Service delivery to the poor: solar energy in rural areas.

During my stay in Mozambique, I have been confronted on a daily basis with real poverty: children living on the streets or in shanty towns, selling candies or peanuts, and living on less than a dollar a day. Many NGOs projects and government funded programs aim to bring development to these people, in an attempt to improve life at the so-called bottom of the pyramid. Unfortunately, many of these projects never reach their full potential. Even worse: a number of projects actually do more harm than good, because of bad planning or a wrong strategic approach. Let me give you one example of a good project gone semi-wrong, which I personally encountered last week:

The framework in Mozambique to deliver solar energy to the rural areas is quite poorly constructed compared to other African countries: solar products (panels, lanterns, …) come with a high added import tax (compared to tax-free in e.g. Uganda), most of the projects in solar energy have to go through a strictly organized government-funded agency, and there have hardly been any awareness campaigns towards these rural areas. The poor have been left both literally and metaphorically speaking in the dark.
One response from a local NGO has thus been to train and support community leaders to distribute solar systems, to overcome the knowledge barrier. To take the price hurdle, this NGO has provided support to these community shops by sourcing the materials themselves and selling them to the shop at a lower price (i.e. co-financing). At first sight, this seems like a straightforward and reasonable strategy to follow: people can now enjoy the benefits of a solar home system at a price that is comparable to what it would be without these added taxes. This NGO started with this program and strategy about a year ago, and has already helped put away a high number of solar home systems in the rural communities. Today, however, the program has temporarily stopped, the shopkeeper has stopped selling solar panels, and demand is steadily decreasing. Why?
The local NGO obviously depends on other (often International) NGOs, government agencies, or development agencies to deliver the funds for these programs. In this particular case, the local NGO has received no further funds, as the program was for one year only and the donors were still reassessing their strategy. Therefore, the NGO no longer had the capacity to buy materials, so that the supply to the communities was halted all of a sudden, while the successful shopkeeper was running out of supplies. The community shopkeeper could obviously bypass the NGO and try to directly secure the materials from the main suppliers, though this would mean that the shopkeeper would have to bear both the real costs of the products plus the costs of transportation, so that he would only be able to offer solar systems and components at prices much higher than what people were paying just one month before. Ergo, demand drops, and the shopkeeper does not want to take the risk to invest in expensive systems.

It becomes clear that it will be very difficult to either convince one retailer to invest heavily in these systems, or to convince the customers that this investment is worth making (despite their neighbour having paid about 30% less for the exact same system just weeks before).

There’s obviously a mixed feeling: one the one hand, thanks to the strategy followed by this local NGO, people who formerly could not afford a system have now been handed the chance to purchase one; on the other hand, in the long run it will prove to be difficult to pick up the pace without once more subsidising these systems and offering them at a price that is lower than the market can offer them. Now, I don’t want to criticize this system of subsidies to heavily, as the outcome in this case is still positive (without this NGO, hardly any systems would have been sold at market prices). But, it is clear that this strategy will only be sustainable, if it can include some aspect of market development. Through market development tools – organising suppliers so that they can buy in bulk, increased competition, setting up associations to lobby the government for a more beneficial legal framework – prices will inevitably drop and quality will improve. When market prices drop, so will the value of the subsidy, while the total price of the systems offered through the local NGO to the community shops remains the same. In the long run, the market price has become exactly this offering price, so that the local NGO is no longer required to provide financial support. Subsequent market price drops will then also result in real price drops, and inevitably an increased demand.

For this to happen, however, it is crucial that firstly, the local NGO has sufficient funds to go the distance, and that secondly, some form of market development is happening (be it by the local NGO or any other organisation).

Thanks for listening.

Your blogger, at your service.