Women-led SMEs across the continent depend on reliable and affordable energy but often lose out because of grid and centralised power problems. Instead of waiting for grid power, Salma Okonkwo argues, off-grid solar projects and mini grids offer a way forward.
The COVID-19 pandemic has exposed the vulnerability of the 600 million Africans who live in energy poverty. One in four healthcare facilities in sub-Saharan Africa does not have electricity and more than 70% of hospitals have only unreliable access to power.
Pandemic-related shutdowns reduced income for millions and imperilled small and medium-sized enterprises (SMEs) that constitute 90% of all businesses in Africa. The cost of energy was a concern for individuals and SMEs before the pandemic and is even more so now, given the recessionary pressures.
These disruptions present an opportunity for policymakers and investors to rethink energy in the context of African SMEs, particularly those led by women. Energy systems that fuel SMEs can help African economies recover from COVID-19, while unlocking the potential of women entrepreneurs.
Policymakers and investors should prioritise the development of off-grid solutions, such as household solar and mini-grids, which can quickly bring affordable electrification to SMEs.
The pandemic has hit Africa’s crucial SME sector, which is the engine of Africa’s growth, the hardest. These businesses employ 85% of all Africans in the labour market. The contribution of SMEs ranges from 3.4% of GDP in Ethiopia to over 70% in Ghana.
Shutdown orders directly affect the millions of jobs SMEs support and have a direct impact on the projected declines in GDP growth rates. In West Africa, these sectors employ 90% of women, and 25% of sub-Saharan African women are engaged in early-stage entrepreneurial activity.
All told, the pandemic will have a severe effect on SMEs and, specifically, women-owned businesses. African economies’ dependence on these businesses warrants an examination of their challenges and solutions to improve their resilience to future shocks. Energy is at the centre of this discussion.
Unreliable and expensive energy plagues SMEs and holds back their growth. Solving the liquidity issues that SMEs faced before the crisis is vital to getting them back on their feet. The African SME sector is known as the “missing middle” when it comes to financing, since businesses are either too small to provide the collateral for bank loans or too big to access microfinancing.
As a result, many SMEs operate on slim margins and can become unprofitable as a result of small changes in their cost structures.
A small businesswoman in rural Nigeria who sells refrigerated goods, for example, could lose her businesses if she cannot afford to keep her refrigerator running. If this is the only cold market in town, an entire rural economy suffers in turn.
High cost of poor power
Energy costs make up a significant portion of SME business expenses. By some estimates, African businesses pay 25% to 100% more for electricity from the grid than companies in other regions. This is because businesses must often rely on expensive and polluting diesel backup generators for energy in the face of frequent national grid power outages.
One study found that 25% of Ghanaian and Nigerian businesses suffered double-digit losses in sales due to power outages, with some firms losing as much as 31%.
Women entrepreneurs face even more challenges with energy access. For example, women are discriminated against when applying to connect their businesses to the grid. A Ghanaian seamstress working from home due to COVID-19, for example, must have reliable power at her house to sew. If the grid is out and she cannot afford diesel for a generator, she simply cannot work and generate income crucial to her household.
Priority projects for fuelling the post-COVID SME recovery should include off-grid solar and microgrids. Rapidly emerging crises like a global pandemic require rapid action in response. Off-grid solar projects are easier to get off the ground as they do not require major transmission lines, grid interconnection or multi-year construction schedules.
Speeding it up
The speed of electrification is crucial to the post-COVID recovery. Ghana’s electrification programme spanned 30 years and achieved 80% electrification. Getting to 100% cannot take another decade. Off-grid solar projects can provide a reliable and affordable source of energy to rural SMEs without the challenges of grid connection.
Pay-as-you go business models offer business owners a way to manage electricity costs and create potential scenarios where an SME can own their own generation. It is no wonder why Africa has been the largest destination of off-grid solar investment to date.
Mini-grid projects are the most cost-effective way to bring power to hundreds of millions of Africans. It is often the case that the rural target customers for mini grids do not have enough electricity demand to be economical customers. SMEs, however, often demand more energy than households and can be viable customers for mini-grid projects.
Off-grid solar projects and mini-grids can provide stable and affordable power to SMEs across Africa. Reducing energy costs for SMEs is a fundamental step to beginning the post-COVID19 recovery – and to unlocking the potential of women entrepreneurs.
Salma Okonkwo is a senior business executive with over twenty years of experience in Africa’s energy sector. She has deep and wide-ranging expertise in energy from oil and gas to renewable energy. She recently launched Blue Power Energy Ltd. (BPE), an alternative energy company developing a $200m solar farm project in Northern Ghana. Blue Power Energy (BPE) is focused on creating a sustainable energy future for Ghana and Sub-Saharan Africa that will drive economic growth.