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Disbursing emergency relief through utilities: Evidence from Ghana

https://doi.org/10.1016/j.jdeveco.2022.102826Get rights and content

Highlights

  • We survey 1200 households eligible for Ghana’s COVID-19 electricity relief program.

  • Program design was regressive, with higher consumers receiving larger transfers.

  • Implementation choices and challenges added inefficiency and regressivity.

  • Key regressivity arises from targeting electricity meters rather than households.

Abstract

We provide descriptive evidence on the challenges in efficiently, effectively, and fairly distributing in-kind electricity transfers to households. We collect panel data from 1200 households eligible for Ghana’s COVID-19 electricity relief program. Distributing relief through electricity transfers enabled an immediate response to the crisis. Theoretical efficiency concerns are mitigated because transfers were inframarginal and storable for most households. Transfer receipt may have increased support for the governing party, possibly due to obfuscation of the program’s financial burden. However, the program was regressive in design, and implementation challenges – delays, technological hurdles, information constraints, and the targeting of meters rather than households – add to inefficiency and regressivity. Households receiving the least average relief are those who use less electricity, pay a landlord or other intermediary for electricity, or share an electricity meter—characteristics of low-income households. Program implementation challenges were just as important as design features in determining program costs and benefits.

Introduction

Governments often take steps to provide for a society’s most vulnerable members, particularly during economic downturns or other unanticipated crises. As the COVID-19 public health crisis spread, often closely followed by deep economic downturns that disproportionately affected the poor, many governments responded by expanding or introducing transfer programs. These were often in the form of energy subsidies: the Gentilini et al. (2020) global database reports that 112 countries – including Ghana – increased financial support for utility payments or other financial obligations in response to the COVID-19 pandemic. Support in the energy sector included payment deferrals, electricity transfers, and price reductions and freezes. Energy subsidies were already common before 2020 (Coady et al., 2015), and in Ghana their structures were often regressive,1 but the design and on-the-ground implementation of these programs can also meaningfully affect their impacts.

In this paper, we study the results of expanding energy subsidies for the specific purpose of providing social support during unanticipated crises. We surveyed households before, during, and after the electricity relief program announced by the government of Ghana in April 2020. Our detailed household-level panel data allow us to assess the program’s efficiency, distributional, and political implications as directly experienced by intended recipients, factoring in not only design decisions but also on-the-ground logistical challenges that affect the program’s impact. While the program was largely implemented as designed, we find that some of the most needy households – such as renters and low consumers – received the lowest benefits. And, the program may have served as clientelism prior to a presidential election.

Ghana’s electricity subsidy program promised monthly transfers of 50kWh (worth 3.50 USD) for April–June 2020 to ‘lifeline’ customers (those who used less than 50kWh per month at baseline), and monthly transfers worth 50% of baseline usage for all other residential customers (ECG, 2020b). The government eventually extended the 50kWh transfers for lifeline customers through March 2021. We use survey data related to energy consumption and political perspectives collected during a baseline round in 2018–2019 and across three rounds of surveys between May and October 2020, each with more than 1200 respondents connected to electricity in Accra.

First, we consider how program design and implementation affect the efficiency and expediency of transfers. Theoretically, in-kind transfers may constrain consumption away from the welfare maximizing bundle. But this concern may not hold in practice (Bruce and Waldman, 1991, Currie and Gahvari, 2008, Gadenne et al., 2021, Hirvonen and Hoddinott, 2021), especially when transfers are inframarginal (Southworth, 1945, Cunha, 2014). This was largely the case in Ghana, since transfers were based on March electricity usage and could be saved indefinitely. We find that 45% of households valued electricity more than an equivalent amount of cash, many noting that they would have used the money for electricity anyway. This is encouraging because by leveraging the existing electricity payments infrastructure, the government avoided the cost and time of establishing or expanding an alternative distribution system (Allotey, 2020, IPA, 2020). Still, this did not preclude delays or exclusion of designated recipients. Only 46% of households had received a transfer after the first month of the program, and one-third of households still reported never having received any transfers after the third month.

