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Epileptic Power Supply—Implications for MSMEs and the Economy.

Access to clean and stable electricity is a prerequisite for any nation that desires to be relevant in the 21st-century industrial era. Developed countries, and nations with the goal to own the market in the future industrial age know this already, so they are injecting billions to seek alternative power source, consequently improving their economy. With the current electricity situation in Nigeria, can we say she is ready to be amongst the big players by 2030?

An average family man in Nigeria spends between 60,000 and N100, 000 in a month on fuel, apart from the maintenance. A 2015 report of the Good Governance Initiative (GGI), a non-governmental organization advocating uninterrupted power supply in the country, says Nigerians spend N3.5 trillion on fueling their generators annually. Already, the CBO Capital Partners’ power sector reported earlier in 2012 that households, offices, and governments in Nigeria spent up to N2.8tn to self-generate electricity in 2012. Making the former position by GGI very plausible. As we all know, in the 2020 budget, the Federal Government plans to spend N9.05bn on the purchase, maintenance and fuelling of generators across the Ministries, Departments and Agencies nationwide in the 2020 budget.

This raises much concern as to Nigeria’s readiness for the future market, and what systems they are setting in place to be able to compete with other big players in that space. Currently, we virtually run a mono-economy because oil and gas contribute more than 70 percent of national gross domestic product (GDP). There needs to be an intentional drive through the power sector for a diversified economy. There is a direct relationship between the electricity supply and the economy of a nation. Experts have analyzed this on a broader scale to reveal that for every 1% increase in electricity supply, an economy is expected to grow by 3.94%. Suggesting that a 10% increase in electricity, should scale up the economy by 39.4%. Consequently, a 10% decrease in the electricity supply would reduce our productivity by 39.4%. Of course, you know what a 39.4% decrease would mean for our struggling economy.

One should think that a country such as ours would be quick to call for a state of emergency on the power sector, but no, the story is usually alike each year. Suffice to say that only 40% of Nigeria’s population is connected to the grid, and this population faces power problem 60% of the time. This report released 6 years ago, also revealed that Nigerians can’t boast of an average 4hrs daily of power supply. It’s no better today than it was then because the daily experience of every single Nigerian with power supply has shown that both households and businesses have given up depending on electricity supply for survival.

Just two days ago, the news we were greeted with is that of a possible shut down by the power Generating Companies over the inability of the Nigeria Bulk Electricity Trading Company (NBET) to honour the agreement it has with GenCos. This raises many fears for households and SMEs, who still find the epileptic electricity supply a bit helpful for survival. For some that may not be so conversant with the chain of flow in the power sector, I’ll only attempt a simplified summary of the whole process. The Generating Companies (GenCos) are charged with the responsibility of generating power, which is then sent to TCN for transmission. DisCos are distributors of the transmitted power. At least you are already familiar with DisCos because they are the companies you pay your electricity bills to. Now there is another agency called NBET: NBET purchases electricity from the Generating Companies through Power Purchase Agreements (PPAs) and sells to the Distribution Companies through Vesting Contracts. The recent brouhaha is that the GenCos have raised their voices over the irregularities by the NBET, and are threatening a shutdown. In her own words, the Executive Secretary, Association of Power Generation Companies (APGC), Dr Joy Ogaji, said “NBET has now reduced its role to blackmailing and threatening GenCos investors and chairmen who have refused to concede to NBET’s illegal demand of a 0.75 percent charge on invoices paid to gas suppliers.” She further revealed that there was N600 billion the Federal Government needed to pay GenCos through the Central Bank of Nigeria (CBN), and that if that money was not released on time, it was likely to contribute to the shutdown of power generation in the country soon.

With the current threat of a possible shut down by Power Generating Companies (GenCos), the question now is, how would this affect businesses in Nigeria? The sequel to that question would be, how would Nigeria attract investors—both local and foreign investors—to inject capital into the system, and create job opportunities, thereby reducing poverty?

Implication for Businesses

49.3% of SMEs in sub-Sahara Africa identified electricity as their major constraints in doing business. Many known companies have left Nigeria, and several SMEs, have folded up within the last 5 years—about 80% of SMEs fold up within 5 years of existence—due to various factors. Power which increases the unit cost of running a business, plays a significant role in the survival of any enterprise. Already around 90 million formal micro, small and medium-sized enterprises (MSMEs) provide over two-thirds of all jobs in the developing world. Ministry of Industry, Trade and Investment has said that the number of micro, small and medium-scale enterprises, MSMEs in Nigeria is over 37.07 million, and account for more than 84 percent jobs in the country. According to World Bank enterprise survey, about 86% of these SMEs depend on gasoline generator to keep their businesses running. Meaning that only 14% of businesses depend on our power supply to stay alive. Now, let’s do the maths: If only 14% of businesses depend on power supply to run, that’s around 5,180,000 of the 37m MSMEs—then what use is the power supply for business productivity? Can Nigeria now boast of being prepared for a diversified economy? For an average business with only 20% chances of survival should at least have electricity to reduce its risk of folding up.

What a business needs to thrive is an enabling environment, not N10, 000 handouts. Until we get it right in power, we’ll only be shooting ourselves on the foot in an effort to have a growing economy, which can compete on a global scale.

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