Assessment of Business ideas for the productive use of RE in Botswana

Assessment of Business ideas for the productive use of RE in Botswana

Assessment of Business ideas for the productive use of RE in Botswana

Integrated Southern Africa Business Advisory (INSABA) Assessment of Business ideas for the productive use of RE in Botswana Report for Deliverable 3.2 and 3.3 Prepared by BOTEC and Gerrit Jacobs, Solar International Botswana Disclaimer: The sole responsibility for the content of this report lies with the authors. It does not necessarily reflect the opinion of the European Communities. The European Commission is not responsible for any use that may be made of the information contained therein. The authors endeavour to supply reliable analysis and believe that the material it presents is accurate, however, they will not be liable for any claim by any party acting on such information.

Assessment of Business ideas for the productive use of RE in Botswana

Business ideas for productive use of RE in Botswana INSABA Business ideas 1 Table of Contents Table of Contents ___ 1
1. Identifying Business ideas for productive use of RE in Botswana ___ 2
1.1 Process of identifying project ideas ___ 2
1.2 Development of business plans ___ 2
1.3 Financing of business ideas ___ 3
1.4 Implementation of business plans ___ 3
1.5 RE Technologies in business ideas ___ 4
1.6 Replication ___ 4
2. Business Plans 2.1 Mobile photo & printing shop - 2.2 Payphone charging - 2.3 Vegetable farm with irrigation - 2.4 Barber shop - 2.5 Khutse lodge with SWH - 2.6 Mobile fruit juice vendor

Assessment of Business ideas for the productive use of RE in Botswana

Business ideas for productive use of RE in Botswana INSABA Business ideas 2 1. Identifying Business ideas for productive use of RE in Botswana 1.1 Process of identifying project ideas: Some of the initial business ideas had to be abandoned because they did reveal not to be financially or technically feasible. For example the possibility of installing a solar water pump in a horticulture project operated by a women’s group was considered. Unfortunately this was not pursued further as CEDA, the then the only financing partner in the project (as a member of IAT), does not finance projects owned by cooperative organizations.

Another ideas followed was an Ostrich farm in Molepolole. However, it has been established that the energy demand for this project is beyond the capability of solar energy. The farm uses an incubator for hatching eggs. The farm has no electricity (it would cost about 375K to connect to the grid) and as a result the incubator is kept in the nearest village, Molepolole which is about 5km away. It has been noted that INSABA services need to be marketed rigorously in the country for entrepreneurs to consider RETs as useful alternatives to conventional power. Although INSABA-BOTSWANA was advertised in both the media, responses received were quite low.

New partners like the Board of Trade and other vocational training institutions should be involved.

1.2 Development of business plans After some of the initial business ideas had to be abandoned for reasons as those mentioned above, business plans have been developed with support if the IA Gerrit Jacobs from Solar International Botswana. In order to systematically assess the potential of business ideas, BOTEC developed project descriptions on business ideas like barber shop, pay-phone charging, vegetable farm with irrigation, tourist lodge with SWH, battery charging station, chicken farm lighting and PV pumping for cattle farm. These business ideas were then discussed with potential SME-GS and data were collected from existing businesses such as horticulture, barber shop, pay phone.

From this information complete business plans have been prepared for the productive use of renewable energy in:

Assessment of Business ideas for the productive use of RE in Botswana

Business ideas for productive use of RE in Botswana INSABA Business ideas 3 - Mobile photo & printing shop - barber shop - payphone charging - vegetable farm with irrigation - Khutse lodge with SWH - Mobile fruit juice vendor The development of business plans was considered a breakthrough. The plans indeed support the concept of productive use of RETs. 1.3 Financing of business ideas Many of the potential businesses assessed during the project would have been involved in INSABA related projects if funding to purchase RETs systems was readily available, particularly for very small businesses that require loans less than €1000.

It is understood that financial support is vital for any economic activity and that is why there are banks and other financial institutions in place. This is mainly true, however, for small and even medium enterprises because most of them start economic activities for the first time (Start ups). Generally in most developing countries no financial institutions are ready to give loans to small and medium sized start-up enterprises. That is why financial considerations are generally part of RE-strategies. 1.4 Implementation of business plans From all the INSABA-Botswana accepted business, only one i.e.

the “Photoshop” was realized in time e.g. before the official end of the INSABA-projects. The mobile photo business, which is operating from the bus rank, has been Botswana’s INSABA success story. The entrepreneur has now started to pay back the loan he acquired to purchase the photo and solar PV equipment.

It can be stated however, that all projects are very likely to be put in action still 2008 or latest 2009. The irrigation project could not be realized, because solar pumping presented physical barriers to the project, but this, by no means, does not mean that Solar

Assessment of Business ideas for the productive use of RE in Botswana

Business ideas for productive use of RE in Botswana INSABA Business ideas 4 Irrigation will not applied when better conditions are present e.g. a ground-water table below 100 m. The INSABA Fresh Fruit Juice Business was stopped by municipal authorities, as sale of fresh food produced in the street for public consumption is not allowed for health reasons.

Though that type of business is quite frequent in other countries, it can not be realized in Botswana for the time being. 1.5 RE Technologies in business ideas One can observe a certain concentration by INSABA-Botswana on Solar-Energy applications. This can be explained by the fact that solar applications are currently the most supported and mature renewable energy applications in Botswana. From the group of IATs, INSABA-Botswana worked closely together with the enterprise Solar International Botswana (SIB) (Pty.) Ltd.

The circumstances are relatively obvious because Botswana is a relatively dry country where Solar Energy applications have a fair chance in the local energy market. Furthermore SIB advised INSABA-Zambia as consultant. This intervention is understood by InWEnt as one of the INSABA success-stories. Additionally a very fruitful cooperation between Botswana and Namibia started on the Solar-Energy field as one further positive element in the South-South Cooperation. Botswana has started investigations in the Biomass-sector1. Jatropha is a topic, but might have few chances due to high water demand.

