The near collapse of public electricity supply system has increased the burden of doing business in Nigerian’s manufacturing sector with the cost of self-generated power in the sector soaring to N144.5 billion in 2022, up 87.13 percent from N77.22 billion in 2021.
Report indicate that the situation may have worsened this year as Nigeria’s electricity generation, last weekend, dropped by 37 per cent to 2,649.9 megawatts, MW, from average 4,000 MW recorded last year.
Available data from the Manufacturers Association of Nigeria (MAN), the umbrella body of manufacturers in the country, shows that inadequate electricity supply remains a huge challenge to the manufacturing sector resulting in huge investment by the companies in self-energy generation.
Disaggregated analysis of the data obtained from MAN shows that the manufacturers spent N67.8 billion in generating their own power in the first half of 2022 (H1’22); and this increased to N76.7 billion in the second half (H2’22), totaling N144.5 billion for the full year.
Further analysis revealed a steady upward trend in the expenditure on alternative energy sources in the sector from N32.18 billion in H1’2021 to N45.04 billion in H2’21; N67.8 billion in H1’22; and N76.7 billion in H2’22.
The development has further increased the cost of production in the country’s manufacturing sector making their products even more uncompetitive against imported products.
A survey by MAN further noted that electricity supply to industries from the national grid declined to 11 hours per day in H2’22 from 12 hours recorded in the preceding half year.
Manufacturers said the high cost of energy, particularly diesel and gas, was partly responsible for the 9.7 percent decline in production output recorded in the sector in 2022.
During the year output was N6.67 trillion a decline from N7.39 trillion in 2021.
Costly implications on businesses
Findings by Financial Vanguard indicate that the situation may have worsened this year as Nigeria’s electricity generation, last weekend, dropped by 37 per cent to 2,649.9 megawatts, MW, from average 4,000 MW recorded last year.
Available data from the Manufacturers Association of Nigeria (MAN), the umbrella body of manufacturers in the country, shows that inadequate electricity supply remains a huge challenge to the manufacturing sector resulting in huge investment by the companies in self-energy generation.
Disaggregated analysis of the data obtained from MAN shows that the manufacturers spent N67.8 billion in generating their own power in the first half of 2022 (H1’22); and this increased to N76.7 billion in the second half (H2’22), totaling N144.5 billion for the full year.
Further analysis revealed a steady upward trend in the expenditure on alternative energy sources in the sector from N32.18 billion in H1’2021 to N45.04 billion in H2’21; N67.8 billion in H1’22; and N76.7 billion in H2’22.
The development has further increased the cost of production in the country’s manufacturing sector making their products even more uncompetitive against imported products.
Depressing output
A survey by MAN further noted that electricity supply to industries from the national grid declined to 11 hours per day in H2’22 from 12 hours recorded in the preceding half year.
Manufacturers said the high cost of energy, particularly diesel and gas, was partly responsible for the 9.7 percent decline in production output recorded in the sector in 2022.
During the year output was N6.67 trillion a decline from N7.39 trillion in 2021.
Costly implications on businesses
Giving more insight into the situation, Director General, MAN, Segun Ajayi-Kadir, said: “Over the years, access to affordable and dependable energy supply for operational activities of the manufacturing sector in Nigeria has been a big concern, forcing manufacturers to adopt alternative energy sources, including gasoline and diesel, with a costly implication on the sector’s operations.
“The implications on the manufacturing sector include: Increased costs of production – the high cost of obtaining alternative energy naturally results in a sizable increase in the percentage of production overheads, and when these prices grow, it puts pressure on profit margins requiring them to pass the cost on to customers through price rises that cause a decline in demand for their products.
“Reduced competitiveness – steel, cement, and chemical manufacture are all energy-intensive industries, therefore sourcing for alternative energy is costly and may negatively affect industrial competitiveness when compared to international counterparts.
“The soaring costs of energy could discourage foreign investors from investing in Nigeria’s manufacturing sector. If energy prices are too high, the economy itself becomes less appealing for international businesses to undertake investment. This results in a loss of foreign direct investment and the benefits that come with it.
“Manufacturers might be reluctant to expand their investments in other manufacturing opportunities if switching to alternative energy sources at a higher cost for industries that need to invest heavily in infrastructure, machinery, and technology. This could impede the growth and development of the manufacturing sector.
