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 oil- containing 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