# 5.2. Supply chains can help diversify disaster risks

Firms can mitigate the impacts of potential disasters by adjusting the size and spatial reach of their supply networks (Dormady et al. 2017). For instance, by relying on a larger number of suppliers and those in spatial proximity, firms can diversify the risk of supply chain disruptions – though potentially incurring higher costs than through a more concentrated supply network. To assess this often-overlooked risk management strategy, this section explores variation in the number of suppliers and the spatial extent of the supply network.

## 5.2.1. Impact on supply chains

Disasters not only affect firms directly by damaging their assets, obstructing workers to come to work or reducing sales; they also affect every link in their supply network – ranging from their immediate suppliers to those further up their supply chain by several degrees.

Across the three study areas, 37 percent of firms reported experiences of supply disruptions after a disaster. For about 6 percent of firms, these disruptions lasted longer than a week (figure C.1, appendix C). Transport disruptions are cited by about 50 percent of firms as the primary reason for supply chain disruptions (figure C.10, appendix C). Firms tend to stick to their suppliers even when they cannot supply; only 13 percent reported that they switched suppliers in response to disruptions. Of those that did, 97 percent had switched back to their original suppliers or intended to do so. There were some regional differences in this behavior, with firms in Dodoma more likely (41 percent) to switch suppliers than firms in Tanga (8 percent) and Dar es Salaam (13 percent).

The fact that only 13 percent of firms reported changing suppliers during disruptions indicates that shortterm elasticities of substitution for firm inputs may be low in Tanzania. Previous literature has found that low substitution elasticities translate into costly supply chain multiplication effects, thus propagating shocks (Barrot and Sauvagnat 2016; Boehm et al. 2019). Colon et al. (2019) first presented evidence of this effect for Tanzania. The firm data presented here sheds further light on the size of the effect.

The data collected through this survey suggest that the primary reasons for general supply and delivery delays in Tanzanian firms are upstream supply chain issues. About 53 percent of firms reported that their supplies were delayed as a result of problems with the supplier’s supplier (figure C.11, appendix C), and 32 percent indicated that issues with their own suppliers were the primary reason for delayed deliveries to their clients (figure C.12, appendix C). This highlights that a significant share of delays can be explained by supply chain multiplication effects.

By correcting for network multiplication effects, we show that most residual supply chain delays can eventually be attributed to disruptions of transportation and power infrastructure. For instance, if a firm reports that the delayed delivery of supplies is partly due to transport disruptions and partly due to delayed dispatch by their supplier – then the delayed dispatch can in turn be partly explained by transport disruptions further up the supply chain. Hence, ultimately, any delays from suppliers must be attributable to infrastructure disruptions or on-site flood impacts that affected up-stream suppliers. By proportionally re-attributing the reasons for supply and delivery delays, we account for the supply chain multiplier and 13