Research

Power Outages, Firm Productivity, and Generator Ownership in East Africa

Journal of African Business, 2023, 24 (2), pp. 280-300

Unreliable electricity supply is a widespread problem in developing countries. This paper examines the impact of power outages on firm productivity in East Africa, considering the effect of generator ownership in general and during blackouts. The results show large negative effects of power outages on productivity and a mitigating effect of self-generating during power outages of approximately the same size. However, self-generation is also found to generally reduce productivity due to the idle capital effect of unused generators during blackout-free times. This finding highlights that self-generation is only profitable for firms if the experienced power outages are severe enough.

The Effect of an Electricity Crisis on Firms - A Case Study of Dumsor in Ghana 

with Charles Godfred Ackah 

Between late 2012 and 2016, Ghana experienced a severe electricity crisis called Dumsor. The crisis triggered a severe power rationing program resulting in heavy load shedding throughout the country. Such electricity crises often happen in Africa and may hinder economic growth. This paper estimates the overall effect of such a crisis on firms using a sample of 265 firms from Greater Accra. The analysis shows that Dumsor had a severe negative effect on firm productivity and that previously electricity-intensive firms drove this effect. In more detail, electricity-intensive firms owning a generator before the crisis drove the effect, possibly due to an even higher degree of vulnerability or inflexible coping strategies. Considering channels driving these effects, the study finds significant changes in the production process of firms. Electricity-intensive firms substituted electricity with workers, which may be causing productivity losses. Some of the found effects even persist after the crisis. This finding highlights the tremendous effect of electricity crises on firm performance and, thus, economic growth. 

The Impact of Black Economic Empowerment on the Performance of Listed Firms in South Africa

with Matthias Busse and Tim Vogel 

Black Economic Empowerment (BEE) is a policy that aims to empower black people and, thus, decrease racial inequality in South Africa. The program puts reformation pressure on firms and might strongly influence firm performance. This paper examines how BEE affects turnover, profits, and labor productivity of (large) firms listed in South Africa. We use an extensive dataset covering a major share of listed firms between 2004 and 2019. The analysis employs fixed-effects regressions and instrumental variable approaches to account for endogeneity. Overall, we find that BEE has a positive impact on firms' sales, a positive but not robust impact on labor productivity, and no impact on profits. After accounting for heterogeneity in BEE scorecards applied, the positive effect of BEE on turnover and labor productivity becomes less pronounced. We conclude that BEE had a slightly positive effect on firm performance in the best case but also did not harm firms in the worst case. Thus, this study disproves the critique that BEE harms businesses, at least on the sample of listed firms. However, we propose that the policy should be further adapted to reduce the cost of compliance and focus on areas that bring structural change in South African companies, like the skills development dimension.

SMEs and Black Economic Empowerment in South Africa

Black Economic Empowerment (BEE) is a South African policy that aims to decrease racial inequality and incentivises firms to train, hire, promote and transfer ownership to black people. However, the policy struggles to reach its goals. This article investigates the determinants of BEE compliance of small and medium-sized enterprises (SMEs) to understand the challenges towards BEE adoption for SMEs. Considering the BEE certification decision and the BEE compliance level, the results show that, e.g., firm location, age, industry, owner and manager characteristics, and firm size are significantly associated with BEE compliance. 

An Augmented Environmental Kuznets Curve and a New Measure for Water Pollution – An Investigation of Water Pollution in Africa 

with Jenny Kupzig and Johanna Meier 

Water pollution constitutes an increasingly urgent problem worldwide. This study investigates an augmented Environmental Kuznets Curve (EKC) considering trade and institutional quality for water pollution in Africa. Using data from 2002 to 2016 for 42 African countries, we employ static and dynamic panel estimation techniques. As a novel feature, we use newly estimated data on water pollution from the WorldQual model, the global water quality model of the WaterGAP3 Framework. We find evidence for an EKC relationship using static but not dynamic estimation techniques. Our results suggest that, at high levels of trade, an increase in institutional quality is associated with less water pollution, while at low levels of trade, an increase is associated with high pollution. 

Foster adoption and productive use of electricity - A cluster randomized policy roll-out in rural Rwanda

with Nathan Fiala, Lise Masselus, Anicet Munyehirwe, Jorg Peters & Maximiliane Sievert