How do African SMEs respond to climate risks? Evidence from Kenya and Senegal

Abstract

This paper investigates to what extent and how small and medium-sized enterprises (SMEs) in poor countries are adapting to climate risks. We collect data from 325 SMEs in the semi-arid regions of Kenya and Senegal and use this information to estimate the quality of current adaptation measures, distinguishing between sustainable adaptation and reactive coping. We then study the link between these current adaptation practices and adaptation planning for future climate change. We find that financial barriers are a key reason why firms resort to reactive coping mechanisms, while general business support, access to information technology and adaptation assistance encourages sustainable adaptation responses. Engaging in adaptation today also increases the likelihood that a firm is preparing for future climate change. The finding lends support to the strategy of many development agencies who use adaptation to current climate variability as a way of building resilience to future climate change. There is a clear role for public policy in facilitating good adaptation. The ability of firms to respond to climate risks depends in no small measure on factors that can be shaped through policy intervention.