Second, building on a large literature studying the distributional impacts of energy transfers (Komives et al., 2008, Basurto et al., 2020, Borenstein, 2012, Younger, 2016), we identify numerous channels of regressivity, not only in the program’s design but also in its implementation. A transfer proportional to baseline usage implies larger transfers to bigger users, who are likely wealthier. Households without electricity, who are generally poorer, did not receive a cash substitute. Importantly, even among connected households, lower-income households are less likely to have ever received any relief. Lifeline customers are 19 percentage points less likely to have ever received the transfer even though they were eligible the longest. Households that pay for electricity through an intermediary such as a landlord do not receive the transfer if it is not passed through: they are 13 percentage points less likely to have ever received relief.

Finally, building on existing evidence on the political economy of energy support programs (Briggs, 2021, Kojima et al., 2014, Strand, 2013, Wolfram et al., 2021), we consider the program’s clientelistic government objectives prior to Ghana’s closely contested December 2020 Presidential election. Satisfaction with the program was 94% among respondents who had received the transfer, and 72% even among those who had not. Support for the incumbent party is 7% higher among those who had received the transfer. Ex ante political affiliation does not predict receipt, and the results persist even when including respondent fixed effects. While we cannot directly establish causality, these results suggest that the subsidies increased support for the government.

Financial sustainability is a widespread concern among electric utilities in Africa – companies in only two out of 39 countries are recovering their operational and capital costs (Kojima and Trimble, 2016) – yet little attention was paid to the program’s significant cost. The government may have gained political support by emphasizing the benefits without discussing the costs. To quantify this, we prompted respondents to consider that the cost may need to be recovered through higher electricity tariffs in future years. Satisfaction with the transfers fell by nearly 50%. In fact, 52% of respondents would prefer not to receive any relief even if their electricity costs next year increase by only a quarter as much as the transfers they receive this year. Government decisions and household beliefs about cost recovery therefore have important implications for relief program support.

Section snippets

Context and data

The first cases of COVID-19 were confirmed in Ghana on March 12, 2020. On April 9th, the government announced electricity and water relief programs in response to associated economic challenges, with the goal of “mitigating the effects of the pandemic on the social and economic life of the country” (Akufo-Addo, 2020). During the strictest lockdown period, the government provided free food and other essentials to some households in Accra and Kumasi. But Ghana’s Deputy Minister of Finance noted

Efficiency

In-kind transfers can be inefficient if they constrain the consumer away from the optimal consumption bundle, but this can be avoided if the transfer is inframarginal. And, absent a direct financial relationship between government and households, in-kind transfers can leverage existing distribution infrastructure. In-kind transfers may also offer protection against price volatility, though that is less important for goods whose prices do not typically fluctuate, such as electricity. The

Distributional implications

Next we consider the program’s distributional implications. An obvious concern with providing relief through electricity is that unconnected households are excluded. 18% of Ghanaian households, and 25% of rural communities, are unconnected, and they did not receive a substitute for the electricity transfer (Ammah, 2020b, The World Bank, 2018). According to Afrobarometer (2017) Round 7 data for Ghana, unconnected households are more likely to be located in rural areas, go without food, water, or

Political implications

The provision of public goods prior to an election has frequently been found to serve clientelistic goals by increasing support for the incumbent (Ferraz and Finan, 2008, Golden and Min, 2013, Min, 2019, Casey, 2015, MacLean et al., 2016, Wolfram et al., 2021). There was widespread support for Ghana’s relief program, and our surveys suggest there was partial obfuscation of its significant costs. By implementing a large multi-month electricity relief program, the government of Ghana may have

Conclusion

We evaluate the efficiency, distributional, and political implications of an electricity relief program in Ghana that was implemented in response to the economic distress caused by the COVID-19 health crisis. Our unique data on transfer receipt allow us to study these dimensions of the program in a manner that incorporates not only the statutory design but also the on-the-ground implementation. The implementation complexities strike us as fairly fundamental in their nature and may be present in

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    The views expressed in this article do not necessarily represent the views of the United States or the U.S. Department of the Treasury. Declarations of interest: none. We thank Maria Vagliasindi, Arthur van Benthem, seminar participants at PacDev and UC Berkeley, and three anonymous referees for helpful comments. The DFID Energy and Economic Growth initiative and the TAMU Private Enterprise Research Center generously provided financial support. This study has Institutional Review Board approval from the University of California, Berkeley (ID 2017-12-10599). To prevent any increased risk of Covid-19 transmission, all surveys conducted between February 15, 2020 and February 15, 2021 were conducted over the phone. We thank Geetika Pandya and Miranda Lambert for excellent research assistance and Kwame Abrokwah and his team for superbly implementing field activities. An On-line Appendix is available.

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