Our survey results: Understanding the challenges energy enterprises face in emerging economies

Invested Development and GVEP International recently conducted a survey in collaboration with Power Africa and UN Sustainable Energy for All (SE4All) to investigate the challenges that energy enterprises experience in emerging markets. Of course, company financing is a big issue, but we wanted to dig deeper into manufacturing, human resources, consumer financing, and sales. The goal was to identify the types of support products and services that the industry can provide to move the needle further on energy access.

To get the best results, it was important to survey the industry’s most active energy access practitioners. We worked across our organizations to reach 131 respondents. Each respondent represented an energy enterprise in an emerging market, 80% of which are SMEs with 25 or fewer employees. Not surprisingly, 90% of the companies operate primarily in Africa and more than half are focused on developing renewable energy solutions (33% focused on solar energy and another 20% split between hydro power and micro grids).

To better understand and digest the results, our partners at GVEP International created an infographic. In this post, we will dive into the key challenges highlighted by the survey and identify projects, enterprises, and initiatives providing solutions to some of the specific problems identified.

Manufacturing and Product Development

Half of respondents reported manufacturing less than 10% of their products locally in emerging markets. Reasons for low levels of local production were high prices, limited availability, and low quality of materials as the main barrier. Relatedly, over 30% of companies said they do not have access to critical prototyping resources, such as 3D printers and laser cutters. Groups like Gearbox in Kenya, backed by Ushahidi, BRCK, iHub, MIT, and more, are attempting to solve this problem by creating hardware-focused co-working spaces where entrepreneurs can access tools that are normally prohibitively expensive.

Consumer Financing

The majority of enterprises collect cash payments hand-to-hand. Of the very few that utilize credit sales, 33% require large down payments of between 26% and 50%. The 15% of enterprises who reported using mobile money operate primary in East Africa. The challenges with creating good financial models and handling accounting were largely attributed to difficulties recruiting capable people and building internal tools. We are seeing companies like EGG-energy, SolarNow, and Simpa Networks break this barrier by utilizing pay-as-you go technologies and working with innovative forms of working capital and alternative financing.

Sales and After-Sales Service

Most last-mile distribution, installation, and after-sales activities are done in person. Less than 10% of enterprises are leveraging information and communication technologies (ICTs) for these activities. As a result, information sharing within the value chain is a major problem. Half of the respondents cited poor transportation as the greatest bottleneck to product delivery and installation, understandably so, as most enterprises operate in areas with underdeveloped transportation infrastructure. In response to this issue, many enterprise resource planning (ERP) systems and management information systems (MIS) are available for offline and contexts where field agents collect information and operate remotely. This means sales agents can operate without needing to return to the office as frequently.

When products are delivered, enterprises face major impediments to after-sales services, the greatest being lack of capable technicians and customer service representatives. This, in turn, relates to the human resources challenge as these roles are the most difficult to recruit for or train. This remains a difficult challenge, but we are seeing an increasing interest from universities with institutionalized social enterprise programs raising awareness among talented students about the opportunities to work abroad. We frequently hear about our portfolio companies working with fellows from universities, exposing them to the opportunity to work on technology in a new context.

Working Capital – The Holy Grail

This survey not only highlighted a lot of the challenges we had anticipated, but confirmed them directly from some of the world’s most active energy access practitioners. Despite the variety of operational challenges, working capital continues to be the biggest challenge for energy enterprises. Enterprises in emerging economies do not have the ability to leverage the necessary technologies to aid product development, maintain inventory, provide consumer financing, or integrate ICT solutions to optimize HR and sales activities without greater cash flows.

With limited track records, limited cash flow, and a lack of access to capital providers, this continues to be a challenge, but not one that is unaddressed. Loans from groups like OPIC and loan guarantee facilities such as those from African Guarantee Fund and GVEP are examples of ways to alleviate these financial challenges. By providing innovative forms of working capital for young energy enterprises, they can afford to invest in solutions and gain efficiencies in the other operational areas mentioned above.

What other solutions are out there to address these individual challenges, or the greater working capital challenge?

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Impact Investing: Growth and Measuring Impact: Weekly Review 11/17 – 11/21

There has been promising growth in the impact investing space recently, and investors and academics alike are looking for better and easier ways to measure impact. The articles and reports below highlight recent activity.

US Sustainable, Responsible and Impact Investing Assets Grow 76 Percent in Two Years Press Release on The Forum for Sustainable and Responsible Investment

According to US SIF – The Forum for Sustainable and Responsible Investment’s latest survey, sustainable, responsible, and impact investing (SRI) assets have expanded 76% from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014. These findings demonstrate that “sustainable investment strategies are being applied across asset classes to promote corporate social responsibility, build long-term value for companies and their stakeholders, and foster businesses that will yield community and environmental benefits,” said Lisa Woll, CEO of US SIF.

The survey highlights emerging trends in the investment space and explains the growth, citing the expansion of the investment funds offered by money managers that incorporate environmental, social, and governance (ESG) factors into investment decision-making and larger pool of assets to which institutional owner apply ESG criteria as the major contributing factors.

