The project examines how the 2015–16 El Niño-induced drought affected small-scale manufacturing firms reliant on agricultural raw materials. The main concern of the project is that extreme climate events disrupt input supply and production, threatening the productivity and survival of these firms, which play a key role in Ethiopia’s economy. It aims to assess the impact of the drought on firm performance—specifically productivity, profitability, employment, and growth—identify the mechanisms through which droughts affect firms, and explore the coping and adaptation strategies firms adopt in response. Using firm-level census data from the Central Statistical Agency of Ethiopia and a survey on adaptation strategies, the researchers apply a difference-in-differences approach to isolate the causal effects of drought exposure.
The project fills an important gap in understanding how climate shocks influence the manufacturing sector in developing economies. It highlights the vulnerability of non-agricultural industries to climate variability and provides evidence useful for designing policies that enhance firm resilience and climate adaptation capacity. The results show that drought-exposed firms experienced significant declines in sales, productivity, and employment, mainly due to shortages of agricultural inputs. Low-skilled workers were most affected, while infrastructure such as roads and irrigation helped mitigate losses. Firms coped by reducing production, sourcing inputs elsewhere, and adjusting prices. The findings underscore the importance of resilience-building strategies for small-scale firms facing climate risks.