Electricity Access and the Performance of Micro and Small Enterprises: Evidence from West Africa

Abstract

Although it is widely accepted that electricity access is important for enterprise performance, the empirical evidence on the subject is mixed. In addition, evidence is scarce for micro and small enterprises operating in the informal sector. On the basis of a representative sample of informal firms in seven West African cities, we do not find evidence of a systematic, significant contribution of electricity access to enterprise performance. However, concentrating on a more homogeneous sample of tailors in Ouagadougou, we find that electricity can potentially exert a positive influence on performance, with electricity contributing to the uptake of modern machinery and business operation. Our findings are another illustration of the heterogeneity of the informal sector, which needs to be taken into account when policy interventions intend to overcome the growth constraints of firms operating in this segment of the economy.S'il est largement reconnu que l'accès à l'électricité joue un rôle important dans la performance des entreprises, les données empiriques sur la question sont mitigées. Qui plus est, peu d'informations sont disponibles concernant les petites et micro-entreprises opérant dans le secteur informel. Nous constatons, à partir d'un échantillon représentatif d'entreprises informelles de sept villes d'Afrique occidentale, qu'il n'existe aucune donnée démontrant un effet positif systématique et significatif de l'accès à l'électricité sur la performance des entreprises. Cependant, en examinant de près un échantillon plus homogène de tailleurs travaillant à Ouagadougou, nous observons un effet positif de l'électricité, l'accès à cette dernière favorisant l'adoption de machines modernes et contribuant au fonctionnement des entreprises. Nos résultats offrent une nouvelle illustration de l'hétérogénéité du secteur informel, qui doit être prise en compte lors de l'élaboration de politiques publiques destinées à aider les entreprises opérant dans ce segment de l'économie à surmonter les obstacles à la croissance.

Electricity Access in Sub-Saharan Africa: Uptake, Reliability, and Complementary Factors for Economic Impact

“…Moreover, the study finds that MSEs that are not constrained by credit benefit from electricity access, suggesting that credit might be a complementary factor for reaping the benefits from electricity access. Grimm, Hartwig, and Lay (2013) find no systematic evidence that electricity access increases the performance of MSEs. There is a clear and decisive positive impact on the clothing sector, which seems to be the most homogeneous sector.…”

“…In rural Rwanda, Lenz et al (2017) demonstrate that the impacts of electricity on business activities are most visible in communities that already had thriving commerce before electrification. Similarly, based on a representative sample of informal firms in seven West African cities, Grimm, Hartwig, and Lay (2013) show that electricity access exerts a positive impact on micro and small enterprises (MSEs) in the highest profit quintile. This finding suggests that MSEs might have to pass a critical threshold to benefit from the positive effects of electricity access.…”

An Assessment of the Impact of COVID-19 Responses on MSMEs in the Informal Sector: Evidence from Commonwealth Countries in Africa

“…But, from a medium-to long-term perspective, there is a strong imperative to invest in infrastructure. For example, in terms of the impact of electricity access on SMEs and informal workers, a study for seven West African cities found that impact varies by sector (Grimm et al 2013), contributing to the uptake of modern machinery and business operation in the case of informal tailors in Burkina Faso (Ibid., p.816).…”

The impact of blackouts on the performance of micro and small enterprises: Evidence from Indonesia

“…For instance, Grimm, Hartwig, and Lay (2013) investigate the importance of electricity access among informal firms in seven African cities. They find that electricity access is not statistically significant for good performance.…”