Non-financial constraints to scaling-up small and medium-sized energy enterprises: Findings from field research in Ghana, Senegal, Tanzania and Zambia
Introduction
Access to clean and modern energy technologies is widely regarded as a key issue worthy of targeted policy and financial support, especially in sub-Saharan Africa, the focus of this Special Issue, where there is still a strong reliance on traditional biomass (wood, charcoal, and animal dung) and kerosene fuel [2], [11], [13]. In addition to the central importance of energy to economic growth and development, there are numerous co-benefits associated with the transition from traditional fuels, such as access to higher-quality light and heat and reduced greenhouse gases, in-door air pollution and local environmental damage, including deforestation [1], [12], [20]. Given the high proportion of rural households, poor infrastructure and the distances between smaller urban areas, energy markets in sub-Saharan Africa would appear to lend themselves to small and medium-sized business (SMEs) that can trade on local knowledge and networks, and are able and willing to pursue potentially lucrative but higher-risk business opportunities [23]. While this is a contentious claim, worthy of rigorous investigation in itself, we do not question this assumption and rather work, prima facie, with the idea that energy SMEs have a valid role to play in delivering modern energy solutions to low-income populations in developing countries.
The lack of access to affordable finance is often cited as the most significant barrier to the establishment and expansion of SMEs in sub-Saharan Africa, especially for businesses operating in new or relatively unknown sectors, including energy products and services [5], [14], [15], [24]. One of the main reasons for this is that formal financial institutions in sub-Saharan Africa are generally less willing to lend to SMEs due to the high risk of default, insufficient competition, poor guarantees and a lack of information about SME's ability to repay loans [14], [15], [19]. Therefore the majority of donor-backed programmes and policies to support the development of SMEs in Africa have a focus on the financial aspects of their viability. In fact, while most of the academic papers and grey literature addressing barriers to SMEs development in Africa focus on these financial barriers, non-financial barriers are considered as important although less discussed in the literature. In general, non-financial barriers are those linked to the wider social, economic and policy environment that affects business operations. Therefore various studies consider the need to address non-financial barriers prior to, or in addition to, exploring financial constraints to SME development [16]. Indeed that is the aim and purpose of this article, which draws upon the findings of a larger study, conducted in 2012–2013, entitled “Energy SMEs in sub-Saharan Africa: Outcomes, barriers and prospects in Ghana, Senegal, Tanzania and Zambia” (UNEP Risø, 2013).
In Section 2, we provide an overview of energy SMEs and the AREED project. Section 3 includes our research questions and the methodology used for this study. In Section 4, we provide some general and energy background on the four countries evaluated: Ghana, Senegal, Tanzania, and Zambia. We then look at the business models and institutional frameworks for each country (Section 5), followed by human capacity (Section 6) and social and cultural factors (Section 7). We conclude with recommendations and suggestions for future research.
Section snippets
Energy sector SMEs and the AREED project
The term ‘energy SME’ is widely used within the academic and development community, though it often goes undefined. The literature suggests that an energy SME is a business that ‘supplies energy-related products and services’ [6], [18], [26]. However, individual business activities vary and so these definitions are open to interpretation regarding what constitutes an energy product or service, including the extent to which these businesses focus on energy, in addition to other activities.
Research questions and methodology
The research summarised in this article draws on a larger study that focused mostly on the AREED project countries, although it was not an evaluation of AREED. A ‘terminal evaluation’ of the AREED I programme was carried out by N’Guessan (2009) and similar evaluations have been done for other programmes. As such, the aim of this research was to go further than documenting the extent to which various projects and programmes aimed at supporting energy SMEs have achieved their stated objectives.
Energy backgrounds and country contexts
According to the World Bank, Ghana, Senegal and Zambia are lower-middle-income economies while Tanzania is a low-income country. In terms of primary energy supply, the four countries rely heavily on biomass fuel for their cooking and heating energy needs, mostly in the form of wood fuel and charcoal, in both rural and urban households. See Table 1 for details.
Electricity is a key driver for all four countries’ continued economic growth. The electrification rates range from high for Ghana (72%)
Business models and institutional frameworks
Specific national circumstances and external effects may constitute barriers to establishing viable SMEs. In this section, we discuss some the contextual factors and institutional frameworks that have been found to influence the establishment and the business models of energy SMEs in the four countries.
Ghana
A key factor in determining the success or failure of energy SMEs, as highlighted by Frank Atta-Owusu (former AREED programme officer at the Ghanaian partner centre KITE), is the presence of business skills and motivation of individual entrepreneurs. Atta-Owusu illustrated the point with reference to the experience of Toyola, a successful cookstove manufacturer, explaining that the entrepreneur in this case had a clear idea of what he wanted to do, and was willing to take risks. In this sense,
Ghana
Two particular socio-cultural factors were evident from the consultations in Ghana: (1) the attitude to self-reliance vs. assistance from government, and (2) a tendency to avoid banks for borrowing money. Several stakeholders in Ghana referred to a ‘dependency syndrome’ among SMEs, although the true extent to which this attitude dominates the SME sector is unknown. It was, for example, not obvious among the entrepreneurs we interviewed. A vocal exception was Omane Frimpong from Wilkins
Conclusions, recommendations and future research
This article has presented some of the findings of a larger study into the experience of energy SMEs in four of the five AREED project countries: Ghana, Senegal, Tanzania and Zambia. Our focus has been a discussion of the key non-financial constraints to the establishment and scaling up of energy SMEs, complementing previous publications that focused on the financial barriers. In line with available literature on the relevant non-financial barriers to SMEs in developing countries, we
Acknowledgements
This article is based on a larger research project on energy SMEs in Africa, conducted by the same authors, which benefited from critical feedback provided by Nancy Serenje (CEEEZ, Zambia), Lilian Njuu (TaTEDO, Tanzania), Ishmael Edjekumhene, (KITE, Ghana), Secou Sarr, (ENDA, Senegal), Lawrence Agbemabiese (University of Delaware) and Eric Usher (UNEP). The authors are grateful for two anonymous reviewers and to the special issue editor Kathleen Hancock for her constructive comments, good will
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