Analysing the extent and sources of productivity losses from electricity shortages for small and medium-sized enterprises

  • This study analysed the impact of Ghana’s 2012-2015 power crisis on the productivity of small and medium manufacturing firms.
  • It found that power outages have a significant negative impact on productivity. Estimates suggest that reducing the number of days in a month with outages from the average of about ten in Ghana to zero, has the potential to increase productivity by 10%.
  • They also found that firms’ coping strategies – such as using generators – were ineffective in reducing the negative impact of outages on productivity.
  • Results also show that firms are willing to pay more to avoid power outages, suggesting that key national investments in electricity generation, production, and distribution infrastructure will be worthwhile even if it means rises in electricity tariffs.

Electricity is a critical input for most production processes. However, in many developing countries, consumers are either not connected to an electricity grid or when they are, the supply of electricity is fraught with outages. In Ghana, electricity provision has consistently been plagued by outages, with prolonged electricity rationing periods in recent years. The country is currently undergoing an electricity rationing program that started in 2012. Given the reliance of production processes on electricity, such electricity shortages could potentially result in productivity losses for firms. In this project, we sought to analyse the extent and sources of productivity losses from electricity shortages for small and medium-sized enterprises.

The specific research questions being addressed are:

  1. What is the magnitude of productivity losses incurred by firms as a result of electricity shortages?
  2. What strategies do firms adopt to mitigate productivity losses from electricity shortages and to what extent are these strategies successful?
  3. What are the sources of productivity losses from electricity shortages for firms?
  4. What is the willingness of firms to pay for high-quality electricity supply?

The study collected data from two main sources. The first was administrative data on the intensity of load shedding by location collected from the Electricity Corporation of Ghana. These data are expected to include information on weekly supply schedules, hours of available electricity, and frequency and length of interruptions over the last three years by calendar month. The second source of data was primary data on businesses collected through a business survey. The survey collected firm level information covering the period 2011 to 2015 on output and inputs (including alternative sources of energy used), production processes, plant and machinery, land and buildings, number of workers (by gender, position, and type of contract), cost data including wage bills, material costs, other costs, public/private ownership, domestic/foreign ownership, form of enterprise, firm-specific input, and output price indices.