[Column] Emma Colenbrander: Is an Amazon for Africa’s “energy poor” in the making?
A majority of consumers in Africa still live off the grid, in what are commonly called "last-mile" communities. Reaching these more than 600 million consumers -- who live without access to energy and many other essential products and services -- is a massive business opportunity.
But it is also very hard, even for major consumer brands, because last-mile populations are notoriously risk averse, often live in hard-to-reach locations with poor infrastructure, and have very little disposable income.
So it is unlikely that an e-commerce giant like Amazon will emerge anytime soon, but thanks to digital and other innovations, a growing number of hyper-local distribution companies that sell beneficial products such as solar lights and improved cooking solutions, are filling the void.
These companies, together with the suppliers and funders who support them, are on the cusp of overcoming some long-standing barriers to last-mile distribution: making products more affordable, minimizing credit risk, accessing working capital, and increasing sales efficiency.
To a large degree, their success will decide the global community's ability to end energy poverty, and achieve what the United Nations calls Sustainable Development Goal 7 (SDG7) -- access to clean, affordable, reliable and modern energy for all. Why? Because so-called "last-mile distributors" are best placed to reach the poorest and most vulnerable, i.e. the ones most likely to be left behind.
Incremental Innovation (at Scale) is Disruptive
Many of the innovations underway in the last-mile distribution sector are not revolutionary; instead, maybe a tweak here, or a tweak there. But when multiplied, these incremental innovations can have a transformative impact. Some of the most exciting areas of innovation include:
Product optimization: new efforts in East Africa are helping distributors identify and procure off-grid solar products that are both affordable and quality, so companies are no longer stuck between expensive quality-verified products, and non-verified products (cheaper but lacking in quality assurance). These efforts also help distributors by bundling these new products with credit payment terms, warranties, marketing materials, agent training, aftersales support and low minimum order quantities.
E-commerce: linked to the idea of an Amazon for the energy poor, there is a lot of buzz around e-commerce for beneficial products, with some interesting examples emerging from distributors like Easy Solar in Sierra Leone and Frontier Markets in India, but also some early failures. E-commerce would actually be disruptive, by enabling companies to reach a much larger number of consumers more affordably and with more choice, but it's complex and doesn't work in markets with low connectivity and digital literacy levels.
Digitization: The COVID pandemic has accelerated digital innovation, giving rise to new and improved software solutions to manage sales teams and inventory, assess customer creditworthiness, manage e-waste and more. Increasingly these solutions are being developed by third party service providers as value chains specialize, meaning distributors no longer have to reinvent the wheel developing these solutions themselves but can focus on what they do best: generating and meeting demand for beneficial products.
New Market Opportunities
There is also a lot of new ground to break in leveraging the full potential of last-mile distributors to deliver energy access.
Tapping into B2B: A significant majority of distributors operate B2C sales networks, but those networks can be expensive and time intensive to manage. Working instead through existing small and trusted local retailers -- as Copia does in Kenya and Essmart does in India -- could be much more efficient.
Open-sourcing insights and tools: Because last-mile distributors tend to operate in small territories, often focusing on depth rather than breadth of impact, there is little direct competition. As a result, there is great potential to open-source solutions that can be adapted to local contexts. For example, Mwezi in Kenya is developing a digital tool to train sales agents on how to sell and service solar water pumps -- a more complex product than solar lights and therefore needing highly technical skills to sell.
Blending FMCGs and beneficial products: Until now, fast moving consumer goods (FMCGs) and products with a social benefit have not been sold through the same distribution networks. The potential to cross pollinate and accelerate the reach of both is just starting to be explored for example through models such as UUI India or Jita in Bangladesh.
Building up local companies: Local companies have an advantage in last-mile communities, given their pre-existing networks, but they still struggle to access finance. VentureBuilder and the SIMA/Angaza Distributor Finance Fund are two examples of specialized investment vehicles set up to support locally-owned distributors.
Entering humanitarian settings: With 90% of displaced people living in camps without access to electricity, there is also a need to better understand how last-mile distribution models can be adapted to meet these needs.
But all of the innovation and opportunity will only be possible if the true value of distributors is recognized by the broader funding community, including donors, investors, and incubators. Distributors have been among the hardest hit energy companies during the COVID pandemic, with a July survey of 613 companies finding that 82% of distributors report major disruption to their business and 43% report being in hibernation mode. Now is the time to amplify support, to keep SDG7 within reach, and ensure an end to energy poverty.