Africa: Using Local Companies in the Manufacturing Process

By Katia Theriault, Lindsay Madeira and Patrick Avato Viewed from space, Africa emerges as looming in an impenetrable shadow, the portrait of a continent cast in darkness. NASA’s satellite image reveals the sheer magnitude of a problem that affects an estimated 1.6 billion people, representing 1/3 of the global population. The problem is particularly acute in Africa, where more than 90 percent of the rural population and 74 percent of the total population live outside grid connectivity. Consequently, the 500 million “energy poor” are reliant on traditional forms of energy to meet their lighting needs, dominated by fuel-based sources such as kerosene, a costly and inefficient alternative that consumes 10-15 percent of annual household income. For the poorest families, the significantly high expenditures on kerosene for meeting their lighting needs affects their ability to pay for other day-to-day necessities, such as children’s education, family health care and nutrition, etc. Exacerbating this problem, fuel-based lighting also produces greenhouse gases (GHGs), leads to increased indoor air pollution and associated health risks, inhibits productivity and jeopardizes human safety. The opportunity African people can neither afford to wait for electrification access rates to rise to the level of other world regions nor continue relying on expensive, inefficient, and unsafe fuel-based products to meet their lighting needs. Fortunately, new evidence suggests that solving Africa’s lighting issues may be more achievable than ever before, largely the result of recent advances in modern lighting technologies, such as improved, efficient products like CFLs (compact fluorescent lamps) and LEDs (light-emitting diodes), coupled with new findings revealing that Africans may be willing and able to pay as much for modern lighting technologies as they are already paying for kerosene and other inefficient sources. At the same time, an increased focus by international donors on promoting energy access in Africa, for example through the World Bank and the International Finance Corporation (IFC)’s Clean Energy and Investment Framework and the Africa Energy Action Plan, provided an opportunity to develop innovative and clean energy solutions for off-grid populations of Africa. Recognizing the opportunity at hand, supported by growing interest from the international lighting industry looking to move into new growth markets, The Lighting Africa program was conceived in 2007. Opting for a market-based approach, Lighting Africa was designed to support the private sector innovate and deliver off-grid lighting products and solutions to Africa, in turn aiming to accelerate access to non-fossil fuel-based, low cost, safe, clean and reliable off-grid lighting products with associated basic energy services, with the ambitious goal of reaching as many as 250 million people in Sub-Saharan Africa by the year 2030. Engaging global and local private sector The prospect of increased revenues through the African off-grid lighting market, the potential of substantive social and environmental impact in Africa, and Lighting Africa’s commitment to support the industry in growing this new market area, continue to persuade global and local entrepreneurs to follow its lead. But surely, one is entitled to ask whether those 1.6 billion people lacking access to lighting really represent a promising market? The argument is exceedingly convincing: at a time when oil was $50/barrel, research indicated that approximately US$38 billion/yr was spent globally on lighting, $17 billion of which was spent in Africa alone, in a commercially viable, functioning market. For African entrepreneurs, this represents a much welcomed new opportunity to increase wealth and, concurrently, improve standards of living. It also means new partnerships with stakeholders across the global lighting industry supply chain, and for many African business developers, a first chance to step into the international business arena, and at the same time, foster economic development in their own continent. But despite the promise of this unique opportunity, global and local entrepreneurs who are interested in this market find themselves ensnared by the inevitable hurdles and perceived uncertainties that accompany the development of a market as undiscovered and undefined as this one. The barriers they have identified are many, including a lack of information about consumer needs, product preferences, and affordability or willingness to pay; the first cost barriers associated with new product development and market entry; policy impediments such as kerosene subsidization and tariffs on imported products (such as CFLs and LEDs); absence of institutional mechanisms which would facilitate the identification of suitable partners for product sale and delivery; product standards and quality assurance; and legal concerns like protecting intellectual property rights. To help solve these and other issues, Lighting Africa has started working with global lighting companies, local private sector service providers and distributors, NGOs, and the domestic financing industry (including micro finance organizations) to develop appropriate and viable business models for delivering modern, clean and safe non-fuel based off-grid lighting solutions. The project focuses predominantly on reducing market entry costs, providing information about African markets and consumers, and developing an enabling institutional and regulatory framework. Lighting Africa’s commitment to support the private sector is carried out through various initiatives, including: Market research Lighting Africa is helping entrepreneurs gain a better understanding of the African consumer, providing answers to questions like, “What does the African market look like? What kinds of products do African’s want? What technologies do they prefer? What are they currently spending on lighting? How do products get from manufacturer to market successfully? What modes of communication reach the African consumer most effectively and how might one market a new product in a way that attracts consumer attention?” To answer these and many other questions, Lighting Africa is sending teams of researchers to conduct surveys in households and small businesses beginning in five countries – Tanzania, Zambia, Ethiopia, Kenya, and Ghana – to gather critical insider information to share with the industry. This component of the project will determine the key parameters essential to an effective