James Haselip, Denis Desgain and Gordon Mackenzie
UNEP Risø Centre, Denmark, May 2013, 116 pages
This report presents the findings of research into the main outcomes of government and donor-backed efforts to promote small and medium-sized energy businesses (energy SMEs) in sub-Saharan Africa. The focus is on four countries: Ghana, Senegal, Tanzania and Zambia.
There is a predominant view among stakeholders, across the countries studied, that governments are ineffective in designing and implementing tangible support for energy SMEs, despite politicians often providing strong rhetorical support. As such the establishment and success of energy SMEs more often depends on support provided by donor agencies or NGOs that can provide technical assistance and/or subsidised loans.
The institutions and associations supporting SMEs are weak, fragmented and uncoordinated partly due to lack of clear guidance and policy for the development of the sector.
Where numerous energy SMEs are in operation and thus where a valid demonstration effect can be identified, there is a perceived paradox that serves to undermine commercial interest in investing in energy SMEs. The paradox is that the donor-supported businesses that were issued with concessional and/or flexible loans serve to demonstrate that these businesses depend upon such concessional terms, i.e. that they could not survive in ‘the real world’. While this assumption is widely regarded as self-evident by private investors, there are in fact other, more concrete, factors that act to undermine the demonstration effect.
These include, inter alia, relatively high transaction costs of investing in SMEs; the inherently complicated nature of energy sector SMEs with longer supply chains and slower pay-back periods for capital-intensive technologies such as solar PV; rigid rules regarding the need to secure collateral.