Who Gets A $1B Line Of Credit? Akon Woos Middle East Investors For Solar Lighting Africa Business
Senegalese-American superstar rapper and businessman Akon visited the Middle East recently, trying to get financing for his business, Akon Lighting Africa.
Akon’s goal is to bring solar lighting to rural Africa. He grew up in a Senegalese town that had no electricity.
He says he’s brought lighting to 1 million Africans, and many of them got the lights for free as part of demonstration projects.
Charities don’t really work in Africa, said Akon in an interview with TheGuardian.
“I think (charity) just holds the people down longer than it should,” he said. “I think the only way to build Africa is to build for-profit businesses that create opportunities and jobs for the people locally.”
Instead, Akon is trying to push a business model that he says addresses some of the past failures of others — one that can guarantee returns. High capital and maintenance costs have been some of the key barriers to scaling up solar power in Africa, where about 24 percent of the population lack access to electricity, according to a report in Utilities.me.
The focus so far for Akon Lighting Africa has been on demonstration projects of solar street lamps and home solar kits in several African countries, Devex reported.
The solar street lamp business, by way of government contracts and tenders, has been the company’s main business. Those installations and contracts are managed through the company Solektra, which was founded by Samba Bathily, and serves as the business arm of Akon Lighting Africa.
Over 200,000 solar household electric systems, 100,000 street-lamps and 1,000 solar micro-generators have been proposed and installed in targeted areas, creating direct and indirect jobs mainly for local youth, according to Utilties.me.
Now Akon, along with partners Bathily and Thione Niange, is promoting a self-sustaining model that can attract local and international investments.
“Until now, we have used $240 million out of the $1 billion that we have at our disposal. We are present in 14 countries and want to expand into an additional 30 countries very soon,” Bathily said.
Attending the World Future Energy Summit 2016 in Abu Dhabi, Akon said he wants to install 15,000 microgrids in member countries of the Economic Community of West African States (ECOWAS). These include Benin, Burkina Faso, Cote d’Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo and Cape Verde.
To achieve that, he said he needs technical partners to help manufacture microgrids cheaply and financial partners to help de-risk the project.
“The more financial partners we can bring, the bigger the financing and the lower the risk for those investing in the project,” Akon said. “We are currently in discussions with major donors and financial institutions from whom we expect commitment.”
Fresh ideas and approaches are emerging from the Middle East that could help solve Africa’s energy crisis, Akon said. He described the Middle east as a “hub for pioneering sustainable energy thought leadership, innovation and investment.”
The know-how already exists to power Africa, Akon said. What’s still needed is greater technical innovation and more creative financial models.
“We believe that these resources are in the Middle East and that the positive growth in relationships between the Middle East and Africa will only create more business opportunities,” he said, according to Utilities.me.
Akon Lighting has set up a business model with governments based on prefinancing. African countries cannot always finance a $100 million project in shot, Niang said.
“We divide this into four equal installments of $25 million which most governments can easily include into their annual budgets.”
Solektra worked out a deal with Chinese suppliers for a $1 billion line of credit, Devex reported. The company uses this as part of a financing package they offer to governments as they bid for contracts or tenders. The credit line enables governments to pay the cost in installments over several years.
Once the company starts operating the new microgrid project, it will launch solar kiosks– built on top of microgrids — that will serve as a one-stop-shop to manage payments and maintenance for energy services. The solar kiosks will also provide added services to communities such as ICT and refrigeration.
“We aim at is to provide these rural communities with an easy way to pre-pay for energy access through a pre-paid card system, which is gaining popularity across Africa,” says Akon.
How Akon’s business model works
Before launching a project, the company runs a pilot phase where solar lighting is presented and deployed in areas designated by the local authorities — most without access to electricity. The cost of this pilot phase is directly covered by Solektra.
The pilot phase is followed by a larger scale deployment, as part of an official tender process.
“At this stage we work with other financial partners. Today we have secured financing from suppliers, export agencies, international and local banks,” Akon said, according to Utilities.me.
Ecobank is the company’s main banking partner.
The company employs local people to install and maintain equipment, positioning itself as a social enterprise that wants a positive impact on populations to drive growth across Africa and give back to African communities.
Distributing free home solar lighting systems could be problematic in a market where businesses are trying to sell similar products, Devex reported.
Though some companies have been working on powering Africa for five or 10 years, Akon Lighting Africa has “probably accomplished more than every last one of them combined in less than two years,” Akon said.
There’s a string of failed projects where an outside company came to Africa, installed solar lighting, made money and left.
“Many people come in Africa with many projects and they cash out and there’s no sustainability,” Niang said. “We learned we need to … make sure what we’re doing has continuity.”