Power Outages, Productivity Cost and Willingness To Pay (WTP) for Reliable Electricity Supply

Tanzania has recently embarked on the industrialization agenda by 2025. Against this agenda, the contribution of efficient, reliable and quality power remains a significant indicator. The effect of unreliable power supply, outages and poor quality electricity is the major challenge which can jeopardize the industrialization strategy. Small and Medium Scale Enterprises (SMEs) have been making significant contributions towards economic development of Tanzania. It is  estimated that Tanzania has about 3 million SMEs, which contribute to almost 27% of GDP and 23.4% of employment (URT, 2017).

This paper investigates power outages, productivity cost and willingness to pay for reliable electricity supply using Small and Medium Enterprises in manufacturing sector. The main objective of the proposed research is to answer the question: To what extent do power outages affect productivity of manufacturing SMEs? And how much are these firms willing to pay for a reliable power supply?

Productivity of the SMEs will be measured in terms of their efficiencies using data envelopment analysis (DEA). Given that the efficiency scores are bound, the study will estimate three models basing on the three measures of efficiency using Tobit regression. In analyzing the businesses’ willingness to pay for reliable power supply, a contingent valuation method (CVM) will be used. Contingent valuation is a stated preference approach that measures value of resources by aggregating individual WTP to keep the resource or the amount required to compensate users for reduction of resources or total loss.

The project will provide a highlight on the policies by quantifying how unreliable utilities, specifically power supply, affect the performance of manufacturing SMEs in the to enable informed decision-making and strategies regarding power supply. In addition, it will provide highlight on willingness to pay for reliable power supply giving crucial information to policy makers and other stakeholders on addressing power demand as well as providing a way for the establishment and promotion of alternative sources of power in Tanzania for the private investors and developers.

Project status
Financed by
Environment for Development initiative
Project | 11 January 2019