiency and have more gain than other countries.