In 2017, 59 rural villages in Pwani and Tanga regions, in Eastern Tanzania, were connected to the national electricity grid through the Rural Electrification Densification Programme (REDP). For the first time, people had access to electricity to light their homes and power some domestic appliances. While the network expansion was underway, Energy 4 Impact, with the financial support of The Royal Norwegian Embassy in Tanzania, ran a parallel pilot project to promote the benefits of electrification to businesses: agro-processors, wood mills, carpenters, retailers, hair salons and restaurants.
The pilot project focussed on stimulating productive use of electricity (PUE) by strengthening local entrepreneurs’ ability to harness the benefits of electricity and helped them access finance to invest in electric equipment and appliances. At the end of the 15-month pilot, the supported businesses had experienced significant profit growth and had created new permanent jobs.
For nine months after the end of the intervention in March 2019, Energy 4 Impact continued to monitor the sustainability of the businesses involved. Ultimately, the pilot sought to demonstrate the effectiveness of its approach to allow for it to be replicated, as the grid network rolls out to other parts of Tanzania. Here is what we found out.
An effective collaboration
Embedded in the Tanzanian Rural Energy Agency (REA) grid-expansion programme (the REDP), and run in partnership with engineering and design company Multiconsult from December 2017 until March 2019, the PUE pilot targeted entrepreneurs in 59 villages in Tanga and Pwani through a four-pronged approach.
Firstly, it raised awareness amongst local entrepreneurs of the opportunities that the availability of electricity provides. Through roadshows and mobile clinics, the use of common electrical appliances such as fridges, hair dryers, food fryers and printers was demonstrated to over 4,200 people. Roadshows emphasised how the appliances could improve productivity, provide new business opportunities, and where and how they could be acquired.
Secondly, 349 interested and qualified entrepreneurs were selected to participate in the project. They received support to sharpen their business and financial management skills, to develop their business cases, to market their products and to keep financial records.
Thirdly, those entrepreneurs who decided to connect to the electricity grid received help to select the best equipment for their needs. They were introduced to technology suppliers and to lenders, willing provide loans to buy the electric equipment.
Lastly, the entrepreneurs were offered technical training to understand installation as well as the handling and operations of the machines. Meanwhile, gender sensitive strategies were adopted to foster the participation of women in the project.
These strategies contributed to increasing the average profit of the entrepreneurs by 183%; creating 523 permanent jobs; increasing the average monthly electricity consumption by 88%; and securing 155 formal loans to purchase 377appliances. In addition, novel partnerships were created with microfinance institutions, suppliers and engineering companies, which are key partners to support business expansion.
For nine months, following the end of all support and networking activities, Energy 4 Impact monitored and evaluated the impact and sustainability of its approach. “Through continued monitoring we assessed if the businesses were sustainable, whether they continued to grow, consume electricity, repay or take up new loans and purchase appliances. The mentoring activities had stopped during this time, so what we observed were results achieved independently of the direct project interventions,”explains Fredrick Tunutu, Project Manager at Energy 4 Impact.
The findings highlight that in most cases, having been armed with new knowledge, skills and access to local market networks, the entrepreneurs were able to successfully sustain and develop their businesses.
Businesses’ profitability increased by 142% in nine months, from April to December 2019. The practices and business skills entrepreneurs learnt from their mentors before April 2019 meant they were able to not only sustain their businesses themselves, but keep growth on an upward trajectory. Spending also continued to rise through the monitoring phase, showing how their business confidence increased.
Employment continued to rise, with 214 new jobs created (up by 144%) over the same nine-month period. In total, the 15-month pilot facilitated the creation of 551 new jobs.
“Job creation was one of the big success stories throughout the pilot” – explains Fredrick – “with permanent jobs amongst the participating businesses being only 98 at the start of the programme, it increased by an astounding 769%.” Of the 551 new jobs, 523 were permanent meaning 523 additional households with a reliable income. Female employment also experienced a significant increase, with their share of the jobs going from 31% at the start of the programme to 47% in December 2019.
Electricity consumption went up by 23% in the monitoring period alone, from 92 kWh to 113 kWh.
A total of 34 new loans of between $500 and $2,000, were issued during the monitoring phase, half for working capital requirements and half to support appliance purchases. Being able to secure financial support from formal institutions highlights that the skills acquired were put into practice to approach financiers. All entrepreneurs were also on schedule with their repayments and not a single case of delays or defaults had been reported. “By securing loans, business owners were also able to build a credit track record that will enable them to access new loans from different financial institutions, as and when their business needs,” explained Fredrick.
The proportion of female entrepreneurs taking loans also increased by 18% during the monitoring phase, jumping from 46% to 64%. While women are typically at a disadvantaged position, the pilot’s gender inclusion strategies have proved effective in enabling their equal participation in the local markets and in securing more loans.
These results not only demonstrated the lasting positive economic and social impact of stimulating energy demand in newly electrified villages, they also highlighted the sustainability of an approach that is engrained in the market dynamics of local businesses and its potential to be replicated in other areas.
Fredrick emphasised the value of implementing PUE activities alongside the national grid expansion, as well as in areas which are already connected to the grid: “PUE stimulation activities should be also considered in areas that have long been electrified but the economic benefits of electrification have not yet been realised. These are areas with highly untapped potential for processing industries and PUE fostering the uptake of productive use of energy will complement the country’s industrialisation drive.”
Welcoming the results of a successful collaboration, Børge Romsloe, Energy Counsellor at the Royal Norwegian in Dar es Salaam said: “The program has showcased how targeted activities to stimulate productive use of electricity can unlock local business potential and create economic growth. We have documented several important lessons that could inform the design and implementation of future interventions, and we are certain that future PUE programmes can deliver even stronger results.”
Which lessons can be learned?
While the positive results support the expansion of the programme into other regions, key learnings should be considered alongside potential tweaks when replicating the project.
- Although new partnerships with financial institutions and technology suppliers were successfully brokered, there is a need to develop loan guarantee facilities for larger investment capital and to increase the lenders’ appetite to lend to local businesses, which are often perceived as high risk. Discussions with financial institutions, donors, cooperative agencies and governments should take place to facilitate a greater access to finance.
- It pays to focus on areas with high potential for productive use of energy activities such as manufacturing, agriculture and agro-processing. In agricultural communities electricity can power water pumping, irrigation and cold storage systems. Electricity can also be used for agro-processing activities and to deliver final products to consumers. This helps increase income to farmers and food security for the country as well.
- Local government should be involved in promoting the productive use of electricity. Local government leaders, have been effective in creating awareness on community matters such as education and health. A number of District Councils have also established loan facilities dedicated to local entrepreneurs. Future projects should work more closely with them when conducting PUE awareness campaigns and facilitating access to finance.
- The Project has also drawn interesting lessons from gender equality and inclusion strategies. It has demonstrated that female entrepreneurs can be as successful as their male counterparts when given the opportunity, the requisite tools and skills.
A successful pilot means the programme can be implemented again to support new villages and businesses. The learnings and recommendations can ensure the next iteration yields even greater results. As the network grid continues to expand, so too can the PUE activities to drive economic growth and women empowerment.