View source for Solar Home System Challenges for the Private Sector in Mozambique

{{Back to Moz Solar Hub}}
{{Back to Mozambique Portal}}
{{Portuguese Version|Sistemas_Solares_Domésticos_em_Moçambique_:_Desafios_para_o_Sector_Privado}}

=== Introduction ===
This article provides a snapshot of the SHS market in [[Mozambique- Country Information|Mozambique]] particularly the challenges for the private sector. For information about the [[Solar Home System Market Size in Mozambique|SHS market size]], [[Solar Home System Market Landscape in Mozambique|actors involved]] and [[Solar Home System Consumer Insights in Mozambique|consumer insights]], please click [[Mozambique Solar Hub|here]].

In this article, the term SHS includes [[Global Tracking Framework for Measuring Energy Access#Access%20to%20Electricity|all Tier SHS]], including picoPV products (below 10 W). Tier 1 is defined as basic SHS with lights and/or radio and/or USB port for mobile charging. Tier 2 includes lights, phone charger, radio and TV. Tier 3+ includes big productive use appliances such as solar pumps, refrigerators.

=== Challenges for the Private Sector ===
Although the Mozambican SHS market is growing, the growth is still limited by many factors which are explained below: 

'''Growing informal market for low-quality SHS products''': The SHS market is populated with cheap low quality SHS imported mainly from South Africa, Tanzania or China. These SHS can be up to 50% cheaper than those from registered companies as they are imported informally without paying VAT and import duties. The average price for a low quality SHS on the informal market can be as low as USD 50, while a Tier 1 SHS (20 W with 3 lights and a charger) on the formal market already costs more than USD 100<ref>Based on the prices from Solarworks! for the lowest Tier SHS</ref>. Hence, the informal SHS products have distorted the market and created an uneven playing field for formal registered companies. They also negatively impact the consumer perception of SHS as they lack quality and durability (life-span of less than 6 months).<ref>Economic Consulting Associates, and Greenlight. “Off-Grid Solar Market Assessment in Mozambique,” 2018. https://www.lightingafrica.org/wp-content/uploads/2019/07/Mozambique_off-grid-assessment.pdf</ref><ref>World Bank. “Mozambique - Energy for All (ProEnergia) Project,” 2019. http://documents1.worldbank.org/curated/en/594061554084119829/text/Mozambique-Energy-for-All-ProEnergia-Project.txt.</ref><ref name=":0">Hodgkinson, Luke, and Nikita Smeshko. “Challenges in the Solar Home Industry in Mozambiqu,” 2021. https://amer.org.mz/wp-content/uploads/2021/02/Private-Sector-Challenges-SHS-EN_24022021-VF.pdf.</ref>

'''High import duties and VAT''': Unlike other Sub-Saharan countries, Mozambique does not have tax rebate for SHS products. On the contrary, the normal VAT of 17% is applied on imported SHS. Import tariff of 7.5% tax is levied on core components of SHS (eg. panels, batteries) and an additional 20% on appliances and accessories. These duties, when passed to the consumers, then account for over 45% of the total cost<ref name=":0" />, significantly increasing the price of SHS for end-consumers. One of the reasons for the high import duties could be the government’s intention to protect local manufacturing of PV panels by FUNAE<ref>BERF. “Business Environment Constraints in Mozambique’s Renewable Energy Sector: Solar PV Systems and Improved Cook Stoves,” 2016.</ref>. 