Probably other autochthones oilcontaining plants may have a better chance to be used as bio-fuel. 1.6 Replication Replication is important for INSABA type of projects. This could be possible if there are several businesses that are running that other entrepreneurs can copy from. Entrepreneurs should be encouraged to advise other entrepreneurs. It is very difficult for individuals and organisations that do not, for instance, have vested interest such as suppliers or manufacturers, to mentor entrepreneurs.

1 The Feasibility study for the production and use of Biofuels in Botswana, EECG, Box 402339, Gabarone, Botswana, E-Mail: pzha@global.bw

Assessment of Business ideas for the productive use of RE in Botswana

Business ideas for productive use of RE in Botswana INSABA Business ideas 5 Organisations such as the Local Enterprise Authority should be lobbied to integrate INSABAs way of business analysis in their functions. This would go a long way in marketing the use of Renewable in businesses. BOTEC and Solar International Botswana could lead this task. BOTEC will also lead production of a manual with tools, who entrepreneurs can contact for advice and where the advisors can be located.

This will require advising institutions to commit themselves that they will be available to assist entrepreneurs.

Assessment of Business ideas for the productive use of RE in Botswana

1 Mobile Photo Shop Business Proposal Business Description Mobile Photo Shop business Proponent Arnold Tshwaranang Moleofi is a young motivated entrepreneur who is interested in running a mobile photo shop business. He has undergone a Business Studies course and has started a car wash financed through own resources, which is run by family members. He does not have a bank account but is considering opening one. Mr. Moleofi has no experience with formal loans but is well acquainted with cost calculations and marketing since this was part of his professional training.

Location The photo shop business is mobile and can be located at shopping malls, bus ranks, train stations, public and sporting events and other locations where there is a likely market for selling photos.

Business Factors In Botswana there are no mobile photo shops. Photo shops operate from fixed locations in town centres. However, there are people with instant cameras that mainly take passport photograph size photos. The proposed mobile photo shop consists of a digital camera and a printer/copier/scanner, which are located in a mobile stall. Photos are taken and are printed at the spot. The camera connects directly to the printer, so there is no need for a computer. Other services that are provided are indicated in the box on the right.

Since the business operation is entirely mobile, it can be situated at a location where the market potential is highest. The equipment is powered from a solar panel and battery. Measurements of the printer show that the power consumption when printing is approximately 300W and when on standby it is approximately 25W. One 50Wp panel and one 100Ah battery are sufficient to power the printer. The photos are laminated using plastic foil, rather than a thermal process because of the limited energy that is available from the solar system. The primary business activity is taking photos. However, the printer has copying and scanning capabilities, therefore these services are also offered.

  • The photographer will offer different backgrounds for photos such as the Eiffel Tower and Statue of Liberty when taking photos. There will also be life size cut-out pictures of popular soccer and movie stars. Draft: 31 August 2007 Mobile photo shop services
  • Taking photos
  • Printing photos A4, A5 and A6 size
  • Laminating photos
  • Making copies
  • Scanning documents
Assessment of Business ideas for the productive use of RE in Botswana

2 Pre-Assessment The general feasibility of the business idea is established in a pre-feasibility assessment. An estimation of business requirements and costs is given in the following sections.

Inventory: P1,310 Stall on wheels, chair, umbrella, stand, studio curtains, life size cut-outs Equipment: P2,770 Camera and printer/copier, memory card, camera stand Solar system: P3,660 1x 50Wp solar panel, 1x100Ah battery, Regulator, AA Battery charger, Inverter Advertising material: P1,200 Advertising display, price list, business cards Total equipment cost is P8,940. Furthermore, there are variable costs such photo paper, photocopying paper, laminating foil, and printing ink.

Production: A quick estimation of the required number of photos is based on the following parameters. The highlighted parameters are variables. The expense per photo is an estimate. Based on the above figures, the operator has to sell 14 photos per day (300 days per year) to cover expenses and pay back the investment. Operational expenses:
  • Variable costs that are accounted for in the unit cost.
  • Storage space is rented for the equipment. Estimated costs P50/month.
  • The salary of the operator is P1000/month.

Insurance of equipment is P110/month.

Investment live span is taken as 5 years. The solar panels have an estimated life span of 20 years but the other equipment such as the camera and printer have a life span which is considerably less. Table1 (pre-assessment) contains all above data. Sensitivity analysis using data in Table 1 shows the impact of the various cost factors. Most sensitive elements are price per unit and cost per unit. A sensitivity analysis has been carried out using the goal seek function in Excel. When selling 10 photos per day, the payback period is 1 year with ROI of 80%, whereas selling 15 photos per day gives a payback period of ½ year and ROI of 180%.

However, selling 9 photos per day gives a ROI of 30% and a payback period of 2 years. It can be concluded that the proposed business has the potential of being profitable.

Operator income 1,000 P/month Payback 750 P/month Income to be generated 1,750 P/month Days working per month 25 Days/month Profit to be made per day 70 P/day Selling price per photo 15 P/photo Expenses per photo 10 P/photo Profit per photo 5 P/photo Photos to be made 14 Photos/day

Assessment of Business ideas for the productive use of RE in Botswana

3 Market Assessment There are currently no mobile photo shops operating in the country. Having a mobile photo shop has a great advantage over a shop that has a fixed location since a market can be established at a place where it has the highest potential for success e.g. near the National Stadium during popular football matches.

The entrepreneur has interviewed owners of photo shops to obtain an idea of possible turnover and selling prices of photos. He has also interviewed persons that take photos with instant cameras and it appears that producing 10 photos per day with an average selling price of P15 per photo is achievable.

Apart from being mobile, it is believed that this business format has another positive edge compared to a business at a fixed location. Taking photos of people next to a life size cut-out of a movie star or soccer player will attract the attention of people and form a crowd, boosting the number of photos that are taken. Table 2 shows a comparison between the photo business using a solar system and the same business recharging the battery from grid electricity through a commercial operator. In this situation there is a reduced investment capital since there is no solar equipment required. Also there is less equipment to insure and therefore the insurance cost goes down (P600/year).