market transformation. Business to business web portal Aimed at exposing the African off-grid market opportunity to the global industry, facilitating the exchange of market and consumer knowledge and information, and promoting business partnerships between global and local actors of the African off-grid lighting supply chain, Lighting Africa has developed an interactive business to business web portal. Navigating through one of its most popular features – a dynamic business opportunities forum which allows entrepreneurs to post and receive business leads – the Lighting Africa Web Portal has become a Mecca of online social networking activity, which has so far attracted over 1200 entrepreneurs, investors, and other stakeholders interested in pursuing new investments and establishing partnerships across the supply chain to deliver their products and services. The Development Marketplace Grant Competition The Development Marketplace Grant competition is a competitive grant program which plans to award up to $200,000 each to about 15 to 20 finalists for presenting the most innovative and viable ideas for designing, developing, and delivering modern off-grid lighting products and services to Sub-Saharan Africa. Based on the premise that a sustainable market is one that grows the local economy, the competition required that each project team include a partner organization based and operating in Africa. Four hundred proposals from 54 countries, including 38 African countries, were received in the first round, creating an extremely competitive applicant pool. Of the 54 finalists in the current second stage of the competition, about 15 to 20 winners (of the grants) will be selected and announced after final proposals have been presented to an international panel of jurors during the Lighting Africa 2008 Global Business Conference, to be held May 6-8, 2008 in Accra Ghana. First Global Business Conference and Development Market Place Competition for Off-grid Lighting in Africa: Lighting Africa 2008 Bringing together global players from the lighting industry, international and domestic financial institutions, private developers, government agencies, non-governmental organizations, and international and bilateral development agencies, this event is, unequivocally, a defining moment for all who are interested in shaping the off-grid lighting market in Africa. The first of its kind, Lighting Africa 2008 will give participants the unique opportunity to connect with global entrepreneurs from around the world, gain key insights and exchange knowledge, view the latest technological innovations, and meet the people whose lives will be transformed by their efforts. Quality assurance To shield African consumers from poor-performing lighting products and avoid market spoilage for the industry, Lighting Africa is conducting a wide range of activities to enhance consumer awareness and boost confidence in new lighting products and services. These activities range from the testing of solar lanterns in the market against existing quality standards, to the development of specifications for LED-based lanterns and to the development of a product quality assurance strategy, in collaboration with the industry. Mainstreaming carbon finance benefits Fuel-based lighting produces carbon dioxide, a major contributor to GHG emissions. For instance, a kerosene lantern used for 4 hours per day is estimated to release more than 100 kg of carbon dioxide into the atmosphere over the course of a year. With the objective of reducing GHG emissions and, at the same time, enhancing the financial viability of modern off-grid lighting projects (e.g. by offsetting the relatively high first costs) which substitute fuel-based lighting, Lighting Africa is helping develop both project- and program-based methodologies for the Clean Development Mechanism (CDM) and voluntary carbon markets. Expected outcomes for Africans It is easy to forget the considerable impact modern lighting has in our lives; many may even wonder how lighting relates to social, environmental and economic development. In fact, modern lighting services change how we live in more ways than one, allowing us to expand productive time, improve living and working conditions, and enhance safety and security. Similarly, modern off-grid lighting can improve lifestyle and create new opportunities for Africa’s poor, for example: - Extending the working day for small and medium enterprises (SMEs), thus increasing production, production, expanding income opportunities, improving working conditions, and increasing customers. - Enhancing safety and security via outdoor lighting for personal, business, and community activities. - Creating conditions to attract teachers, retain students, expand time for student reading and studying, and improve grades and school retention rates. - Providing opportunities for adult literacy and higher education programs. - Improving health services delivery and thus reduce productivity loss due to illnesses. - Reducing GHG emissions and toxic gases, decreasing risks of illnesses caused by air pollution and mitigating the impact of climate change. - Reducing fire hazards associated with kerosene lamps and candles which every year lead to tens of thousands of fires causing serious injuries and destroying assets. A good start towards a promising future Until recently, the global lighting industry had shown little interest in the African off-grid lighting market, generally unaware of its vast potential. But through the Lighting Africa program, and with the support of its sponsorship, the World Bank, IFC, and their partners have been able to attract hundreds of global and local entrepreneurs to look into this emergent market, and to support the group’s effort to provide millions with exciting new off-grid lighting alternatives. As the program’s agenda moves full steam ahead, this new market area is poised for take-off and the excitement is becoming contagious. Rising fuel prices and market volatility continue to exert pressure on African consumers who may become unable to afford lighting services, making the development of modern lighting markets more urgent than ever. Time will tell when lights will begin to shine in Africa and the shadow that looms over the continent will dissipate, slowly giving way to a brightly lit future for millions of lives. This article was published in the fall 2009 edition of “Perspectives on Development,” a World Bank Publication. Republished with permission. Visit the World Bank Publications Web site to purchase this and other reports.