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