However, due to the deeper discharge of the battery and the higher boost charge from grid electricity, the battery lifetime is reduced. This has been accounted for (annual replacement cost P500, instead of P350). The cost of charging the battery, including transportation is estimated at P20 per charge. The comparison shows that it is more cost effective to charge the battery from grid electricity through a commercial operator. The higher ROI is caused by the reduced cost of charging the battery. The cost of the solar technology is much higher compared to the recurrent cost of charging the battery and therefore has a negative impact on the ROI.

However, it should be noted that charging the battery every two days is very cumbersome since the battery has to be dropped off in the evening and collected in the morning. If not, two batteries are required. Also there are few places where batteries can be charged and transportation costs will be high and there is an opportunity cost associated with the time that it takes to charge the batteries. Operational Plan The business strategy relies on the mobility of the business and the ability of printing photos instantly. The business should be run in a professional manner in order to succeed.

The operator should wear a branded uniform and the stall should look neat.

Table 3 gives the cash flow during the first three years of operation. The cash flow analysis indicates clearly, how much financing would be required. Under the prevalent conditions, capital infusion of P8,940 would be sufficient. The graphs visualize this business development for the first year, and for three years, respectively. Note that making copies has been added as a second income stream. Finally, Table 4 gives the profitability forecast and balance for the business start-up.

Assessment of Business ideas for the productive use of RE in Botswana

4 From the Sensitivity Analysis below it becomes clear that the average selling price of a photo, number of photos sold, as well as the variable cost, being the cost of photo paper, photocopy paper, laminating foil, and printing ink, are the most critical success/failure factors.

Sensitivity Analysis -150% -100% -50% 0% 50% 100% 150% -20% -10% 0% 10% 20% percentage change of parameter percentage change of ROI Capital Investment Investment Lifespan Units/annum Price/unit Variable cost of sale/unit Cost of energy/unit total fixed costs

5 Table 1: Pre-Assessment of the Mobile Photo Shop business described above INSABA Preassessment of Project Proposals Country: Botswana Pilot Region: Gaborone / Main Mall RE Technology: Solar PV Electricity Business Idea: Mobile photo, copying and laminating busines Proponent name, contact Mr. Arnold Tshwaranang Moleofi Years of experience as owner of business 1 Number of employees w/contract 1 Proponent uses bank acount (yes=5, No=0) 0 Experience with formal loan (received=5, applied=3, no=0) 0 Experience in cost calculations, business plans (no=0, several=5) 5 Practice in maintaining/operating equipment (RET) (none yet=0, regularly=5) 3 Total 10 Calculation of ROI Determination of parameters Definitions Investment Capital Inventory Stall on wheels, chair, umbrella, stand, studio curtains, life size cut-outs Investment Capital Equipment Camera and printer/copier, memory card, camera stand Investment Capital PV solar system 1x 50Wp solar panel, 1x100Ah battery, Regulator, AA Battery charger, Inverter Investment Capital Advertising material Advertising display, price list, business cards Investment Capital Total of stall, inventory, equipment and PV Total cost of investment Investment Lifespan Conservative average life Life of the investment - i.e.

period before it must be replaced Photos Photos per day Production Photos per year Operational 300 days per year Price/unit Average sales price per photo Revenue BWP This is net revenue Variable cost/unit Average cost per photo Cost per unit produced e.g. material, processing packaging Cost of energy/unit No other energy Costs of power, fuel added to variable cost Fixed cost Rent for storage space to store the table, chair and umbrella Rent Insurance of equipment Fixed cost Battery replacement Battery replaced once every 2 years Salary for employee Wages Fixed cost Salary for owner/operator Wages Total fixed costs Annual indirect costs such as rent, telephones, salaries Amortization/unit: 0.60 1,788 Amount needed per unit to cover investment in lifetime Direct costs per unit: 7.79 23,376 Variable costs plus amortization plus cost of energy Gross Margin/unit 7.21 Sales price per unit less the direct costs per unit Fixed costs/unit 4.76 Total fixed costs divided by the number of units produced Total costs 12.55 37,646 Direct costs plus fixed costs Net Margin 2.45 7,354 Revenue less total costs ROI Return on Investment = net margin divided by capital investment Payback period years capital investment divided by cash flow until intial expenses are compensated by the net margin 82% 14,270.00 0.98 Photo Shop BWP 8,938.85 5 3000 1,310.00 3,659.95 2,768.90 10 1,200.00 600 12,000.00 350.00 15.00 45,000 7.20 0.00 1320

6 Table 2: Competitive Analysis: Comparison between the mobile photo shop business using solar PV electricity and the same business recharging the battery from grid electricity INSABA Verification & Market-Assessment of Project Proposals Country: Botswana Pilot Region: Gaborone RE Technology: Solar PV Electricity Business Idea: Mobile photo, copying and laminating business Market Context : describe Market Size & Potential Market Need, Risk Competitor Competing Technology Appropriateness of RET Market Segment Main Differentiator Sustainable Production Photo shop charging on grid electricity Calculation of Competitiveness Compared to photo shop with solar Description of Alternative Investment Capital Photo shop charging battery with grid electricity Investment Lifespan Lifespan of equipment Production Production is not effected by energy source Price/unit Revenue BWP Variable cost/unit Cost of energy/unit Battery is charged once every 2 days at a cost of P20 per charge, including transportation Fixed costs Wages, rent and replacement costs are not effected by how the battery is charged Total fixed costs Total fixed costs Amortization/unit: 0.60 1,788 0.35 1,056 Direct costs per unit: 7.79 23,376 8.55 25,644 Gross Margin/unit 7.21 6.45 Fixed costs/unit 4.57 4.57 Total costs 12.36 37,076 13.11 39,344 Net Margin 2.64 7,924 1.89 5,656 ROI Payback period years 13,700 13,700 15.00 45,000 7.20 1.00 15.00 45,000 7.20 Alternative: no solar 5,279 5 3,000 13,700 The higher ROI is caused by the reduced cost of charging the battery.

