Impact of Nigeria’s Power Sector on Industralization

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“By 2020, Nigeria will be one of the largest economies in the world, able to consolidate its leadership role in Africa and establish itself as a significant player in the global economic and political arena.”                                                               – Nigeria Vision 20:2020

In 2009, the Federal Republic of Nigeria set some ambitious objectives. One of which was to become among the top 20 economies in terms of GDP size by 2020. Nigeria’s vision 20:2020 focused on two broad objectives:

  1. To make efficient use of human and natural resources to achieve rapid economic growth; and
  2. To translate the economic growth into equitable social development for all citizens.

To achieve these objectives, the government planned to address the major constraints to Nigeria’s growth and competitiveness, such as epileptic power supply, weak infrastructure and institution amongst others. The government also planned to transform the economy from a mono-product to a diversified and industrialized economy.

Two years away from the planned deadline, Nigeria is far from achieving what our ambitious leaders planned to.

Power is the backbone of industrialization and industrialization is what drives the economy of a nation. The need for electricity is paramount for the growth of a country, access to electricity as the basic form of energy supply to the masses is vital for the development of a nation’s economy. How can Nigeria achieve its economic goals when one of its most important sectors is severely lacking?

Read: Sour Tales of the Nigerian Health Sector

Nigeria has always been known as the “giants of Africa” but this is a façade. The nation is still third world and has minimal input in key economic areas that would place it in the global spotlight. With the world being a global village, products from various countries compete on a global scale. However, for Nigerian companies competing on the global market, most products and industries are less competitive or considered substandard. This is attributed to a high net spend on power generation. The high cost of power generation incurred by Nigeria’s various manufacturers and industries also make goods less competitive against foreign goods within the nation’s border.

”The products which our companies would be churning out would be compet­ing with others coming from abroad whose countries have good infrastructure. Definitely, the prices of those products com­ing from outside will be cheaper, while ours will be higher and less competitive due to the cost of production. The same goes for those companies exporting their products, it will still be less com­petitive and it’s really a serious problem.”

– Segun Oshinowow (Director General, Nigeria Employer’s Consultative Association)

According to a 2016 report from the Manufacturers Association of Nigeria (MAN), its member companies spend ₦20.8 billion monthly on power generation to run their production process. This indicated a 70% increase in their cost of production. A study by the Good Governance Initiative (GGI) – an NGO advocating for uninterrupted power supply in Nigeria – found out that Nigerians spend ₦3.5 trillion per year fuelling generators. Another study by the same NGO revealed that the manufacturing sector spends over ₦800 billion per year on generators. This is separate from the ₦2 trillion spent on running generators by over 17 million SMEs, banks and other corporate entities and traders across the country.

A few companies (especially multinationals) have cut themselves off the national grid, they cannot operate with the current epileptic power supply. The remarkable increase in operational cost and poor purchasing power of consumers have also caused businesses and companies to lay off thousands of workers. Some companies have even shut down operations. The Nigerian Chambers of Commerce reported that 800 companies closed shop in Nigeria between 2009 and 2011. Companies like Dunlop and Michelin closed shop and moved to Ghana.

Nigeria’s manufacturing sector currently accounts for 10% of total GDP, compared to 15% in South Africa. South Africa’s current power generation capacity stands at 52,811MW. The FGN currently estimates national energy demand at 22,560 megawatts (MW). Meanwhile, power generation capacity from the grid is 7,000MW while distribution capacity is still 5,000MW. Until power sector friendly policies are introduced then implemented and power shortages curbed to a bare minimum, Nigeria’s industrial take-off will remain delayed.

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