Modelling and Estimating the Climate Resilience for Renewable Efficient Energy Systems Among Small and Medium-Sized Enterprises in Malawi

Climate change is a global pressing concern that has affected all sectors, including the operations of Small and Medium Entreprises (SMEs) in developing countries, including Malawi. This has negatively affected their economies of scale and exacerbated the SMEs’ growth constraints. Nonetheless, renewable efficient energy (REE) systems, including solar and biogas, could help in building resilience to sustain their performance. In line with this, the study examined the factors that enhance the adoption of renewable efficient energies and constructed their resilience indices. Our study was grounded in the Diffusion of Innovation Theory and the Sustainable Livelihoods Framework. These theories contextualised the study and guided the selection of variables to estimate an Endogenous Switching Regression (ESR) econometric model, alongside estimating the absorptive, adaptive and transformative individual indices for 699 SMEs, using the 2019 Malawi Household Integrated Survey data. The results initially suggests that factors such as access to credit, being male, access to education, access to capital sources, a large profit share, bridging social capital and location among others, have a positive effect in influencing the adoption of renewable efficient systems. We simulated the adoption results and found that SMEs that adopts REE increase their resilience with an Average Treatment Effect of 0.117 and through the subsidy policy effect vulnerable SMEs that later adopt REE would shift their resilience by 0.169. Furthermore, the study found that transformative capacity plays the most important role in building long-term resilience for the SMEs. The study calls for policies, including establishing urban centres where SMEs can access information regarding REE and improving access to formal safety nets and capital sources beyond loan provisions.