The cost of the solar technology is much higher compared to the recurrent cost of charging the battery and therefor has a negative impact on the ROI. However, it should be noted that charging the battery every two days is very cumbersome since the battery has to be dropped off in the evening and collected in the morning. If not, two batteries are required. Also there are few places where batteries can be charged and transportation costs will be high and there is an opportunity cost associated with the time that it takes to charge the batteries.

89% 0.92 13,700 107% 0.79 Photo shop 8,939 5 3,000 Because the photo shop is powered by solar energy, it makes it mobile. Shop can operate in villages where there is no grid electricity. Photo shops with grid electricity may operate cheaper. Risk of RE system being stolen. Ease of operation since there is no need for recharging the battery using grid electricity. The shop is mobile. Battery needs recycling but this also applies to system that does not use RE. There are no mobile photo shops in Gaborone. Due to the mobility of the shop the entrepreneur can go to places where the likelyhood of a sufficient market is highest.

This model can be replicated for any locations in Botswana, where there is sufficient market. If more photos per day are required, an additional solar panel may be added to supply the energy.

There is a risk that the Town Council will not allow the photo shop to operate at plublic places. There are a number of people operating with instant cameras. There is also cometition from people working from fixed locations. See above

7 Table 3: Cash Flow Analysis Month-1 Month-2 Month-3 Month-4 Month-5 Month-6 Month-7 Month-8 Month-9 Month-10 Month-11 Month-12 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Products Sales Photos 3000 250 250 250 250 250 250 250 250 250 250 250 250 Copies 1500 125 125 125 125 125 125 125 125 125 125 125 125 Product 3 Cash Inflow Turnover Price Photos 15.00 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 3,750 Copies 2.00 250 250 250 250 250 250 250 250 250 250 250 250 Product 3 TOTAL Turnover 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 TOTAL Cash Inflow 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 Cash Outflow Material Cost Photos 7.20 1,799 1,799 1,799 1,799 1,799 1,799 1,799 1,799 1,799 1,799 1,799 1,799 Copies 1.00 125 125 125 125 125 125 125 125 125 125 125 125 Product 3 TOTAL Material 1,924 1,924 1,924 1,924 1,924 1,924 1,924 1,924 1,924 1,924 1,924 1,924 Overhead Cost Staff A share 12,000.00 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Staff B share 0.00 Storage rent 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 Repairs&replacement 350.00 29.17 29.17 29.17 29.17 29.17 29.17 29.17 29.17 29.17 29.17 29.17 29.17 Insurance 1320 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 110.00 Marketing Investment 8,939 Investment Lifespan 5 TOTAL Overhead 10,128 1,189 1,189 1,189 1,189 1,189 1,189 1,189 1,189 1,189 1,189 1,189 Capital cost interest, redemption 16% 310 310 310 310 310 310 310 310 310 310 310 310 TOTAL capital 310 310 310 310 310 310 310 310 310 310 310 310 TOTAL Cash Ouflow 12,362 3,423 3,423 3,423 3,423 3,423 3,423 3,423 3,423 3,423 3,423 3,423 Operating Result -8,362 577 577 577 577 577 577 577 577 577 577 577 /accumulated -8,362 -7,785 -7,209 -6,632 -6,055 -5,479 -4,902 -4,325 -3,749 -3,172 -2,595 -2,018 Capital input 8,939 Cash Flow 577 1,153 1,730 2,307 2,884 3,460 4,037 4,614 5,190 5,767 6,344 6,920 Cash Flow Analysis

8 Cash Flow Analysis: First Year 10,000 20,000 30,000 40,000 50,000 60,000 Month-1 Month-2 Month-3 Month-4 Month-5 Month-6 Month-7 Month-8 Month-9 Month-10 Month-11 Month-12 -10,000 -8,000 -6,000 -4,000 -2,000 2,000 4,000 6,000 8,000 TOTAL Cash Inflow, acc TOTAL Cash Outflow, acc Operating Result Operating Result, acc Cash Flow

9 Cash Flow Analysis: 1st - 3rd Year 10,000 20,000 30,000 40,000 50,000 60,000 Year 1 Year 2 Year 3 -5,000 5,000 10,000 15,000 20,000 25,000 TOTAL Cash Inflow TOTAL Cash Outflow Operating Result Operating Result, acc Cash Flow

10 Table 4: Profitability and Balance Forecast Profitability Preview Balance Year 1 Year 2 Year 3 Year 1 48,000 48,000 48,000 Assets Liabilities 23,088 23,088 23,088 fixed assets 7,151 shareholders equity 8,112 24,912 24,912 24,912 current assets 6,920 liabilities 5,959 S 14,072 S 14,072 12,000 12,000 12,000 Year 2 350 350 350 Assets Liabilities 1,320 1,320 1,320 fixed assets 5,363 shareholders equity 16,225 current assets 13,841 liabilities 2,980 600 600 600 S 19,204 S 19,204 742 742 742 1,788 1,788 1,788 Year 3 Assets Liabilities 16,800 16,800 16,800 fixed assets 3,576 shareholders equity 24,337 8,112 8,112 8,112 current assets 20,761 liabilities /accumulated 8112.31 16224.61 24336.92 S 24,337 S 24,337 Sales Cost of Sales Gross profit other operating income personnel costs hire charges communication vehicle marketing office annual surplus/deficit interest depreciation other expenses TOTAL Expenses

1 Business Proposal Barber Shop Business Description Payphone Business Proponent Mr. Moshe Makhweni has two years experience as the owner of the payphone business. He operates as the proprietor/operator and works part-time in the business. He has one employee who works most of his time in the business. The business has a hawker’s license from the Gaborone City Council. As such, the business obtained a free space that is registered with the Council. Mr. Makhweni has completed form five at Masunga Senior Secondary School. He does not hold a bank or savings account and does not have experience in obtaining loans.

