Electricity usage in micro-enterprises — Evidence from Lake Victoria, Uganda

This paper aims to shed light on the nexus of electricity, firm performance, and economic development in a dynamic rural area in Southern Uganda. Using quantitative firm-level data on 200 micro-enterprises complemented by qualitative case studies we find that modern energy increases the importance of electricity-using capital and alters the sectoral distribution of economic activities. By contrast, we find no evidence for an expansionary effect of electrification on firm profits or worker remuneration. In fact, many entrepreneurs consider the direct gain from connecting to the grid to be small. Qualitative information, however, suggests that a positive indirect impact of electrification on firm performance is induced by the overall expansive effect electrification has on local demand. The demand increase can be partly assigned to people moving into the electrified community from surrounding non-electrified areas. We conclude that if productive energy promotion policies are put in place they should address drawing up thorough business plans to enable local entrepreneurs to take informed connection and investment decisions.