Innovating with bicycles to help drive a $50m opportunity in Zambia
The focus of our Frontier Technology Livestreaming (FTL) pilot on pay-as-you-go bicycles in Zambia stems from a desire to explore new and innovative ways to increase access to mobility for the poorest.
We believe providing bicycles on a pay-as-you-go basis will help address a severe constraint to poverty alleviation in many parts of Africa. Put simply: increasing mobility improves lives and allows greater opportunities for economic development, and bicycles have played a key part in this process in more or less any country you might visit in the world.
But what excites us equally is the potential to support the creation of a more vibrant product market that could make quality more affordable, attract investment and create jobs. This would represent a real win-win for a country like Zambia and is an ambitious but very serious aspect of work.
Why does pay-as-you-go matter?
In the solar home system market, on which part of our thinking for bicycles has been based, experience shows that application of a pay-as-you-go model can significantly increase sales volumes. While pay-as-you-go also enables companies to better manage cash in the system and better monitor and enforce non-payment, it’s the impact on affordability that is arguably critical.
We can reasonably expect that, all other things being equal, an effective pay-as-you-go model for bicycles would have a significant multiplier effect on those able to afford a quality product.
The social enterprise Buffalo Bicycles (part of World Bicycle Relief) has written about its experience working with small-scale dairy farmers for some time in Palabana (near Lusaka). An incremental purchase programme has had clear impacts on affordability and demand.
To add to the benefits, many companies active in the pay-as-you-go market also have very strong consumer facing models which should help drive sales. And bigger sales volumes increases the opportunity to create efficiencies in supply chains and increases interest from potential financiers and investors.
But is it possible to put any, even very rough figures to the benefits of pay-as-you-go bicycles?
Well we can at least see what playing with some high level numbers and assumptions might indicate.
There are over 2.5m households in Zambia, of which approximately 40% are urban (1m) and 60% rural (1.5m). At the same time, wealth, together with car ownership, is concentrated in the top 10% of the population (over 50% of the wealth). Meanwhile over 60% of the total population live in poverty.
Given the extremely limited alternative mobility options for most of the rural population and a significant proportion of the peri-urban population, a realistic target market for good quality bicycles could well be 20% of all rural and urban households, particularly given the numbers of the population involved in small scale agriculture or informal business activity and the needs for peri-urban dwellers to move around for income purposes.
Assuming one quality bicycle for each of those 500,000 households (20% of 2.5m), and with pricing around the $125 mark: expensive compared to second hand but on a par with a solar home system, with a clear quality premium, and paid on a pay-as-you go basis to make it more affordable.
That’s a total market of well over $50m.
Perhaps crude, but certainly something to aim for.
And we can compare this by looking at the likely income/affordability range. Previous work we have done on the solar home system market in Zambia suggested up to 50% of all households would be unable to afford a relatively basic solar home system (starting price around $100), even with pay-as-you-go financing.
This same population, and perhaps a bit more, would likely find a pay-as-you-go bicycle out of reach. Excluding the top 10% given their access to cars or other forms of financing still leaves an opportunity with close to 40% of households.
This is the core part of the population that likely have access to some form of formal or more likely informal employment or income opportunity, which would likely both benefit from bicycle access as well as giving the income for affordability. Again, it doesn’t seem unrealistic to think that up to 50% of this population would be attracted to having access to a reliable, quality mobility option — and again just assuming one per household, we get to a similar 500,000 figure.
Obviously these numbers do not represent an immediate outcome, with sales coming over a period of years but it provides an indication of a potentially sizeable opportunity, and one driven by a product already readily understood by the customer base and which appears to be in high demand. And again, the experience of Buffalo Bicycles in Palabana is that once households and smallholders get hold of one bicycle, they often go on to purchase more.
Of course there are caveats to this. The numbers above don’t take into account existing bicycles so any new sales might be some way off for those individuals who already have a trusty set of wheels. And if an effective PAYG model is heavily reliant on mobile money penetration then we know that in Zambia this would be one key constraint to reaching much of that rural population.
At the same time, we also recognise that having more productive uses for mobile money will be one of the drivers of increased adoption — so a pay-as-you-go model for bicycles might also help to incrementally increase mobile money penetration as well as help existing pay-as-you-go businesses. With one of the key challenges to increasing the reach of PAYG models in the solar sector being the difficulty in establishing an agent network with relatively low sales volumes, having other products in the market could be beneficial to provide additional throughput for agents.
But despite the caveats, and there are no doubt more, I tend to take a more optimistic view — I think the total potential market is likely to be well beyond these estimates, especially if “quality” can be differentiated to different segments of the market.
And so this is what excites us. Deploying pay-as-you-go innovation to bicycles, might, just might, open up a way to increase affordability of a quality product that is undoubtedly in high demand in Zambia. In doing so, it will enable a larger market, which itself could provide a basis for a virtuous circle of declining costs and increased sales. And with that comes the opportunity to go beyond grants and attract development or social capital — and then beyond that, potentially into commercial finance markets — all for providing a product that itself helps address a number of serious development challenges in Zambia. And that’s before you consider the opportunity in neighbouring countries……
Of course we will have to see — the vision that drives this pilot is an ambitious one, but one we have already been reassured is shared by many others and that is inherently about building markets and reaching towards a commercially sustainable model.
The deadline for parties to make their submissions for our pilot is 22nd July — we can’t wait to get started.