Location The payphone business is locates at the Main Mall in front of the Lewis store, in the centre of Gaborone. There is no mains electrical connection.

Business Factors The payphone business provides national and international phone services to the general public. A payphone is a telephone that operates on the cellular network and of which the operating cost is monitored on a digital display. The customer that makes the phone call is charged per unit. The payphone operator buys the units from a representative of the cellular network provider. Since there are two cellular network providers in Botswana (Mascom and Orange), the operator has two different sets of payphones. This is necessary since phoning from one network to the other is more costly than phoning within the same network.

Modern payphones have Mascom, as well as Orange simcards incorporated that are accessed automatically, depending on which network is dialed.

The business is strategically located with high exposure to people shopping at the Main Mall. The business is situated under an umbrella that is provided by Masom. Apart from providing shade, it advertises the business, since Mascom is a strong brand in Botswana. The system uses a 45Ah car battery to supply power to the two payphones. Large crocodile clips are used to connect the payphones to the battery, which allows for reversing of the polarity. The uncovered battery is potentially dangerous and should be placed in an appropriate box. The battery is very much oversized for the system and is old and badly maintained.

The battery is charged once every two weeks at a 230VAC mains battery charging station, at a cost of P5.- (approx. US$0.90) per charge. The business does not have lights or a radio connected to the battery, although this may attract additional customers. Draft: 1 April 2007

2 Sales of Mascom and Orange scratch cards, and selling sweets and cigarettes generate additional income. The business is open 6 days per week from approximately 9am to 18.00am Pre-Assessment The payphone business is an existing and operational business. It has proven to be feasible and sustainable. This exercise serves as an assessment to determine if similar payphone businesses may be feasible in other areas and to determine what the most important success and failure factors may be. From the operational experience, the following facts are known: Cost of:
  • Inventory: P600 Chairs, table, umbrella with stand
  • Equipment: P3,500 Payphone systems
  • Solar system: P530 7Wp solar panel and battery Production:
  • The average number of phone calls per day is estimated by the operator to be 50.
  • Price per phone call national: P1.- per unit, international P3.50 per unit.
  • No detailed records are kept of units sold and bought. However, it is known that the average profit on the sale of units is P78 per day. Working backwards this gives an average income per phone call of P3.56.
  • Operational expenses:
  • The average cost per phone call is P2.-.
  • Storage space is rented for the chairs, table and umbrella. This costs P50/month.
  • The cost for repairs of the payphone system, handset, and bi-annual replacement of the battery is estimated at P550 per year.
  • The salary of the employee is P750/month.
  • The owner does not work fulltime in the business. His salary is determined using the goal seek function. His salary can be P950 per month for a ROI of 30%. However, this amount generates a negative cash flow in tool 3 since the cost of interest and redemption is taken into account in this tool. Therefor the salary of the owner is taken as P750/month in tool 3. The pre-assessment table1 contains all above data. Sensitivity analysis with table 1 shows the impact of the various cost factors. Most sensitive elements are the cost per unit for the telephone calls and the number of phone calls per annum.

Market Assessment The payphone business is operated in a sustainable way, since it has been in operation for two years. However, over the last years there has been a considerable increase in similar businesses and competition is fierce. About six more payphone businesses operate at the vicinity, over a stretch of 500 meters at the Main Mall. It appears that the market in villages is under served. While most villages in Botswana have cellular network reception, there are not many payphones operational. The reason could be the lack of charging facilities for the battery. This is easily overcome by using a small solar panel.

Operating in villages has two benefits: due to less competition there are more clients per payphone operator and the charges for the phone calls can be higher. From the financial analysis it can be observed that profitability is highly sensitive to these factors. Since the payphone business if very mobile, operators can easily move to places where there is a better market potential. The payphone operator also sells for approximately P400 scratch cards per day. The profit is 10% per card, which results in an additional income of P40.- per day. Profit on the sales of sweets and cigarettes is approximately P10.- per day.

Additional income may be generated by charging cellphones and small rechargeable NiMeH batteries.

3 Table 2 shows a comparison between the payphone business using an RE system and the same business recharging the battery from 230VAC mains electricity. The higher ROI for the latter is caused by the reduced cost of charging the battery. The cost of the RE technology is much higher compared to the recurrent cost of charging the battery and therefor has a negative impact on the ROI. Operational Plan It appears that awareness regarding the possibility of charging batteries using a solar panel is lacking with many payphone operators. Most entrepreneurs use a car battery that they charge every number of days. What is required is a product package that offers a the payphone system together with one or two 12VDC lights, a 10Wp solar panel and a 20Ah battery with regulator, that can be offered to the potential users. Therefor what is necessary is:
  • awareness creation
  • technology package Table 3 gives the cash flow during the first three years of operation. The cash flow analysis at the bottom of the table indicates clearly, how much financing would be required. Under the prevalent conditions, capital infusion of US$1000 would be sufficient. The graphs 4a and 4b visualize this business development for the first year, and for three years, respectively. Table 4 finally, gives the profitability forecast and balance for the business start-up. Photos of Payphone Businesses Payphone business operating between Mogoditshane and Gaborone Note that this business is connected to the electric grid but could equally well operate from solar power.

