Why Use Blockchain?
In spite of the excitement about the future potential of blockhain, a high percentage of blockchain-based solutions are created looking for a problem to solve. Rather than purpose built to uniquely solve a specific real-world problem. In our case, blockchain provides an elegant solution to the major barriers found across Africa that significantly limit access to capital needed to finance solar projects.
The first sentence of Leo Tolstoy’s novel Anna Karenina is: “Happy families are all alike; every unhappy family is unhappy in its own way”. Much like Tolstoy’s happy families, the favored global venues among investors – those happy economies – all have similar core qualities:
- Trustworthy government
- Highly liquid capital markets
- Low opportunity cost of investment
- Overall ease of doing business
Interest and volume of foreign direct investment is heavily impacted by deficits in one or more of these qualities. Across Africa, there are severe issues across all four that will continue to make it an unattractive space for general investment, regardless of the explosive growth opportunities and huge potential consumer markets that exist. These issues are so severe that last year, Diasporans remitted $50B back to their home countries – 2x more than the sum total of foreign direct investment across the continent. Even worse, liquidity for small business is challenging – between double digit interest rates and 50%+ collateral requirements – and there is a ~$30B funding gap for financing energy production.
This massive energy financing gap has resulted in severe power shortages. The lack of energy availability and reliability are both critical barriers to economic growth across Africa, as businesses with inconsistent power supply cannot operate at full capacity. Research has repeatedly shown a strong link between electricity availability and GDP growth in emerging economies – countries with supply shortages consistently and severely underperform.
More than 3⁄4 of commercial and industrial energy users across Africa deal with regular power outages. And particularly in southern Africa, daily rolling blackouts have become a normal part of life over the past several years. Even in a country like South Africa, one of the largest and most well developed economies on the continent. In desperation, most countries within the Southern African Development Community (a group of 16 countries from DR Congo all the way south to South Africa) have introduced legislation to significantly remove barriers for independent power producers to bring clean energy projects online.
Most notably, South Africa has removed all license requirements for solar projects 50MW or smaller. All of these issues have created massive demand for decentralized power – and over 50% of firms have at onsite power generators – a greater percentage than on any other continent.
In our view a blockchain based model of financing onsite solar energy provides an effective solution to both the lack of liquidity available for private sector capitalization and the overall lack of investor trust in either government’s economic policy transparency or the informal custodians of remittances. It provides an excellent complement to a traditional fund management approach, particularly as institutional debt will be difficult to obtain at this early stage in our company lifecycle. Until we can show clear track record for success, we will need to rely heavily on retail investors to provide necessary equity for the first nodes within our clean energy distributed network.
Our overall business model provides a safe path to invest in clean energy in Africa for those who lack the resources or connections to do directly. Even for Diasporans, we provide an alternative to the steep custodial risks taken and heavy fees paid by those who make informal investments via remittance.