Determinants of Success

VEV is a successfully functioning enterprise. This can be attributed to a number of enabling circumstances. First of all, the technology is already introduced when VEV steps in. With renewable energy technologies, there is often an initial hesitance in adoption. Many of the end-users are unfamiliar with the technologies and are unwilling to spend such a large amount of money on an item that they are uncertain about. In this case, LVIA takes on this introductory role and VEV does not have to worry about the initial introduction of the technology.

Community level energy projects are often plagued with problems of poor management. It is a classic development problem when providing a community level good or service with the expectation that the community will manage its use and create a sustainable maintenance strategy. Often, the community uses the good until it no longer works, does not ensure that there is money to fix it, and waits until the next NGO comes along with a new project or the funds to fix the old one. In this situation, it appears that LVIA places attention on the management issues in hopes that the communities are able to pay for repairs on their own. Without this feature, VEV would not have a market.

VEV was started by a former collaborator/employee with LVIA. He is familiar with the technology, the communities and LVIA staff. He has created a team with high technical expertise that has been with the company for over 2 years, most over ten years. They can diagnose and repair most problems that appear. In addition to technical expertise, the staff is also highly motivated and works well together. This ensures that things move smoothly and work efficiently and is a major strength of the enterprise.

VEV has created a local value chain through the production of certain parts. By producing the parts locally, VEV has cut out the lag time involved with ordering parts from abroad. Additionally, local production lowers the cost of the parts which decreases the amount of capital that VEV needs to buy the parts and also lowers the price that the end-user has to pay. As discussed early, the local production also creates social benefit through job creation.

VEV, however is greatly constrained by a number of issues. One of the biggest constraints has been that VEV was completely dependent on LVIA and Alizés St Louis installations for their growth. While the head entrepreneur said that on average 1-2 jobs per month were commissioned and that there has been a growth in jobs through the years, he said that growth depended solely on those two NGOs. It is a very dangerous situation for an enterprise to have no power to control its own growth. It is now moving into the rice region along the Senegal river, where there is demand for new pumps.

Part of the issue is the high price of the wind pumps. Communities often do not have enough up front capital to purchase the pumps and local finance institutions have not offered loans for such projects. VEV also does not have enough working capital to offer any type of payment scheme. This limits the number of sales. New sales would also be more sustainable if time was spent working with the water management committee. Until now, VEV has had limited experience working on these issues.

In fact, these issues go beyond pure management but also pricing assistance. Unfortunately, many of the current communities are still not able to fully cover the cost of repairs and end up defaulting on their payments to VEV. This is mainly because of poor pricing mechanisms. In Leona, 5 miles away from the VEV workshops, 8 liters of water are sold 10 francs cfa while 200 liters tank is sold 150 francs cfa. Intermediaries purchase water at this price and then sell them in housing areas at 1500 to 2500 francs cfa, reaping a large profit. If the communities adequately priced their water, then they would be able to fully cover the cost of repairs and keep their own stock of spare parts.

The head entrepreneur stated the required tax payments were too high to keep the business profitable. Between local and national taxes, he had to pay 6-7 million CFA. As it was not possible to view VEV's financial statements, it is difficult to evaluate how extreme these tax rates are. For some context, VEV sells a new pump for 5.5 million CFA.

ENDA Energie mentioned VEV's lack of proposal writing skills as a major weakness. If VEV was able to write compelling proposals, they may be able to receive additional investments or grants to help expand the business and meet their inventory needs. This is something that the AREED program was supposed to help address through the enterprise development services and the compilation of a business plan.

There is a lack of an overall communication and marketing strategy. This is linked partly to VEV's historic reliance on LVIA for market creation. As VEV ventures into new market opportunities, it will need to have a comprehensive strategy.

Finally, VEV's lack of equipment such as a compressor for digging, 4x4 vehicles to reach the communities, and stock of spare parts limits their overall growth. These factors cause delays in service, which costs the company money. These limitations are directly related to the lack of working capital.

VEV is currently serving a niche market with limited competition. It has the potential to expand its outreach. One major opportunity that VEV has identified is the installation of new pumps in along the Senegal River for rice production purposes. VEV has been getting an increasing number of sales from this area. VEV needs to create a marketing strategy to communicate the benefits of wind pumps to other farms in the area and identify other potential high demand areas.

To increase sales even further in this area, there should be some type of credit offered to the clients. This most likely would involve a partnership with a local MFI as VEV has limited working capital and experience offering credit. In these new sales, there would not be any intermediary, such as LVIA, addressing water management issues. This may make it harder to repay loans and whoever makes the loan should require an established water management plan.

The head entrepreneur states that the current tax rate is unsustainably high. Changes in the tax rate offer potential opportunity or risk, depending on the direction that the tax rate moves.

VEV has had good collaboration with LVIA and, more recently, Alizés a Saint Louis. Both of these NGOs have helped to shape and grow the demand for VEVs services. In the future, more NGOs may be interested in funding wind pump projects and, as the leaders in their field, VEV would benefit from such projects.

A number of end-users mentioned interest in a hybrid diesel/wind pump system and some of the staff wanted training in solar water pumps. Both of these represent opportunities for VEV to diversify their products and services. By covering a full range of water pumps, they could represent a one stop shop for anyone interested in purchasing a water pump. They could potentially send a technician out to simultaneously give estimates on wind, solar and diesel pumps and explain the amount of water that could be pumped with each and expected post-purchase expenditures.

VEV also faces potential risks. A major risk is that LVIA and Alizés a Saint Louis stop expanding the wind pump market. While VEV has the capacity to install new pumps on its own, the communities do not have the funds to purchase the wind pump and thus VEV's market has been entirely based on the work of LVIA. This is a precarious situation for VEV, as they have no control on the size of the demand and, if in the future, LVIA decides that solar pumps are better, VEV would have no more market growth unless they also altered their focus. VEV has begun to make its own new sales, but it is not yet at the level needed to sustain the business. In the future, if VEV creates an effective growth strategy, this will pose less of a risk.

Another risk is that the government fully funds the installation of wind-pumps for a number of communities in Senegal. Give-away programs would damper the nascent market for the purchase of wind-pumps. If communities see free wind-pumps being given away, they have less incentive to purchase the pumps themselves. This would be a major detriment to VEVs expansion into new installations. It would, however, increase the market for repairs in the future. It is difficult to tell the probability of this occurring from the available data.

VEV faces an internal risk as well. Their current account stated that poor management of receipts and expenses was a major issue. As VEV grows, this poses an even greater concern.

In order to expand, VEV should create a marketing strategy and utilize the microfinance linkage of AREEDII to begin expanding and shaping the market themselves. As VEV has not had much experience with marketing and may require some training. Expansion of the financing component would require identification of potentially interested communities and linking the interested communities with the financial organization. In a community scale project such as this, the management structure would be an essential component for successful financial management. VEV may not have the skills or time to focus its efforts in this area and thus may want to find a microfinance partner that provides both financial and management advisory services. UNEP should help address the high tax issue by working with policy level tax issues to create an enabling environment for small social enterprises. VEV has been functioning and growing. With additional assistance from UNEP and expansion of their key services, they could become a thriving enterprise.