4 Payphone business operating in Mogonye village

5 Table 1: Pre-Assessment of the existing payphone business described above INSABA Preassessment of Project Proposals Country: Botswana Pilot Region: Gaborone / Main Mall RE Technology: Solar PV Electricity Business Idea: Payphone shop shop using Solar Energy Proponent name, contact Mr. Moshe Makhweni tel: 71241813 / 71451105 Years of experience as owner of business 2 Number of employees w/contract 0 Proponent uses bank acount (yes=5, No=0) 0 Experience with formal loan (received=5, applied=3, no=0) 0 Experience in cost calculations, business p(no=0, several=5) 2 Practice in maintaining/operating equipment (RET) (none yet=0, regularly=5) 2 Total 6 ROE BW Pula to US$ 6 Calculation of ROI Determination of parameters Definitions Investment Capital Inventory The payphone shop operates from under a shade, 2 chairs, table Investment Capital Equipment Payphone system Investment Capital PV solar system 1x 7Wp solar panel, solar panel stand, 1x50Ah battery Investment Capital Total of shop, inventory, equipment and PV Total cost of investment Investment Lifespan Conservative average life Life of the investment - i.e.

period before it must be replaced Phonecalls Phonecalls per day Production Phonecalls per year Price/unit Average sales price per phonecall Revenue US$ This is net revenue Variable cost/unit Average cost per phonecall Cost per unit produced e.g. material, processing packaging Cost of energy/unit no other energy costs of power, fuel added to variable cost Fixed cost Rent for storage space to staore the table, chairs and umbrella Rent Fixed cost Repairs of system, handset, replacement of the battery Repairs and replacements of the battery Salary for employee Wages Fixed cost Salary for owner/operator Wages Total fixed costs Annual indirect costs such as rent, telephones, salaries Amortization/unit: 0.01 77 Amount needed per unit to cover investment in lifetime Direct costs per unit: 0.34 5,077 Variable costs plus amortization plus cost of energy Gross Margin/unit 0.25 Sales price per unit less the direct costs per unit Fixed costs/unit 0.24 Total fixed costs divided by the number of units produced Total costs 0.58 8,669 Direct costs plus fixed costs Net Margin 0.02 232 Revenue less total costs ROI Return on Investment = net margin divided by capital investment Payback period years capital investment divided by cash flow until intial expenses are compensated by the net margin 30% 3,591.33 2.50 The salary of the operator was obtained by using the goalseek function for a ROI of 30% However, when adding interest and redemption in Tool 3, this will lead to a negative cashflow.

Therefore monthly salary for the owner/operator in Tool 3 is taken as US$1500/yr. Note that the owner only operates the business part-time.

Payphone Shop US$ 771.67 10 15000 100.00 88.33 583.33 50 100 1899.67 91.67 0.59 8,900 0.33 1500.00

6 Table 2: Competitive Analysis: Comparison between the payphone business using a RE system and the same business recharging the battery from 230V mains electricity INSABA Verification & Market-Assessment of Project Proposals Country: Botswana Pilot Region: Gaborone RE Technology: Solar PV Electricity Business Idea: Payphone business using Solar Energy Market Context : describe Market Size & Potential Market Need, Risk Competitor Competing Technology Appropriateness of RET Market Segment Main Differentiator Sustainable Production Payphone charging on grid electricity Calculation of Competitiveness Compared to payphone with solar Description of Alternative Investment Capital Simple barber shop with hand clipper Investment Lifespan equipment Production Haircuts per year is reduced because hair cutting is manual > slower and less service Price/unit Cheaper rates for hair cutting Revenue US$ Variable cost/unit Cost of energy/unit Battery is charged once every 2 weeks at a cost of P5 per charge Fixed costs Wages, rent and replacement costs are not effected by how the battery is charged Total fixed costs Total fixed costs Amortization/unit: 0.01 77 0.00 68 Direct costs per unit: 0.34 5,077 0.34 5,093 Gross Margin/unit 0.25 0.25 Fixed costs/unit 0.24 0.24 Total costs 0.58 8,669 0.58 8,685 Net Margin 0.02 232 0.01 215 ROI Payback period years Payphone businesses operate at almost every streetcorner in the centre of Gaborone.

Most often they use a car battery that is charged from the grid. Often operators are not connected to the grid and charge the battery at a charging station. Competition in the main centres is high. Large market available in villages. The same business model is replicable for different parts of the country.

There is a risk that more and more people well own cellphones, reducinng the market for payphone operators. See above See above A smaller battery can be used, which is easier transportable. Also using RE a radio can be operated and light, so that working hours are extended. Payphone operators without RE system may operate cheaper, although the difference is marginal. Risk of RE system being stolen Better end result, faster, more comfort due to ventilation Battery needs recycling but thsi also applies to system that does not use RE Payphone 772 10 15,000 3,591 The higher ROI is caused by the reduced cost of charging the battery.

The cost of the RE technology is much higher compared to the recurrent cost of charging the battery and therefor has a negative impact on the ROI 30% 2.50 3,591 32% 2.41 Alternative: no solar 683 10 15,000 3,591 3,591 0.59 8,900 0.33 0.0017 0.59 8,900 0.33

