The Impact of Power Outages on Firm Performance: Evidence from Ethiopia

Abstract

An unreliable electricity supply has been identified as a major barrier to doing business in Ethiopia, causing firms to face costs from power disruptions. The main objective of this study is to examine the impact of power outages on firm performance using firm-level data derived from the 2015 World Bank’s Enterprise Survey database. The study employed the Dose-Response Model to assess the impact of power outages and the dosage of treatment (i.e., average total time of power outages per month) on sales, employment, and labor productivity growth rates. The descriptive statistics revealed that of the 338 participating firms, 251 firms (nearly 74%) had dealt with frequent power shortages, while 87 firms said they had not experienced any power outages. Firms experienced 12.71 times power outages per month, while the typical average duration of each power outage was around 4.5 hours. The dose-response estimation result indicated that increasing the number of doses (level of power outage exposure) had a significant negative impact on sales, employment, and labor productivity growth rates. Therefore, it suggests that the government should supply sustainable power to firms and should also consider alternative sources to manage such interruptions.