Can Impact Investing Help Save the Planet? By Dan Winterson, Eric Hallstein & Camilla Seth on SSIR

It is no secret that the world needs more capital and new innovative models for sustainable economies to address the growing demand for food, water, and fuel. A new cross-sector investigative study, “Investing in Conservation: A Landscape Assessment of an Emerging Market” examines whether impact investing can make a difference in global conservation efforts. The report examines three areas of conservation investing: sustainable food and fiber production, habitat conversation, and water conservation. It includes data from a survey covering more than 1,300 transactions between 2004 and 2013.

The key findings include:

  • $23.4 billion of investments in global conservation opportunities were made from 2009 through 2013
  • The conservation impact investment market is nascent but expanding quickly across investment stage, type, sector, and region
  • Case studies revealed rapid business model innovation
  • Investors reported a variety of challenges consistent with an immature market

In short, the report reveals that conservation impact investing is real and growing rapidly, providing a potential path for attracting capital at the scale of the problems we face.

Curbing the “Impact Impostors”: The growing movement toward transparency in impact investing by William Burckart on NextBillion

Impact investing’s rising popularity has created some debate. As demand for a social component has grown among investors, some standard equity investments are inappropriately branded with an impact label. With the recent growth of impact investing activities, it can be difficult to detect these “impact imposters”. Some leading systems are growing in popularity that are designed to measure impact, including Global Reporting Initiative (GRI), Impact Reporting and Investment Standards (IRIS), and Global Impact Investing Rather System (GIIRS). The creation of these systems is part of a greater move towards greater transparency in the space. The benefit of the effort will increase the usefulness of information available to investors and improve corporate performance on the ESG issues most likely to impact value. Of course, impact is in the eye of the beholder, but these metrics will be useful for institutionalizing impact.

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Mobile for Development: Weekly Review 11/10 – 11/14

Mobile money and mobile banking have created a revolution in financial services for the unbanked population, but the potential for mobile technology doesn’t end there. Below are recent articles highlighting how mobile technology can be leveraged to create innovative solutions aimed towards the development of emerging markets.

Mobile for Smart Solutions: How Mobile can Improve Energy Access in Sub-Saharan Africa by Helene Smertnik on GSMA

A new report released by GSMA explores the opportunity for mobile operators to partner with energy service providers to deploy smart solutions to improve energy access in Sub-Saharan Africa. The report offers recommendations for the industry’s key players, energy providers, mobile operators, and investors to enter the space. These recommendations include:

  • Mobile operators should develop suites of enabling services targeted at utilities and energy service companies to support their smart solution deployments in both urban and rural markets (on and off-grid). Operators should also work with energy providers to clarify the business case for the deployment of these smart solutions by supporting pilots that focus on commercial viability.
  • Utilities and energy service companies (ESCOs) should work to quantify the benefits that mobile technology and smart solutions can offer their business models.
  • Although smart solutions can provide significant benefits to ESCOs, they are hesitant to raise or invest the capital required to trial these solutions at scale because the commercial model is unproven. Investors should step in to support early stage trials.

A rugged mobile wifi device brings the web to schools in Africa and beyond by Karen Eng on TEDBlog

BRCK, the newest addition to our portfolio, developed a rugged, rechargeable, mobile wife device aimed to bring connectivity to people in developing countries with unreliable infrastructure. Since the official launch this past July, BRCK has manufactured and shipped more than 1,000 units to 45 countries.

Today, the team is focusing on community action, looking for new ways to apply their technology. The company is working with organizations in the education and health spaces, extending connectivity to support their work. BRCK is no longer hardware itself; it is now recognized for the constructive value it can add to communities, like enabling access to information in schools and health clinics. BRCK aims to make a real impact, where real opportunities exist. “We realized that what we’d created for general-purpose connectivity in emerging markets was actually something in great demand in schools throughout Africa,” said Juliana Rotich, founding member of Ushahidi, “If we focus on nothing else but education, many other challenges in the world will be resolved.”

A Water Project Cleans Up Nairobi’s Slum by Elijah Wolfson on Newsweek

The Soweto Slums of Nairobi, Kenya, home to between 100,000 and 200,000 residents, is less than one square mile in size, making the area four to eight times as dense as New York City. As if the living conditions aren’t bleak enough, when the slums were formed in the 1980s and 1990s, the city didn’t connect them to water.

Today, Patrick Mwangi, a World Bank water and sanitation specialist, is the driving force behind the Soweto water-development project, launched earlier this year. The project, developed with the input of the World Bank’s Africa Region team, aims to provide water security to the residents of the slum by bringing water taps into each home so that families will no longer have to buy overpriced water or drink from contaminated sources.

The key component in the success of this project is the Jisomee Mita (“Read Your Meter” in Swahili), a tool that uses SMS technology to allow residents of Soweto to pay for the water provided by their taps. Each in-home tap will have a meter that reads their water usage. The users will be able to text the readings from their meters to a 4-digit number and within minutes their bill will be texted back. They can then use M-Pesa to send a payment. This mobile technology gives Soweto residents the ability to pay at any time, a huge benefit to the many that make their living in an informal sector without regular billing cycles.

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