Power Outages and the Productivity of Small and Medium Enterprises: the role of Formality

The objective of this studypaper is to quantify and analyze the adverse effects of power outages on the productivity of SMEs in Senegal, and to analyse how different this effect is across formal and informal sectors. To measure productivity, two indices of efficiency are considered: the technical and the scale efficiency scores. We analyzed how the measures of power outages affect firms’ productivity, and whether various alternatives to power generation are effective in reducing the potential productivity losses associated with power outages. Our empirical approach is twofold. The first part deals with the estimation of firms’ productivity. To do so, we use a non-parametric approach based on Data Envelopment Analysis (DEA), which is very popular in evaluating firms’ performance (Cooper et al., 2007). The second part uses alternatively each measure of efficiency (technical and allocative) and tries to understand what might drive differences in firms’ performance, in a regression analysis using the generalized linear model. This paper assesses the impact of electricity outages on firms’ productivity in Senegal. Productivity is measured using technical and scale efficiency scores. Results from a generalized linear model, based on survey data from 528 businesses, indicate that power outages have a negative effect on technical and scale efficiency. Further, it apperas that small SMEs are more successful in dealing with scale efficiency. Finding a solution to the power outage issue, and access to loans and/or credit lines affected scale efficiencies. Now it is very likely that sectoral rection differs, as well as the that of formal and informal entities. Formal SMEs, more likely to access to formal banking resources, should suffer less compared to the informal ones. The sectoral effects are likely to be different also.