The Cost of Power Outages on Enterprise Performance in Kenya

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue III, March 2020 | ISSN 2454–6186

The Cost of Power Outages on Enterprise Performance in Kenya

Stephene Osongo Maende* & Milton Utwolo Alwanga
Department of Economics, Accounting and Finance, Jomo Kenyatta University of Agriculture and Technology, Kenya
*Corresponding author

Abstract: – The literature argues that inadequacies in the power sector in many developing countries especially sub-Saharan Africa constrains economic growth and development. While it is widely acknowledged that Kenya has a high number of outages, there is limited evidence on how these outages affect firm performance. Thus, the study investigates the effect of power outages on firm performance using World Bank Enterprise Survey data for 2018. We employ instrumental variable regression to overcome endogeneity as well as causality effect between power outages and enterprise profitability. The results show a negative and significant relationship between power outages and firm profitability. On the other hand, we report a positive relationship between efficiency levels, energy utilization and firm profits. The study recommends that the government should invest heavily in electricity generation, and address inefficiency within the power sector to ensure a reliable supply of electricity, and enhance enterprise performance.

Key Words: Power Outage, Enterprise Performance, OLS, 2SLS, Electricity.

I. INTRODUCTION

Accessibility to reliable, quality and efficient supply of electricity is regarded as a key conduit for economic growth and development across the world (Abotsi, 2015). Nevertheless, most African countries experience perennial electricity deficiencies with numerous power outages. World Bank report of 2019 on access to electricity in sub-Saharan Africa argues that Africa presents the lowest rates of electrification among the developing world with only 43% of people having connected to the national grid, and approximately 25% of electrification in the rural set-ups (World Bank, 2019). International Energy Agency (IEA) and World Bank report of 2017 on electricity access estimates that around 92% of the rural population (370 million people) in Sub-Saharan Africa lacked access to electricity; 70% (690) in south Asia; 48% (60 million) in Latin America; 22% (30 million) in North Africa (IEA & World Bank, 2017). This is particularly crucial for African countries since research shows that electricity access and consumption causes economic growth implying that the economy depends on energy for survival and vice versa (Lee et al., 2016)).

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