By Joshua Masinde
Productive use of energy holds the key to livelihood transformation in Africa’s rural areas. Small industries could improve their production processes and efficiency if they had better access to electricity and technologies.
Without electricity, rural micro-enterprises make do with labour intensive and time-consuming manual tools, and often pass up many opportunities for value addition or product diversification.
Satisfying the need for power of commercial enterprises presents an opportunity for private sector players such as JUMEME, a Tanzanian company that develops solar-powered mini-grids to connect businesses and households in remote areas.
Energy 4 Impact – a non-profit organisation working with local businesses to extend access to energy in Africa – has partnered with JUMEME in an advisory role to help it stimulate demand for electricity among potential customers and develop micro entrepreneurs’ business capacity to use energy for economic transformation, resulting in greater productivity and power consumption.
Compared with households, commercial enterprises take up larger loads of power and provide the developer with a stable source of cash-flow with better profit margins. Building the capacity and the environment for businesses to acquire electric appliances can both improve their processes and productivity and contribute to mini-grid sustainability.
In April 2016, JUMEME launched a solar mini-grid in Bwisya, the largest of eight villages on Ukara Island, on Lake Victoria in Tanzania. Since the mini-grid became operational, there has been substantial increase in commercial activities.
Just under 50 pre-existing and new businesses are now connected to power. Some of the businesses that relied on manual labour or diesel generators for grain milling, carpentry, bicycle and motorcycle repair have been able to automate and expand. New businesses dealing in egg incubation, laundry, bread baking, juice processing, ice block production, hair dressing, pop-corn production, and metal welding have emerged.
Data collected by JUMEME show a direct correlation between increased uptake of appliances and power usage. “We have noticed improved efficiency and productivity in mills, woodworks, metal works and baking businesses that have connected to the mini-grid,” says Robert Wang’oe, Head of Marketing at JUMEME. “We expect new businesses to come on stream, for example those purifying drinking water.”
However, although power is now available, many micro-businesses cannot afford to buy appliances. This is because they are unable to access credit to buy them, as they are considered high risk borrowers, says Diana Kollanyi, Energy 4 Impact Programme Manager.
“One of our strategies to advance financial inclusion to micro-enterprises for productive use was to offer non-cash credit guarantees to financial providers. However, there was limited interest by the providers due to the intricate administrative processes involved in the scheme. Another strategy was to invite financial providers to the villages on the island to map out the business potential and build the case for credit provision. Yet, due to the low loan amounts requested, the limited number of businesses and the projected high administrative and transaction costs, this approach did not work either,” she explains.
As a result, JUMEME decided to adopt an in-house financing approach, which enables micro-entrepreneurs to acquire productive use appliances on credit directly from it. The company leverages its financial means to help customers acquire the equipment. Through this scheme customers can order appliances that are procured by JUMEME and pay for them over an agreed period, typically six months.
On behalf of JUMEME, Energy 4 Impact has conducted a number of demand assessment and stimulation activities, as well as productive use awareness raising campaigns.
“We held several discussions with JUMEME on how best to support businesses that wanted to acquire new equipment,” says Diana. “We conducted an analysis to establish the viability of these businesses before obtaining the appliances and then worked with business owners to strengthen their business plan and skills. JUMEME wanted assurances that the entrepreneurs would be in a position to pay for the equipment over an agreed period, pay the electricity bills and still make a profit.”
So far, 12 businesses have been financed to acquire maize mills, rice huskers, cassava mills, welding and carpentry machines, a chicken incubator and ice block makers. All businesses have repaid or are about to finish repaying their loans.
Ten other entrepreneurs have taken additional equipment to expand or diversify their businesses, creating at least 82 employment opportunities as a result.
After being connected to the grid, 25-year-old Elias Malima, a motorcycle garage owner, was able to extend his working hours. He acquired an electric-powered air compressor for inflating motorbike tyres and since then he has more than doubled the number of customers he serves from 15 or fewer to around 35 a day and his income has increased by 50 percent. He has employed three workers and plans to open another motorcycle garage in a nearby village once JUMEME launches another mini-grid later in the year.
“As I was inflating motorcycle tyres manually, Energy 4 Impact’s mentors suggested I could get an electric-powered air compressor. They helped me write a business plan, which demonstrated the potential cash flow and the repayment plan. That is how I acquired the appliance from JUMEME on credit,” says Elias, who has fully repaid his air compressor.
Constantine Mulangi, a 67-year-old specialist in making window and door frames, repairing motorcycles and assorted kitchen accessories such as pots, pans and knives, received support to prepare a business plan for acquiring a welding machine and two metal grinders from JUMEME on credit.
“We also helped Constantine to develop a pay-back plan,” says Jesse Kyenkungu, Productive Use Field Officer at Energy 4 Impact in Tanzania. “This guided him on aspects such as the initial costs of the equipment acquired, the deposit made to obtain the appliances, the interest he would pay and the monthly deposits required to complete repayments within the agreed period.”
Like most mini-grids operating in rural contexts, JUMEME is faced with the challenge of keeping tariff costs low to create enough demand, while remaining profitable. Energy 4 Impact has helped JUMEME develop a tariff structure tailored to different users’ needs, which includes a domestic and a business tariff. It is also helping the company understand the customers’ pricing perception and sensitising customers on the need for varying tariff structures.
As a way of diversifying their income streams and enhancing its sustainability, JUMEME has started using the energy they produce to run their own fish freezing/chilling and delivery chain business to serve local markets. This provides the company with an additional cash flow, while offering vital services to the community, creating local jobs and contributing to village economic development.