Electrification sparks business transformation in rural Tanzania

Businesses in rural Tanzania have seen a big jump in profits and jobs after taking advantage of the expansion of the national grid. Connecting to the grid has allowed businesses to work more smartly, bringing in new machinery and processes to make them more efficient, reduce their costs and offer new products and services. 

The transformation has come about thanks to an Energy 4 Impact-led pilot project to support Tanzania’s drive to promote take up of electricity as the national electricity grid is extended to more and more rural areas. 

Tanzania has had one of the lowest rates of access to electricity in Africa, but this is now changing thanks to the government’s drive to connect villages to the national grid region by region. One of the rural electrification programmes - the Rural Electrification Densification Programme (REDP), run by the Tanzanian Rural Energy Agency (REA) with funding from the Norwegian government – had extended the national power grid to 392 villages in six regions of Tanzania by 2019. 

To ensure the benefits of greater access to electricity are felt economically, a component of the REDP focuses on promoting the Productive Use of Electricity (PUE) to increase business uptake. REA, in partnership with Multiconsult, a leading firm of engineers and designers, commissioned Energy 4 Impact to run a PUE pilot to promote the benefits of electrification to businesses. The pilot has focused on increasing awareness of the potential and opportunities for entrepreneurs, and stimulating electricity use by small businesses, thus giving a boost to local economic development. 

Pilot programme pushes up participation 

The Energy 4 Impact pilot programme ran from January 2018 to March 2019. Working with the Rural Energy Agency (REA) and Multiconsult, Energy 4 Impact targeted 59 villages in two regions: Tanga and Pwani. 

Over the life of the project, Energy 4 Impact has supported 349 enterprises. Results show that across the businesses there has been an 87% increase in profits and 214 permanent new jobs have been created.  Electricity take up has increased dramatically – an 80% increase – with cleaner electricity from the national grid often replacing old polluting forms of energy such as diesel. 

Energy 4 Impact’s role has been to build awareness of connecting to the grid and the potential it brings, giving information and advice to residents and rural entrepreneurs including agro-processors, wood mills, carpenters, retailers and other enterprises. 

Roadshow reaps success

The Energy 4 Impact team developed resources and training materials to use in a mobile clinic which was set up in a truck to travel around the 59 target villages to meet with local residents and businesses. The clinic was a great success, drawing in more than 4,000 people wanting to know more about connecting to the grid and how it could help them. 

The mobile clinic ran a pop up cinema that screened videos explaining the benefits of connecting to the grid, and showcased common electrical appliances such as fridges, juice blenders, hair dryers, ice making machines, food fryers and printers that can enhance people’s lives and provide business opportunities. Product catalogues were on hand for those interested in purchasing equipment. 

Early in the project, mentors selected and trained local PUE champions to be the ‘go to’ person in each village for guidance on using electricity. They helped the team publicise the clinics and identify local businesses who could benefit from more in-depth support in one-to-one consultations with Energy 4 Impact mentors. 

Energy 4 Impact’s business mentors developed tailored packages and tools for PUE to use to guide individual entrepreneurs. The tools included business case assessments, economic analysis, value chain analysis, and financial needs assessment. 

349 local entrepreneurs were selected for personal support. Energy 4 Impact mentored them in the basics on using electricity (power ratings, usage, kwh, tariffs etc), the potential and benefits of electricity, and how to develop a business case for new electrical appliances and machinery as well as marketing, book-keeping and financial management. 

Once an entrepreneur decided to go ahead with connecting to the grid, Energy 4 Impact mentors were able to give two-fold support: first with helping to select the best equipment to meet their needs and identify the best suppliers, and, secondly, offering introductions to financial institutions who could provide business loans or financial support to buy the equipment. The mentors helped them develop investment plans to share with potential lenders.  Altogether 121 new formal loans and 274 informal loans were secured, and 339 appliances were purchased. 

Energy 4 Impact mentors continued their support to the businesses after the purchase of new electrical appliances or equipment by providing technical training to ensure correct installation, handling and operation of all equipment and appliances. They also helped entrepreneurs in assessing and developing new markets and risk assessments for growing their businesses. 