7 Table 3: Cash Flow Analysis Month-1 Month-2 Month-3 Month-4 Month-5 Month-6 Month-7 Month-8 Month-9 Month-10 Month-11 Month-12 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Year 1 Products Sales Phonecalls 15000 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 Product 2 Product 3 Cash Inflow Turnover Price Phonecalls 0.59 742 742 742 742 742 742 742 742 742 742 742 742 Product 2 0.00 Product 3 TOTAL Turnover 742 742 742 742 742 742 742 742 742 742 742 742 TOTAL Cash Inflow 742 742 742 742 742 742 742 742 742 742 742 742 Cash Outflow Material Cost Phonecalls 0.33 417 417 417 417 417 417 417 417 417 417 417 417 Product 2 Product 3 TOTAL Material 417 417 417 417 417 417 417 417 417 417 417 417 Overhead Cost Staff A share 125.00 125 125 125 125 125 125 125 125 125 125 125 125 Staff B share 125.00 125 125 125 125 125 125 125 125 125 125 125 125 Storage rent 8.33 8.33 8.33 8.33 8.33 8.33 8.33 8.33 8.33 8.33 8.33 8.33 8.33 Repairs&replacement 7.64 7.64 7.64 7.64 7.64 7.64 7.64 7.64 7.64 7.64 7.64 7.64 7.64 Vehicle Marketing Investment 917 Investment Lifespan 10 6 TOTAL Overhead 1,183 266 266 266 266 266 266 266 266 266 266 266 Capital cost interest, redemption 16% 35 35 35 35 35 35 35 35 35 35 35 35 TOTAL capital 35 35 35 35 35 35 35 35 35 35 35 35 TOTAL Cash Ouflow 1,634 717 717 717 717 717 717 717 717 717 717 717 Operating Result -892 24 24 24 24 24 24 24 24 24 24 24 /accumulated -892 -868 -844 -819 -795 -771 -746 -722 -698 -673 -649 -625 Capital input 1,000 Cash Flow 108 132 156 181 205 229 254 278 302 327 351 375 Cash Flow Analysis Total Total Total Year 1 Year 2 Year 3 15,000 15,000 15,000 8,900 8,900 8,900 8,900 8,900 8,900 8,900 8,900 8,900 5,000 5,000 5,000 5,000 5,000 5,000 1,500 1,500 1,500 1,500 1,500 1,500 100 100 100 92 92 92 917 4,108 3,192 3,192 416 416 416 416 416 416 9,525 8,608 8,608 -625 292 292 -625 -333 -41 1,000 375 667 959

8 Cash Flow Analysis: First Year 2,000 4,000 6,000 8,000 10,000 12,000 Month-1 Month-2 Month-3 Month-4 Month-5 Month-6 Month-7 Month-8 Month-9 Month-10 Month-11 Month-12 -1,000 -800 -600 -400 -200 200 400 600 TOTAL Cash Inflow, acc TOTAL Cash Outflow, acc Operating Result Operating Result, acc Cash Flow

9 Cash Flow Analysis: 1st - 3rd Year 8,000 8,200 8,400 8,600 8,800 9,000 9,200 9,400 9,600 Year 1 Year 2 Year 3 -800 -600 -400 -200 200 400 600 800 1,000 1,200 TOTAL Cash Inflow TOTAL Cash Outflow Operating Result Operating Result, acc Cash Flow

10 Table 4: Profitability and Balance Forecast Profitability Preview Balance Year 1 Year 2 Year 3 Year 1 8,900 8,900 8,900 Assets Liabilities 5,000 5,000 5,000 fixed assets 825 shareholders equity 534 3,900 3,900 3,900 current assets 375 liabilities 667 S 1,200 S 1,200 3,000 3,000 3,000 Year 2 92 92 92 Assets Liabilities fixed assets 733 shareholders equity 1,067 current assets 667 liabilities 333 100 100 100 S 1,401 S 1,401 83 83 83 92 92 92 Year 3 Assets Liabilities 3,366 3,366 3,366 fixed assets 642 shareholders equity 1,601 534 534 534 current assets 959 liabilities /accumulated 533.67 1067.33 1601.00 S 1,601 S 1,601 Sales Cost of Sales Gross profit other operating income personnel costs hire charges communication vehicle marketing office annual surplus/deficit interest depreciation other expenses TOTAL Expenses

1 Vegetable Farm using Drip Irrigation Business Proposal Business Description Vegetable farm using drip irrigation Proponent Mrs. Sibanda has only one year experience as the owner of the vegetable farm named “Khoda Agencies”. She is assisted by a team from the National Masterplan for the Arable Agriculture and Dairy (Nampaad), who also developed the business plan for the vegetable farm. Mrs. Sibanda is chairlady of the Glenvaley farmers association. She managed to develop the farm and turn it into a profitable business within one year. She was a paid employee before she started the vegetable farm and has a diploma in marketing.

The farm is financed through the Citizen Entrepreneurial Development Agency (CEDA) and has 6 employees. Location The vegetable farm is located on the outskirts of Otse (55km from Gaborone), South-East of the village centre.

Business Factors The vegetable farm consists of three distinct areas:
  • Open field with drip irrigation
  • Net house with drip irrigation
  • Covered area with hydroponics The open field (see photo on the right) consists of 3 hectares and different crops are grown such as onion and cabbage. There are two boreholes at the farm which are approximately 160m deep. The water is pumped into a reservoir (see photo on the right). The net house has an area of 1 hectare. A wide range of vegetables are grown in the net house such as bell peppers, lettuce, spinach, broccoli, beetroot, eggplant and cauliflower.

The covered area totals 0.5 hectare, where tomatoes are grown using hydroponics. Most hydroponics systems comprise of beds or pots that are filled with an inert substrate, or growing medium such as vermiculite or sawdust, which replaces soil to hold plant roots and moisture. A liquid nutrient solution runs through the beds to feed the roots. The roots are always kept moist, but are aired periodically so they do not rot. Water is circulated and nutrient levels are closely monitored and added as required for optimum plant growth. Draft: 6 August 2007 At the left of the field are onions, at the back are cabbages and the drip irrigation system can be seen at the right Water storage of 185.000 litres

2 The farm is connected to the mains electric grid and uses electricity for pumping water into a storage tank, operating booster pumps for drip irrigation and pressure pumps for the hydroponics system and for lighting. This case study compares the use of grid electricity with solar PV electricity for pumping water using drip irrigation to grow cabbage in the open field. Calculations for other vegetables are similar. Growing of vegetables in the net house and hydroponically were not considered due to lack of information regarding some of the parameters that are required for the calculations.

These farming techniques are also not as easy to replicate due to the larger capital investment and complexity of operation, such as in the case of hydroponics. Pre-Assessment The vegetable farm is an existing and operating business. It has proven to be feasible. This exercise serves as an assessment to determine if similar vegetable farms may be feasible using solar PV for water pumping and to determine the most important success and failure factors. Only growing cabbage in open field using drip irrigation is considered for the case study. The growing season for cabbage is 3 months and 4 crops can be harvested during the year.

