Energy access in Sub-Saharan Africa
Almost one in five of the world’s population don’t have access to electricity, 600 million thereof live in Sub-Saharan Africa. This represents around 70-75% of the population in the most affected countries. The problem is difficult to tackle, and the Africa Progress Panel, a group of experts led by Kofi Annan, reckons that wiring more than 600m people to grids, investment in electricity infrastructure would amount to about $55bn a year. (Source: PWC – Electricity beyond the grid/ The Economist, Africa Unplugged, October 2016)
The expansion of the grid is slowly taking place, but the scale of the investment makes it highly unlikely to get close to full grid access anytime soon. Mini-grids have also not made much progress due to insufficient return on investment.
In the past decade, solar home systems and portable lights, instead, also helped by the falling cost of solar panels, have gathered massive support from customers and investors. Unit sales are expected to grow at 34% CAGR in the next 5 years. (Source: Bloomberg Off-Grid Solar Market Trends report 2016)
One feature that has proven popular is the pay-as you-go (PAYG) model, whereby customers can be pay a deposit for the portable energy device and then repay the remaining cost of the device in 12 or 18 months. If the customer stops paying for the instalments, the device blocks automatically.
Irfan Mirza, the CEO of TREND Solar Tanzania, believes that the popularity of this payment model depends on the local culture. The population here is not used to having debts. When they can, they will repay their outstanding debts as soon as possible. Trust in business transactions is often low: customers like knowing exactly how much they will pay and what they get in return. Once the instalments are repaid, in fact, the customers will own the device and they will not incur any additional costs for the lifespan of the product. The PAYG model makes solar devices increasingly affordable to a large part of the population that may earn as little as $2 per day. (Source: Fortune.com)
The devices sold by TREND come with a smartphone, internet connection, a media platform and integrated digital payment features. “So far we’ve sold half of our available inventory though our hubs and distributors, and the most popular instalment plan has been the 12 months, demonstrating that customers can afford higher instalments in the short-term,” state the founders. Default rates are low, because these solar energy devices can immediately provide an energy and lighting source in households, thereby substituting the regular expense on mobile charging at specialised shops (15-25c per charging) and kerosene lamps (estimated at over $100-140 per year, or 20-30% of their income). (Source: The Economist, Africa Unplugged, October 2016)
From energy access to developing digital access
Off-grid solar brands are now offering more and more powerful systems that can power a 24-inch TV, also because the demand for larger TVs is increasing. TREND will also release new products in the coming months. The company’s pipeline is much richer than competitors, including both home electronics and a variety of digital products and services. “The smartphone will remain our flagship product and the centre of our pipeline of digital products for both consumers and businesses. Both our smartphones and LED TVs already include a variety of digital services that are in high-demand. We consider ourselves a digital company that relies on energy access to expand our digital model. ”, says Irfan. At the same time, product development times for TREND have been much shorter. “We’ve closely monitored the market for years, we know where we want to be in the long-term and we have implemented everything that we set out to do so far.” TREND has in fact designed, tested and released the product, entered the market and developed a variety of partnerships in less than 3 years, which resulted in a much more efficient use of financial resources.
PAYG firms have attracted investments from a variety of global impact funds, VCs, donor funds and prominent business angels, and recently from PE firms. However, the market is changing and becoming more diversified with smaller energy access companies adding new features and products to their business model. At the moment, there are many energy investors who are yet to embrace the diversification in the sector, and some impact investors that do not recognise a digital model as fitting the definition of impact investment.
However, according to the GSMA, smartphone penetration will be responsible for much of the increase in GDP in Sub-Saharan Africa in the next few years, with 500 million new smartphone connections to be added by 2020. TREND believes that nothing will facilitate impact to the populations at the bottom of the pyramid like a new digital economy, with the creation of previously inexistent jobs, and nothing facilitates access to fintech and financial products to the unbanked like providing access to energy, a smartphone and internet connection at home to populations who previously had no access to any of them.
Smartphones and internet data are still prohibitively expensive to many in Sub-Saharan Africa. Recharging phones at energy kiosks can also be expensive and inaccessible. Trend provides a power source, smartphone and internet connection all in one, at a similar market price of a solar home system alone, providing a unique solution to the digital inclusivity dilemma.