“The PUE champions have been instrumental in the implementation and success of the project thanks to their enthusiasm and commitment,” according to Fredrick Tunutu. “They were invaluable in mobilising people to attend the clinics and the recruitment of entrepreneurs.” 

Amina Kadudu, a mill owner who transformed her own business by introducing an electric milling machine, is one of those champions. She was keen to encourage other entrepreneurs to learn the benefits of electrification and enrolled in the Energy 4 Impact training scheme to become a PUE champion in her village of Bagamoyo.

Greater affordability 

The impact of the project can be seen not just in the boost to local economies and the rewards business has reaped, but it is also having a positive impact on the quality of life of rural people as products and services become more affordable. 

For example, after connecting to the grid a local brick producer was able to buy new machinery to increase production from 600 to 1000 bricks a day, reducing the price of a brick from TZS 1200 to TZS 900, making the cost of building solid houses more affordable allowing more people to build such homes. 

Similarly, a borehole business was able to expand after connecting to the grid. The increased production allowed a cut in the unit costs, so village residents could buy more water. In turn, the owner increased his income allowing him to ensure he could afford to pay for his children’s access to education. 

The project team were pleased to see an increase in women entrepreneurs getting involved in the project and developing their businesses. More than half the loans obtained went to women to develop or grow their businesses. 

“We were delighted to see progress in encouraging more women to be involved, with women making up more than 40% of the entrepreneurs who were drawn in, a significant increase to previous programmes when less than a third (27%) were women, “ said Energy 4 Impact Programme Manager Fredrick Tunutu. 

Though the pilot programme has finished on the ground, Energy 4 Impact is continuing to collect and analyse information from the project and those supported through it. 

The success of the Energy 4 Impact PUE pilot programme cements a partnership between Tanzania and its development partners that aims to connect all 12,265 villages by 2021, and puts Tanzania in a stronger position to meet its energy needs and Sustainable Development Goal 7 in a clean and affordable way. 

“The data demonstrates how electrification and this projects is contributing to Tanzania meeting the UN’s Sustainable Development Goals (SDGs). As well as SDG 7 on greater access to affordable and clean energy, it has also contributed to achieving SDG 5 on gender equality and SDG 8 on decent work and economic growth,” said Energy 4 Impact’s Director in East Africa, Godfrey Sanga. 

Cleaner machine means finer flour, lower cost and new lease of life for milling business 

Maize flour producer Mr Kilua Joined the Productive Use of Electricity Programme in July 2018, after meeting Energy 4 Impact at one of their roadshow clinics. 

Mr Kilua was using an old diesel machine for milling flour that was costly to operate. Though initially sceptical about putting up money for investment, an Energy 4 Impact mentor showed him the business case for investing in a new electric machine – the benefits it would bring and how he could recoup the investment within six months. 

Mr Kilua decided to go ahead and purchase a new electric engine to convert the old diesel machine. The mentors helped link him with suppliers and selecting the machine most suited to his needs. Once the machine was installed the mentor continued to support him to develop his business development and entrepreneurship skills after an assessment showed that he had not been keeping records and the business had been stagnating. 

Now the business has a new lease of life, and in a short timespan there has been a big impact in reducing costs and improving production. Energy costs have dropped dramatically: from TZS 12,500 a day for 5 litres of diesel to TZS 1428-1785 for 4-5 units of electricity a day. And an extra benefit was that the quality of the flour improved as the power produced through electric operation allows the grinding chamber to crush the corns more effectively resulting in a finer flour. 

Overall there has been a 30% fall in the cost of production, with the cost of a basket of maize dropping from TZS 1500 with the old diesel machine to TZS 1000 with the cleaner electric-powered machine. And thanks to a growing market and the ability to diversity, Mr Kilua has been able to add an employee to assist him in the business. 

“The old machine was a millstone around Mr Kilua’s neck. Now he has a cleaner, more efficient machine that has reduced his costs by one third and given a new lease of life to the business so that he can look to grow the business in the future, said Energy 4 Impact’s Business Mentor Frank Malembela. “It is a win-win situation all round.”