Does the cost of energy matter for innovation? The effects of energy prices on SME innovation in Sub-Saharan Africa

Energy and environment has gained traction within the field of entrepreneurship literature but a comprehensive empirical study that examines the relationship between the cost of energy and small and medium sized enterprises (SME) innovation is an omission. Therefore, this novel study examines the relationship between the cost of energy and SMEs innovation in Sub-Saharan Africa (SSA) by first examining the differential impact of the various generation sources on the price of electric energy. This research has enabled us to investigate and understand the transmission mechanism of increasing/decreasing electricity price on innovation decisions and activities of SMEs in SSA. Using quantitative approach, with the data from the World Bank Enterprise and Innovation Follow-up Surveys, the study utilises a Tobit model to test whether the generation mix (renewable and non-renewable generation sources) increases or decreases electricity prices and examine the impact of the cost of electric energy on SMEs innovation in Sub-Saharan Africa. The findings of this study shows that cost of electricity affect negatively on SMEs innovation decision and activities of SMEs in SSA. The impact of renewables on price of electricity has a larger magnitude relative to that of non-renewables. This finding has implications for policy makers promoting renewable energy without a policy design to tackle the unintended price effect of promoting renewable energy This is the first study to introduce cost of energy into an innovation model and to empirically examine the role of cost of energy for innovation activities of SMEs in SSA. Further, it examines the sources of generation on electricity price in SSA. The study contributes towards the empirical literature and the findings also have implication for policy makers regarding the unintended consequences of promoting the transition to low carbon electricity generation sources on SMEs via the cost of doing business implication