In the next few years exits and IPOs in the sector are to be expected, the first one is the recent acquisition of Fenix International by Engie: this may change the financing landscape from a grant and debt market to an equity market. Prominent business angels such as Richard Branson and Bill Gates are already invested in the sector and are keeping an eye on its development, while Mark Zuckerberg’ internet.org initiative, aimed ta making the internet accessible by everyone, has a large stake in Africa’s development. Companies like Google, IBM and others are setting up initiatives to expand into Sub-Saharan Africa.
Fintech and access to financial products
Everyone wants to invest in Fintech now. There is a wave of new digital startups as the support for local entrepreneurs increases. But how can these startups deal with the fact that the vast majority of these companies’ potential market does not have regular access to the internet?
Smartphone penetration in the region is at 17%. As the GSMA reports: “The mobile industry remains a key driver of economic growth and employment across the region. In 2014, the broader mobile ecosystem generated 5.7% of GDP in Sub- Saharan Africa. Migration to mobile broadband and the growth of new services will see this figure increase to 8.2% of GDP by 2020. The number of mobile internet subscribers tripled in the last five years to 300 million by the end of 2015 in the continent, with an additional 250 million expected by 2020. However, by 2020 60% of the population will still be unconnected. Significant barriers to adoption remain, particularly for underserved groups such as women, rural communities and young people. Improving the affordability of mobile services and extending network coverage to rural areas are particular challenges. Mobile technology plays a central role in addressing a range of socio-economic developmental challenges across the region, particularly digital and financial inclusion. Greater digital inclusion will drive economic and infrastructure development, increasing productivity and employment across the economy, and will improve access to vital services such as education and healthcare. At the end of 2014, more than one-fifth of mobile connections in the region were linked to a mobile money account, with more registered mobile money accounts than banks accounts in a number of countries.” (Source: GSMA – The Mobile Economy / Sub-Sahara Africa 2015)
Power for everyone
TREND Solar’s motto is “Power for Everyone”. With this, the team wants to highlight their mission in making electricity available to underserved communities and making the solar-powered kit affordable by the majority of the population. Affordability was a priority when developing the device, and this was achieved by still maintaining a high quality in the device’s technology.
Power, however, does not only have a technical meaning. TREND wants to empower the rural population of East Africa: lack of access to electricity limit their quality of life, high costs of kerosene limit their available income. The limiting factors they face are many more: internet access may seem like a luxury, but it is not, as it empowers them to keep informed, receive an education, set up businesses, communicate and work with others outside of their immediate communities as well as access digital services (e.g. financial products).
The company provides an open media platform in the local language for digital content delivery, allowing customers to access a variety of proprietary and third-party digital and fintech services. The TREND Wallet, which was recently nominated in the Apps Africa Disruptive Innovation Award allows their smartphone customers to pay online.
Additionally, the TREND Solar CREDIT GUARD is a state-of the-art data collection feature that can bring great benefits in a market where lack of data and uncertainty prevents businesses and finance institutions from implementing a successful business strategy. This data collection ability of energy access devices has proven popular with insurance companies and for weather monitoring purposes, but TREND Solar’s product can have much wider applications and a user-friendly interface.
By 2020, the African consumer market will be worth $ 1 trillion, driven by demand for technology-based goods like smartphones, household appliances, and cars. (Source: TheSouthAfrican.com)
Irfan Mirza and Matt Tan, the founders of TREND, which was originally started in London, have developed the products and design after closely studying the preferences and needs of the local population. “The end-customer will always remain at the core of our business model: we want to make a difference for the local population, so we will only bring products to the market that are affordable to them and that can improve their lives. We believe that empowering the local population also means making what modern technology has to offer available to them.”
Having this level of diversification at early stages is unusual for startups, but the founders believe that developing synergies with different sectors and keeping the company flexible is the recipe for success in these developing markets. There are a number of market risks in East Africa that are part of the day-to-day operations, the lack of infrastructure and reliance on larger business partners is a barrier for many companies. It is important to remain flexible and be prepared for market changes. TREND’s strength also lies in this business model, which can transform and adapt by being receptive to its customers and the economic development in Sub-Saharan Africa, leaving its values and technology-focus at its core.
TREND has a very specific strategy, which ensures that they make the best use of their intellectual property, know-how, market presence and physical assets from day one, resulting in a higher potential profitability.
“We want to become an established brand, if not the first established technology brand in Sub-Saharan Africa, which combines both electronics, smart design and digital services. By doing so we also want to improve the standards of living, connecting the poorer populations to the wider world and enabling other companies and new technologies easier access to the market,” promise the two founders. “Sub-Saharan Africa will experience a technology revolution over the next two decades. We want to be at the forefront of this change.”