Economic Effects of Load Shedding on Small and Medium Enterprises in Kalingalinga and Ibex Hill

Abstract

This paper aims to analyze the economic effects of load shedding on Small and Medium Enterprises (SMEs) in Kalingalinga and Ibex Hill based on four underlining parameters: Operational capacity, employment, revenue and adopted mitigation strategies. Previous studies conducted lacked geographical specificity, particularly in the context of Zambia’s urban and pre-urban areas, the study aimed at addressing this gap. Load shedding continues to be a critical and persistent challenge in Zambia. There are several factors that have led to this challenge, which include a high dependency on hydroelectric power. Thus, the supply of power is subject to weather conditions and the drought experienced in 2024 worsened the condition. Loadshedding has a significant adverse effect on Small and Medium Enterprises (SMEs) which contribute 70% to the Gross Domestic Product (GDP) and account for 88% of the national employment. Therefore, any adverse economic effect on SMEs is critical to the overall economic position of the country. The findings inform various stakeholders, including policymakers and business owners, which provide a basis for developing effective mitigation strategies against the adverse effects of loadshedding. The authors conducted the study based on a quantitative methodology which employed a deductive approach guided by a positivism philosophy. Data was collected from a sample of 50 SMEs between December 2024 and February 2025. The Seemingly Unrelated Regression (SUR) model was utilized to examine the relationship between the frequency of power outages and the dependent variables, which included reductions in operational capacity, revenue, and employment. The results of the study indicate that an increase in the frequency of load shedding has a direct and statistically significant negative impact on SME performance. Particularly, for every one-unit increase in outage frequency, there was a corresponding reduction in operational capacity, a significant decrease in revenue (with most businesses reporting a loss of approximately 50% of income during outages), and a consequential reduction in employment levels. Although 90% of SMEs implemented mitigation strategies such as the use of generators and solar power, 78% found them to be only moderately effective due to their high cost, which affected profitability. The study concludes that load shedding adversely affects SMEs as their going concern and growth are hindered by this challenge. The operational capacity, financial health and employment were all negatively affected. The high costs and limited effectiveness of current mitigation strategies exacerbate these challenges. The findings call for the urgent need for a multi-faceted approach, including government subsidies for renewable energy and improved national infrastructure, to build economic resilience against energy instability and protect the livelihoods supported by SMEs.