January 23, 2020

Pay-As-You-Go for African Development

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Innovative PAYGo business models are not only lucrative for the firms that adopt them; they have the potential to improve the lives of millions of Africans, beginning with the neediest rural communities. African policymakers should focus on ensuring that this potential is fulfilled.

LOMÉ – The rise of digital pay-as-you-go (PAYGo) services in Africa is cause for celebration. By enabling low-income populations, both rural and urban, to access the goods and services they need not only to survive (food, water, and shelter), but also to thrive (education, health care, and income-generating assets), the PAYGo business model can significantly improve their quality of life. In fact, with enough support, PAYGo models can revolutionize the provision of goods and services, thereby spurring inclusive development.

Digital PAYGo models take advantage of machine-to-machine communication and sensor technology to allow companies to track usage, lock or unlock their assets, and access relevant data remotely. This, together with flexible pricing mechanisms, makes it possible for firms to offer goods and services to consumers with limited capital and variable income flows, bringing immediate improvements in living standards.

For example, by lowering the upfront cost of agricultural machinery, mills, and irrigation systems, PAYGo models can enable farmers to increase their productivity and, in turn, their incomes. To that end, the Nigerian start-up Hello Tractor, in partnership with global tractor manufacturer John Deere, has created a program that gives small farmers in Nigeria, Kenya, and Mozambique on-demand access to the company’s equipment.

Moreover, PAYGo models are helping to expand access to utilities. Capitalizing on falling solar battery costs on a continent with no shortage of sunshine, so-called next-generation utilities such as BBOXX, which operates in 12 countries, including Togo and Rwanda, are offering solar home systems on a PAYGo basis to communities that are excluded from power grids or living without reliable energy access.

BBOXX is also applying its PAYGo model to equip individuals, households, communities, and small- and medium-size enterprises with income-generating assets, such as clean-cooking equipment, electric mills, and solar-powered irrigation systems. The Togolese village of Sikpé Afidégnon is a prime example of how this works in practice, as BBOXX’s partnership with EDF Energy has powered the entire village with PAYGo solar electricity.

Across Africa, PAYGo approaches are facilitating the delivery of public goods and consumer products – such as neighborhood lighting, phone-charging stations, Internet-connected learning centers, radios, televisions, and fans – to communities. Indeed, as mobile penetration rates in Africa have increased – Togo has reached 82.6% penetration – and mobile money has flourished, applying digital PAYGo business models has become easier than ever. And PAYGo’s potential is only beginning to be tapped.

For example, PAYGo solutions can play a powerful role in boosting financial inclusion, as the data generated by micro-transactions and usage trends forms a credit history for consumers who might otherwise struggle to build one. Beyond improving their access to financial services, such as loans or microloans, such a record could enable them to acquire health or life insurance.

All of this would go a long way toward improving overall wellbeing, raising productivity, and advancing inclusive growth. But, to make the most of this opportunity, not only must the private sector continue to invest in PAYGo solutions; the public sector must get involved as well. After all, among the most fundamental responsibilities of government is ensuring that people’s basic needs are met and that they have opportunities to prosper.

For starters, governments should provide subsidies that further reduce sign-up fees for low-income customers. This can be achieved through public-private partnerships that reduce the cost of PAYGo solar home systems, like the one forged with BBOXX. Togo has taken the lead through the “chèque solaire CIZO” program, which offers targeted subsidies to consumers and provides affordable access to high-quality solar home systems. This initiative is enabled by the customer data generated by PAYGo methods. Governments should also create incentives for companies to expand PAYGo solutions broadly to rural and urban communities, and to invest in PAYGo value chains.

To promote PAYGo further, Togo will soon pilot a unified open-source platform connecting consumers to providers of PAYGo goods and services. The platform is expected to offer any private company wishing to provide goods and services to rural populations the ability to manage equipment remotely, centralized access to data on customer expenditure, and access to a secure mobile payment processing system. Consumers, in turn, not only benefit from easier access to PAYGo goods; their usage trends are gathered reliably and securely, thereby building much-needed credit histories to enhance financial inclusion.

Efforts to improve quality of life often come down to cost. Low-income and rural households can’t afford to invest in productivity-enhancing goods and services, and governments can’t afford to provide them. Innovative PAYGo business models circumvent these obstacles. As a result, digital PAYGo may well represent a paradigm shift in the pursuit of inclusive economic development. That is why, as African policymakers, we must support it.

Cina Lawson is Minister of Posts, Digital Economy, and Technological Innovation of the Republic of Togo.

The text has been adapted from Project Syndicate website

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