By Lindsay Madiera
Today, 1.6 billion people worldwide and more than 500 million in Africa lack access to electricity for basic needs such as household cooking and lighting. The number in Africa is expected to rise over the next 20 years to nearly 700 million. These people rely predominantly on fuel-based cooking and lighting (mostly with charcoal, wood, and kerosene) that is inefficient, costly, dangerous, a threat to human health, and a contributor to greenhouse gas emissions.
Lighting consumes the highest percentage of expenses for energy in the home; African consumers spend between $10 billion and $17 billion on kerosene for lighting. To improve this situation, public and private sector partners are modeling a new distributed innovation approach - acting as market makers - to accelerate product innovation that will bring modern off-grid lighting products to this "bottom of the pyramid" population.
Private Sector Cannot Develop the Market on its Own
Advanced modern lighting technologies have the potential to replace kerosene with better consumer products, but substantial barriers block commercial markets for these products in the developing world. Moreover, the private sector is ill equipped to capture the market on its own.
Lighting Africa, a World Bank and International Finance Corporation (IFC) joint program, acts as a partner clearinghouse to facilitate international collaboration to address these problems. Starting with lighting and advancing to additional energy services, Lighting Africa acts as broker between private companies and customers to create markets for better lighting products. By supporting the development of improved products and business models, it helps provide practical, affordable alternatives to kerosene.
An essential role of Lighting Africa is as a "matchmaker" between industry groups and other relevant stakeholders such as non-government organizations (NGOs), local governments, academia, financial institutions, and international development organizations. By matching products to buyers, Lighting Africa helps provide African consumers with modern lighting options at prices they can afford, substantially improving their lives and reducing the impacts of climate change.
Without intervention, a number of barriers that have been addressed through this distributed innovation approach would have inhibited the development of markets for better lighting products in sub-Saharan Africa, South Asia, and other parts of the world:
. Lack of understanding and high transaction costs that deter the private sector from fully appreciating the market opportunities
. Lack of consumer awareness about the benefits of off-grid lighting, resulting in poor consumer purchasing decisions
. Lack of product quality assurance and technical support services, resulting in fewer products and compromised quality
. Policy and regulatory impediments such as import duties, customs issues, and market-distorting subsidies that undermine creation of sustainable markets
. Lack of business support services and access to business networks/partners
. Limited access to finance along the supply chain, undermining purchasing power
Lighting Africa reduces barriers and promotes rapid market acceleration by providing market intelligence and consumer education, business support services, and policy and public sector operations. Two of its most visible services involve providing quality assurance and access to financial assistance.
A multi-pronged approach to quality assurance helps manufacturers design high quality products and protects consumers from buying poor quality ones. Lighting Africa accredits test labs close to manufacturing centers (mostly in Asia) and builds local testing capacity at universities to provide manufacturers access to a "quick screening" of their products. The project also works with local regulators and collaborates with a new International Stakeholder Association to develop a "quality seal" to help buyers make informed decisions.
Lighting Africa partners with commercial financing institutions to educate them about the business opportunities in this sector and supplies them with wholesale capital and risk mitigation tools to guide them in financing participants throughout the supply chain. The project also is considering offering direct financing to organizations such as E+Co and Acumen Fund, which provide funding for specific projects in developing countries.
Partnering with microfinance institutions and leveraging innovations in mobile banking also better enables consumers to finance their purchases of these products. The project's strategy is to create self-sustaining markets that make efficient, carbon friendly products affordable to consumers rather than rely on often limited and short-term donor funding.
Early evidence shows that the project's support has helped accelerate many parts of the market for modern off-grid lighting in sub-Saharan Africa. In 2008, fewer than 10 products were developed specifically for this market; today more than 70 product types manufactured by 50 companies find space on African retail shelves. Also in 2008, products above $50 dominated the market; now many quality products retail between $25 and $50. Manufacturing costs of solar portable lighting are projected to decline by 40 percent per year, largely due to falling solar photovoltaic (PV), battery, and light-emitting diode (LED) prices.
Lighting Africa's success illustrates the direct benefits of a coordinated public-private effort to help nascent industries mature and to achieve full-scale commercialization of new technologies. Lighting Africa also is an excellent example of the important role a neutral international organization can play in facilitating this kind of coordinated action to develop and distribute products that are urgently needed in high-risk environments.
Lindsay Madiera is a consultant for the International Finance Corporation (IFC), the private sector arm of the World Bank Group, where she has been supporting the initiative, Lighting Africa, since its launch in 2007.