IMPACT OF ELECTRICITY ON PERFORMNACE OF SMES IN NIGERIA (A CASE STUDY OF SELECTED SMES IN ETI-OSA LGA)
1.1 BACKGROUND TO THE STUDY
Access to electricity and its accompanied high tariffs poses a
greater challenge to SMEs growth and performance in lower income
countries like Nigeria, as compared with those in higher income
countries. This assertion is confirmed in a research by Scott et al
(2014) which reveals that, the proportion of SMEs in high-income
countries citing electricity as a major constraint is half of their
counterparts in the Sub-Saharan African and Asia countries. Cost and
time spent on acquiring electricity were also higher in the Less
Developed Countries compared with that of High-Income Countries.
However, this study is examining the effect of electricity on the
performance of SMEs in Nigeria.
The effect of electricity power outage on SMEs in
Nigeria posited that, the current electricity crises in the country
were costing the SMEs over US $686.4 million of annual sales. The SMEs
continued to record a huge loss day by day as a result of poor
electricity supply. These have been partly blamed on market and state
failures, which have led to the poor electricity supply.
In the interim, a lot has equally been said with
regards to the appalling state of Nigeria's epileptic power sector
according to Akuru and Okoro (2009). Energy consumers do not get
electricity supplied to them because the local utility companies do not
get power transmitted to them from the electric grid. The managers of
electric transmission are quick to accuse the generating stations of
insufficient generating MW capacity. And as if trading of blame has
become routine with each of these sectors, the generating stations
either claim they do not get enough gas to power their plants or they
turn around and claim that the transmission companies themselves cannot
boast of a strong transmission backbone to transmit what is being
Indeed, modern energy services can impact on the
development of SMEs to a great extent. Issues that can affect the
development of SMEs such as gross undercapitalization, decrepit
infrastructural services, high start-up costs, corruption, and
government indifference have been identified by Oboh (2002). A
particular finding revealed the high cost of providing back-up energy
(partly infrastructural) for SMEs which sometimes is as critical as
three times the cost of publicly supplied electricity as discussed
elsewhere (Adenikinju, 2003; Essien, 2001).
In Nigeria and perhaps generally, SMEs
classification have been done on the basis of capital investment and
employed labour force while other criteria could be the annual turnover
or gross output as mentioned by Anyanwu (2001). Until very recently,
energy was rarely cited as one of the problems militating against the
performance of SMEs in Nigeria and elsewhere.
Several policies has been formulated by
government at all levels (Federal, States and local government) in
Nigeria to enhance growth and development of the SMEs as they contribute
significantly to the GDP of the nation. This policies and objectives
can only be realized when there is adequate power supply to the small
business. Currently in Nigeria, managers of small business spend huge
sums in procuring generating sets, fuel and the maintenance of the
generators to operate their business successfully. This has however
skyrocketed the operational cost and reduced their performance.
1.2 STATEMENT OF THE PROBLEM
The numerical value of Nigeria's GDP as at 2004 (and by all
standards, now, because there have been no noticeable improvements) is a
consequence of its poor electricity structure and this has affected
the performance of SMEs, which is considered as a yardstick for
economic independence of nations. However, a number of options that can
be used to checkmate this unfortunate development exist. For instance,
if the Nigerian government should consider the criticality of SMEs and
fast-track programmes on the expansion and optimal operation of the
current energy mix; within a very short time frame, these could be
measured as an effort towards relief. SMEs villages/clusters can be
built to promote industrial activities on the basis that such basic
infrastructure like electricity, which is needed for spin-off as well
as for sustainable operation, is collectively and affordably provided
by the relevant host authorities to investors and operators. Standalone
renewable energy (RE) systems are increasingly getting better than
generating sets which still requires expensive and pollution-prone
fossil fuels for their operation. Hence, efforts are needed by relevant
authorities, tasked with the promotion of SMEs in Nigeria, to
facilitate the provision and subsidized costs of procuring these
renewable energy systems - some of which are readily available for
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
- To examine the impact of electricity on the performance of SMEs in Nigeria.
- To identify the effectiveness of the electricity generating and distributing companies in Nigeria.
- To examine other factors affecting the performance of SMEs in Nigeria.
1.4 RESEARCH QUESTIONS
- What is the impact of electricity on the performance of SMEs in Nigeria?
- What is the effectiveness of the electricity generating and distributing companies in Nigeria?
- What are the other factors affecting the performance of SMEs in Nigeria?
HO: There is no significant relationship between electricity and performance of SMEs in Nigeria.
HA: There is significant relationship between electricity and performance of SMEs in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
- The outcome of this study will educate the general public on
the importance of electricity to the performance of SMEs in Nigeria.
- It is also anticipated that the federal government will tap
into the vital information provided by this research in the overall
economic development to set up working mechanisms for the promotion of
- Another important thinking is the fact that it will add to the
limited but growing catalogue of research on electricity economics in
- Small businesses can also benefit, to some extent, from the
information presented in this study which serves as a guide to
alternative viable sources of power generation and even job creation.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study will cover the effect of electricity on the performance
of SMEs in Nigeria. It will also cover the effectiveness of the
electricity generating and distributing companies in Nigeria.
LIMITATION OF STUDY
Financial constraint- Insufficient fund tends to
impede the efficiency of the researcher in sourcing for the relevant
materials, literature or information and in the process of data
collection (internet, questionnaire and interview).
Time constraint- The researcher will
simultaneously engage in this study with other academic work. This
consequently will cut down on the time devoted for the research work
Adenikinju, A.F (2003). Electric infrastructure failures in
Nigeria: a survey-based analysis on the costs and adjustment responses,
in Energy Policy, Vol. 31, Issue 14. November 2003, pp. 1519-1530.
Akuru, U.B. and Okoro, O.I. (2009). Sustainable application of
solar energy as SMEs in a developing nation, African Journal of Physics
Vol. 2, pp. 184209, ISSN: 1948-0229 CD ROM: 1948-0245 ONLINE:
Anyanwu, C.M. (2001). Financing and promoting small-scale
industries: concepts, issues and prospects, Being the Publication of
the launching ceremony of the Small and Medium Industries Equity
Investment Scheme at Nicon Hilton Hotel, Abuja on 21st August, 2001.
Volume 25, No. 3; July/September 2001.
Essien, O.E, (2001). The role of Development Finance Institutions
(DFIs) in financing of Small Scale Industries (SSIs), Being the
Publication of the launching ceremony of the Small and Medium
Industries Equity Investment Scheme at Nicon Hilton Hotel, Abuja on
21st August, 2001. Volume 25, No. 3; July/September 2001.
Oboh, G.A.T. (2002), Bank Participation in the Promotion of Small
and Medium-Scale Enterprises, Being a paper presented at the 6th
Fellows and Associates Forum of CIBN on 13th April, 2002.
Scott, A., Darko, E., Lemma, A. and Juan-Pablo, R. (2014) How Does
Electricity Insecurity Affect Businesses in Low and Middle Income
Countries? Shaping Policy for Development