For example, a SHS which costs USD 50 while importing from the supplier can cost more than USD 90 for the end consumers with all the different taxes<ref>This calculation is based on the calculation presented by Jose Eduardo Catruza during the [[Webinar Series: Status Quo and Market Potential of Off-grid Renewables in Mozambique|Webinar on State of Play: Solar Home System (SHS) Market in Mozambique.]]</ref>.  
{| class="wikitable"
|
|Percentage
|Total cost (USD)
|-
|
|
|
|-
|Custom duty
|20%
|60
|-
|Consumption tax
|5%
|63
|-
|Port Charges
|5%
|66,15
|-
|Sales margin
|20%
|79,38
|-
|VAT
|17%
|92,8746
|}
For a detail breakdown of import duties and VAT for different solar products, please refer to [[Doing Business in Mozambique|'''this article''']]. '''On August 2022, the President of Mozambique announced tax exemption for equipment imported for electrification and agricultural activities but however, it is unclear when this policy will be implemented'''<ref>DW (2022). <nowiki>https://www.dw.com/pt-002/mo%C3%A7ambique-filipe-nyusi-anuncia-novas-medidas-de-est%C3%ADmulo-%C3%A0-economia/a-62761281</nowiki></ref>'''.'''  

'''High charges for mobile payment''': Mobile payment is key for PAYGO system as the customers make their monthly installment using mobile money. Mozambique has a high mobile tariff for using mobile payment which directly impacts the cost of SHS for the end users<ref>Catruza,J (2021). [[Webinar Series: Status Quo and Market Potential of Off-grid Renewables in Mozambique|Webinar on State of Play: Solar Home System SHS Market in Mozambique.]]</ref>.  

'''Grants are taxable''': Under the current legislation (2021), grants received by SHS companies are taxable as “corporate income tax”. Hence, the companies need to factor in the tax amount into their expenses and cannot pass on the full grant advantage to the end consumers.<ref name=":0" />

'''Regulatory barriers''': The World Bank ranks Mozambique at 138 out of 190 countries for ease of doing business in the country<ref>World Bank. “Doing Business 2020,” 2020. https://openknowledge.worldbank.org/bitstream/handle/10986/32436/9781464814402.pdf.</ref>. The administrative process of registering and running a business is cumbersome and often lacks transparency regarding rules and regulations<ref name=":1">Santos, Ricardo. “The Business Environment of Mozambican Manufacturing Firms.” UNU-WIDER, 2018. https://www.wider.unu.edu/sites/default/files/Publications/Policy-brief/PDF/PB2018-2-The-business-environment-of-Mozambican-manufacturing-firms.pdf.</ref>.  Corruption is also a major limiting factor for doing business in Mozambique<ref name=":2">World Bank. “Mozambique Economic Update | Mind the Rural Investment Gap,” 2019. https://documents1.worldbank.org/curated/en/480651580155354219/pdf/Mozambique-Economic-Update-Mind-the-Rural-Investment-Gap.pdf.</ref>. The custom clearance of imported products is rated as a slow and complicated process<ref>PwC. “Mozambique.” Accessed June 22, 2021. https://www.pwc.com/gx/en/transportation-logistics/publications/africa-infrastructure-investment/assets/mozambique.pdf.</ref>. For more information about doing business in Mozambique, please see [[Doing Business in Mozambique|'''this article'''.]]

'''Access to finance''': Access to finance in the local economy is constrained due to high collateral requirement, high interest rate and lack of information<ref name=":1" />.  In 2020, commercial banks had a lending rate of 21% on average and 18.5% for most credit-worthy borrowers<ref name=":2" />, making it difficult for SHS companies to stock up on products. This lending rate has gone down compared to past years but is still very high. For more information about access to finance, please see this '''[[Doing Business in Mozambique|article]]'''.

'''Natural Risks''': Mozambique is prone to natural disasters such as floods, landslide and cyclones that directly impact the end consumers and their ability/willingness to pay for SHS products. For e.g., in 2019, cyclones Idai and Kenneth displaced more than 100,000 people in Sofala, Zambezia, Manica, Inambane and Cabo Delgado provinces<ref name=":3">OCHA. “Cyclones Idai and Kenneth.” OCHA, 2019. https://www.unocha.org/southern-and-eastern-africa-rosea/cyclones-idai-and-kenneth.</ref>. When Idai hit Mozambique, SHS company Epsilon saw a 75% drop in payments and a complete halt in sales of new SHS units for six-months in the impacted region<ref>“Expanding the Horizons of Pay-as-You-Go Solar.” Accessed June 17, 2021. https://www.cgap.org/blog/expanding-horizons-pay-you-go-solar.</ref>. However, this also presents an opportunity for the SHS sector to collaborate with humanitarian agencies for providing immediate access to energy during relief activities. 

