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FEATURE STORY May 6, 2021

Somalia’s Businesses Tap Solar Energy to Expand, Boosting Economic Growth

World Bank Group


STORY HIGHLIGHTS

  • Somalia’s electrification rate, at 35.3%, trails the East Africa average of 39.8% and the Sub-Sahara Africa average of 47.7%
  • The Somali Business Catalytic Fund (SBCF) strengthened the crowding in of private capital into the financing of solar energy solutions in Somalia
  • SBCF enabled the creation of at least 2,200 new jobs in Somalia

MOGADISHU, May 6, 2021—Somalia is facing a third wave of the COVID-19 pandemic that has disrupted businesses and the country’s economic outlook. A recent World Bank Group and United Nations Industrial Development Organization (UNIDO) survey noted the pandemic’s significant impact on Somalia’s private sector narrowing sales and employment by about 30% and leaving most firms with liquidity challenges. Yet, Mohamed Abukar Adaawe can still run his business round the clock. It is a stark departure from what he did in the past when unreliable power supply meant his business was punching below its capacity. Even at its best, the power supply at the time only allowed him the very basic operations.

“The electricity was only available between 6:00pm and 10:00pm or 11:00pm. During those hours, we could not turn on any refrigerators or anything else,” said Mohamed. “As businesses, we were only allowed to use electricity to keep the lights on and sometimes charge our mobile phones.”

It was not enough that electricity supply was unreliable; at 35.3%, Somalia’s electrification rate trails the East Africa average rate of 39.8% and the Sub-Saharan Africa average of 47.7%. It was also too expensive and locked out many businesses, particularly the micro and small enterprises.

“In the past, we used to rely on generators for electricity,” he said. “Now with the help of solar panels thanks to Solargen Company, we spend only 10 US dollars a month for the electricity that is available to us 24/7. This has allowed me to keep my shop open all day and also the evening until midnight. That means my shop generated more income and costs on electricity have greatly decreased.”

Business owners were also able to save money from the reduced cost of electricity. With his extra savings, Mohammed was able to start a new business selling cold drinks and ice cream, an enterprise that was impossible without Solargen solar panels.

The change of fortunes has been made possible through the Somali Business Catalytic Fund (SBCF), a $13 million matching grant operation under the World Bank-supported Somali Core Economic Institutions and Opportunities Project (SCORE). Managed by DAI Global, an international development company, SCORE  provided matching grants to businesses to catalyze private sector investment and incentivize productivity, increasing activities and services to all sectors and commercially-oriented small enterprises such as Solargen.

“Solargen received $75,000 from the SBCF which they matched with $75,000 of their own investment capital to enable Somalis acquire solar systems,” said Rosa Tarling, DAI’s Senior Programme Manager. “The objective of the grant was to help Solargen introduce a new way of acquiring solar systems through a lease-to-own approach which involved clients paying regular monthly fees until the price of the system was paid.”

This form of funding, which allows small, regular, phased out payments, has been particularly critical in Somalia as it allows micro, small and medium size businesses to overcome the hurdle of high upfront costs associated with acquiring quality solar systems to address energy challenges. Under the SBCF, Solargen was able to acquire 350 solar batteries in June 2018 for final installation in customer premises for operating businesses and lighting households.

“There are small businesses that are owned by women and they make ice using electricity,” said the Chief executive Officer of Solargen, Abubakar Aidurus. “We were able to give them solar fridges which they were only able to afford under a lease-to-own model where they were making payments in monthly instalments over a one-year period.”

SBCF funding has spurred job creation and helped de-risk lending to businesses by domestic financial institutions. businesses tackling high unemployment and poverty rates,

Benjamin Musuku, a World Bank Senior Financial Sector Specialist, said that the approach was not to replace private capital, but to complement and crowd-in additional investment.

“The most significant impact is that we were able to create over 2,200 new jobs by the businesses that were supported,” he said. “The top three sectors which contributed to this job creation were manufacturing, agriculture, and fisheries.”

Such efforts from the private sector augment state and multilateral-led interventions aimed at addressing the electrification challenge in countries such as Somalia. The World Bank’s Somalia Electricity Access Project has deployed $3.0 million towards electrification of households and businesses through standalone solar home systems, and the Bank is using an additional $1.0 million to facilitate analytical work for enabling electrification through solar-powered hybrid mini-grids.



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