For ease of comparison, calculations are carried out for one hectare. From working experience and records that were kept, the following parameters are known: Cost of equipping the borehole and irrigation system per hectare: P88,714 Cold room, office and office equipment: P14,250 Drilling of the borehole and pump: P49,120 Storage tank (370.000 litres). This is double the size compared to pumping with grid electricity to cover for cloudy days: P42,500 Cost of solar PV array for solar pump with head of 50m, 90m 3 /day and P35/Wp: P121,092 Small truck: P200,000 Average kg cabbages per year (20% production losses): 224,000 kg Average price of cabbage per kg: P1.62 Wages labourers and manager: P11,700 Insurance per year: P800 Ploughing per ha per year: P1,200 Vehicle maintenance cost per year: P10,000 Mrs.

Sibanda, the owner of the vegetable farm inside the net house

3 Based on these figures a Pre-Assessment of the vegetable farm using drip irrigation with solar PV was carried out. Results are shown in Table 1. Also calculations were carried out comparing grid electricity with PV solar electricity. Results of this assessment are shown in Table 2. Table 3 below shows a comparison between the two sources of energy. Solar PV Electricity Grid Electricity ROI 44% 63% Payback period (yrs) 1.81 1.35 It can be observed that growing vegetables in both cases is highly profitable. The large investment for the solar panels has a limited impact on the ROI. The reason for this can be observed from the sensitivity analysis below Table 3.

The cost of energy/unit has only a limited influence on the change of ROI.

Market Assessment Most of the vegetables are sold to the supermarket chains in Gaborone. Limited amounts are sold from the farm to local customers. The vegetables are transported in a small truck (bakkie). Since Mrs. Sibanda resides in Gaborone, she drives backward and forward between Otse and Gaborone and takes loads of vegetables with her. There is not a planned marketing strategy and marketing is mostly done through word-of-mouth. The demand is currently higher than supply therefore there are no problems selling the vegetables the market. Late payments for the sales of vegetables sometimes cause problems.

Seedlings are bought and readily available. To reduce costs, the farm will grow their own seedlings from seeds for most vegetables in the future. The cost of chemicals and fertilisers is perceived as very high and it was expressed that government should subsidise these items to help farmers. Covered areas where tomatoes are grown using hydroponics Harvested and packed cabbages ready to be marketed

4 Operational Plan The vegetable farm managed to develop into a successful business within a year, mainly due the energetic input from Mrs. Sibanda. Although she did not have any prior farming experience, she started the business, and through her background in marketing and good communication skills, she managed to access the market easily and obtain information from experts as required.

Strategic choices have been made to spread risk. Farming is carried out using different technologies, e.g. open field with drip irrigation, net house with drip irrigation and covered area with hydroponics. Risk is further spread through growing different type of crops. With the feasibility and viability firmly established in Tables 1 to 3, table 4 gives the dynamic development of income and cost during the first three years of operation. The cash flow analysis shows how much financing is required, which is P511,000. The graphs visualize this business development for the first year and the first 3 years.

Finally, Table 5 gives the profitability forecast and balance for the business.

5 Table 1: Pre-Assessment of vegetable farm using drip irrigation with solar PV electricity INSABA Preassessment of Project Proposals Country: Botswana Pilot Region: South East district, Otse RE Technology: Solar PV pump Business Idea: Vegetable Farm with drip irrigation Proponent name, contact Mrs Sibanda Years of experience as owner of business 1 Number of employees w/contract 6 Proponent uses bank acount (yes=5, No=0) 5 Experience with formal loan (received=5, applied=3, no=0) 5 Experience in cost calculations, business plans (no=0, several=5) 3 Practice in maintaining/operating equipment (RET) (none yet=0, regularly=5) 0 Total 20 Calculation of ROI Determination of parameters Definitions Investment Capital Cost of equipping the borehole and irrigation system per hectare Investment Capital Cold room, office and office equipment Investment Capital Drilling of the borehole and pump Depth of b.h.

is 162 m Investment Capital Storage tank (370.000 litres). This is double the size compared to pumping with grid electricity to cover for cloudy days.

Investment Capital Cost of solar PV array for solar pump with head of 50m, 90m3/day and P35/Wp Investment Capital Small truck Total Investment Capital Total cost of investment Investment Lifespan 7 year loan period plus 2 years grace period for CEDA loan Life of the investment - i.e. period before it must be replaced Production Average kg cabbages per year (20% production losses) Units produced per year Price/unit Average price of cabbage per kg Sales price per unit produced and sold Revenue Pula/year Sales price multiplied by number of units sold Variable cost/unit Cabbage seedlings Variable cost/unit Fertiliser Variable cost/unit Pest control Variable cost/unit Transport cost Total Variable cost/unit Cost per unit produced e.g.

material, processing packaging Cost of energy/unit Cost of electricity per kg produced Costs solar PV averaged over 20 yr, fuel for car added to variable cost Fixed costs Wages labourers and manager Annnual Fixed costs Insurance per year Annnual Fixed costs Ploughing per ha per year Annnual Fixed costs Vehicle maintenance Annnual Total fixed costs Total fixed costs per year Annual indirect costs such as rent, telephones, salaries Amortization/unit: 0.26 57,297 Amount needed per unit to cover investment in lifetime Direct costs per unit: 0.55 122,349 Variable costs plus amortization plus cost of energy Gross Margin/unit 1.07 Sales price per unit less the direct costs per unit Fixed costs/unit 0.11 Total fixed costs divided by the number of units produced Total costs 0.65 146,049 Direct costs plus fixed costs Net Margin 0.97 216,831 Revenue less total costs BWP 515,676 88,714 49,120 14,250 42,500 121,092 200,000 Note that all calculations are per hectare with the exception of the drilling and equiping of the borehole 11,700 800 23,700 1,200 10,000 0.00 0.1714 0.0301 9 224000 1.62 362,880 0.0536 0.0354 0.29

Next part ... Cancel