19 September 2012

Mozambique: Big Boost for Mozambique Cooking Fuel Project

analysis

Many projects promise the earth. But few can genuinely promise to help save it by contributing to the fight against climate change while also improving local food security, boosting economic growth and enhancing people's health.

CleanStar Mozambique's ethanol-based cooking fuel project promises all four by creating jobs, supporting local farmers, reducing charcoal use and cutting deforestation. And following a massive US$9 million investment by the Soros Economic Development Fund (SEDF) and the Industrialization Fund for Developing Countries (IFU), it now has the resources to expand and begin to turn its promises into action.

The new investment will create 1,000 new jobs in Mozambique by late 2014 and will help to substantially improve the incomes of smallholder farmers. CleanStar Mozambique will be able to support 2,000 smallholder farming families to increase production of nutritious staple food crops and surplus cassava, with the latter being used to make ethanol-based cooking fuel.

"CleanStar Mozambique has found a commercial and scalable way to alleviate poverty in Africa," said Stewart Paperin, SEDF President. "This venture creates jobs, increases food security, and has sustainable environmental benefits. We'd like to see the charcoal replacement business operate successfully in dozens of countries throughout the continent."

CleanStar Mozambique helps participating farmers transition from slash-and-burn subsistence farming to a 'conservation-agriculture' based approach that produces sustainable crop surpluses and boosts their income. The company provides the farmers with improved planting materials and technical assistance and then purchases whatever food products the families themselves do not consume at rural agricultural centres based around the company's first integrated processing plant in Dondo.

Surplus cassava is converted to ethanol-based cooking fuel, flour, and chicken feed, while surplus beans, sorghum, pulses, and soya are processed into packaged food products for sale in Mozambique's cities.

Each bottle of cooking fuel used in Maputo generates extra income and food for Mozambican farmers and prevents further deforestation from charcoal use. Over time, this steady flow of cash will help strengthen rural livelihoods and restore degraded landscapes.

The cooking fuel is bottled and sold along with modern cookstoves to low-income households in Maputo via the company's own network of branded retail outlets. CleanStar's cooking solution is a cleaner, faster, and safer alternative to charcoal, and priced to be directly cost competitive in urban markets.

Charcoal prices have doubled in Maputo over the last three years and households now spend about a dollar a day on the fuel. Cooking indoors with charcoal also seriously damages the health of those exposed to the noxious fumes, most often women and children.

The investment will also help the company expand its cooking fuel distribution and retail infrastructure to reach 80,000 customers in Maputo by late 2014. Each ethanol cook stove will enable net greenhouse gas emissions reductions of approximately eight tons of CO2-equivalent per year versus a traditional charcoal stove. Taken to scale, this business will significantly reduce harmful emissions that contribute to climate change.

This is the third round of investment for CleanStar Mozambique, which is also backed by CleanStar Ventures, Novozymes, ICM, and Bank of America Merrill Lynch. The Soros Economic Development Fund becomes the biggest cash investor in the US$20 million venture and will provide US$6 million to CleanStar Mozambique. IFU will contribute approximately US$3 million.

"Our team has seen this venture move from concept into implementation in record time," said Finn Jønck, IFU's Managing Director. "We are delighted to now come on board."

With over US$10 billion spent annually on charcoal-based cooking across the rapidly-urbanizing continent, CleanStar's business model is likely to be feasible in over 40 major African cities - and both SEDF and IFU have the option to invest more in potential pan-African expansion.

"The level of interest from the impact investing community was very strong," said Greg Murray, Chairman of CleanStar Mozambique. "It became clear through the process that SEDF and IFU bring the right combination of vision, values and capability that the venture needs to move to scale, while staying true to its mission."

Circle of Investors

Founded in 2010 by CleanStar Ventures, the Mozambican company has attracted a growing number of investors from around the world. Novozymes of Denmark invested into the business at early concept stage in mid-2010, joined shortly thereafter by ICM of the United States.

In November 2011, Bank of America Merrill Lynch joined as strategic carbon partner through an innovative transaction that received the 'Bioenergy Finance Deal of the Year' award from Environmental Finance magazine and a Special Commendation in the category of 'Sustainable Investment of the Year' from the Financial Times.

"We have come a long way with CleanStar since Novozymes first invested in Mozambique in 2010," said Novozymes Executive Vice President Thomas Nagy. "We are now seeing an integrated food and biofuel business deliver sustainable improvements to family health and nutrition, rural incomes and the environment in a way that attracts professional investors with deep pockets."

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