'''Poor infrastructure''': Mozambique has very poor infrastructure, e.g. in terms of road networks, which challenges the distribution of SHS in rural and dispersed communities. The national highway (EN1) is the only road connecting the north and south, while the rest of the country is largely disconnected. The road networks are also frequently affected by flooding and other weather conditions and are mostly unpaved<ref>The Borgen Project. “Building a Diverse Economy with Infrastructure in Mozambique.” The Borgen Project, 2018. </ref>.

'''Internal conflicts''': Since 2017, there has been an insurgency in the northern province of Cabo Delgado, led by an Islamic militant group.<ref>Zamfir, Ionel. “Security Situation in Mozambique,” 2021. https://www.europarl.europa.eu/RegData/etudes/ATAG/2021/689376/EPRS_ATA(2021)689376_EN.pdf.</ref> In 2020, the  insurgency led by the Renamo Military Junta also aggravated as they rejected the peace agreement with the government<ref>allAfrica. “Mozambique: Nyusi Urges Renamo Military Junta to Demobilise.” allAfrica.com, 2020. https://allafrica.com/stories/202012230884.html.</ref> . In October 2020, 355, 000 people were expected to be internally displaced in Mozambique<ref name=":3" />. Hence, the ongoing internal conflicts create uncertainty and insecurity for businesses.

'''COVID-19 Crisis''': The global COVID pandemic has impacted companies worldwide and widened the poverty gap also in Mozambique. It has particularly affected the poor and vulnerable families who are forced to shift their expenditure from energy to food and other basic needs. This has resulted in reduced sales of new SHS and payment default. In addition, the import of SHS also takes longer because the supply chain is disrupted due to travel and other restrictions worldwide. For more information about how COVID has impacted the renewable energy market in Mozambique, click '''here (upcoming).'''

==== Need of the sector ====
These are the key points mentioned by the private sector during the webinar on [[Webinar Series: Status Quo and Market Potential of Off-grid Renewables in Mozambique|State of Play: Solar Home System (SHS) Market in Mozambique]]:

* Targeted Interventions such as [https://endev.info/endevs-covid-19-support-for-solar-energy-companies-in-mozambique/ COVID-PAY] (rolled out by EnDev) has played a crucial role in keeping many of the companies afloat during this COVID crisis. Hence, there is a need for more of these targeted inventions along with broad sector-wide interventions.
* Long-term donor programmes are key for giving confidence to the private sector as they can plan their inventories better (especially since the market is still in a nascent stage).
* There is a need for donors, private sectors and other stakeholders to come together and jointly decide the best road for the Mozambique off-grid sector. 
* VAT and import duties have to be removed for the market to progress.

===Conclusion===
The Mozambican SHS market is growing, thanks to the support of many donor programmes and there is an interest to involve the private sector more into the market. However, there are still limiting factors that hinder private sector participation. To incentivise private sector participation a better regulatory framework, as well as easy access to credit and information, would be needed. From the consumer side, there is a wiliness and ability to pay but this could have been impacted by the current COVID-19 crisis. Private sector, governments, donor organisations and other interested stakeholders are encouraged to use the information at the provincial level to make informed decisions about the Mozambican market.

===Further Information===

*'''[[Energy Access in Mozambique]]'''
*[[Solar Home System Market Landscape in Mozambique|'''Solar Home System Market Landscape in Mozambique''']]
*[[Solar Home System Market Size in Mozambique|'''Solar Home System Market Size in Mozambique''']]
*[[Solar Home System Consumer Insights in Mozambique|'''Solar Home System Consumer Insights in Mozambique''']]<span class="s3"></span>

===References===
<references />
[[Category:Mozambique]]
[[Category:Solar Home Systems (SHS)]]
[[Category:Renewable Energy]]