KEY POINTS
- High energy costs limit the profitability and growth of African SMEs.
- Affordable energy enables SMEs to innovate, expand, and create jobs.
- Renewable energy solutions can reduce costs and ensure sustainability.
Small and medium-sized enterprises (SMEs) are the backbone of Africa’s economy, accounting for an estimated 80 percent of jobs across the continent.
Despite their significance, many of these businesses face crippling challenges due to the high cost of energy.
Affordable energy isn’t just a convenience—it’s essential for the growth and sustainability of Africa’s SMEs.
Energy costs and SME survival
Operating expenses costs especially in the form of energy remain high for most SMEs in Africa.
For instance, retail shops that require constant light and electricity to power refrigeration or manufacturers that rely on machines, energy costs are directly proportional to profits losses.
This, coupled with high electricity tariffs or, in some countries, erratic supply forces small and medium enterprises resort to costly electricity sources such as diesel generators.
This not only cuts into the potential amount of profits being made but also tends to dissuade investment in growth.
For instance, a manufacturing business organization having a budget of nearly 30 percent on energy expenditure has no way to invest on innovations or expansion.
Such costs are detrimental in the long run since they lock SMEs out of the two markets; domestic and international.
Affordable energy as a growth enabler
Availability of affordable energy, can transform SMEs by increasing efficiency, diminishing expenses, and directing the savings towards business development.
Stable and affordable electricity to community leads to innovation whereby business adopt better technologies to enhance productivity.
Several emerging forms of energy such as solar and wind energy have demonstrated potential of lowering cost of energy to the SMEs in Africa.
For instance, off-grid solar access has enabled small enterprises to generate electric power without recourse to expensive grid extension or fuel-based generation.
Through implementation of these solutions, SMEs are able to realize a tremendous reduction in cost and at the same time the environment will be protected.
Economic and societal impact
Affordable energy is not only good for a single company, this advantage has a ripple effect within an economy.
Since SMEs can cut down their energy cost, they will be in a position to generate new employment, offer better prices, and enhance their proportions of the GDP.
Furthermore, accessible and reliable energy lowers the risks related to businesses, and ensure that people are able to explore other markets that seem initially unprofitable.
