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IMPACT OF POWER SUPPLY ON SMALL AND MEDIUM INDUSTRIES IN NIGERIA

 

CHAPTER ONE

INTRODUCTION

1.1 Background to the study 

The role of small scale businesses in the overall growth and development of an economy’s manufacturing sector in particular and the economy in general cannot be over emphasized. Small scale businesses are indeed high potentials for development in terms of employment generation and wealth creation in any economy. Chibuzor (2012) stated that the small scale businesses have in many states enhanced greater employment opportunities, reduced idleness among youths, increased per unit of capital invested and aided the development of local technology. This explains the deep interest which developing nations have shown in the promotion of small scale businesses since their independence.

However, the potentials of small scale businesses in contributing to the economic growth and development of Nigeria has been hampered by various constraints including; long term capital, inadequate financing, inadequate information for potential investors, poor management practices and low entrepreneurial skill, over bearing regulatory and operational environmental, unfavourable tariff policy and infrastructural deficiencies such as inadequate power supply.

Although, it is a widely held view that the availability of financial resources is the most critical to the performance of small scale businesses but some studies have shown that a large number of small scale businesses fail because of non-financial reasons such as infrastructural deficiencies (Liedhorm, 2012). According to Azubuike (2013), one of the infrastructural facility affecting the performance of the small and medium scale industries (SMIs) in Nigeria is power supply (electricity). Inadequate provision of power supply constitutes one of the greatest constraints in SMIs’ development. This is because the supply of adequate and stable electricity to consumers is the back bone of socioeconomic development of any nation. While inadequate and unstable supply of electricity to consumers in any nation would definitely lead that nation’s backward in terms of its socio-economic growth.

According to Azubuike (2013), energy plays the most vital role in the economic growth, progress, and development, as well as poverty eradication and security of any nation. Uninterrupted energy supply is a vital issue for all countries today. This is because future economic growth crucially depends on the long-term availability of energy from sources that are affordable, accessible, and environmentally friendly. Security, climate change, and public health are closely interrelated with energy (Ramchandra and Boucar, 2011).

Energy is an important factor in all the sectors of any country’s economy. Energy supports the provision of basic needs such as cooked food, a comfortable living temperature, lighting, the use of appliances, piped born water or sewerage, essential health care (refrigerated vaccines, emergency, and intensive care), educational aids, communication (radio, television, electronic mail, the World Wide Web), and transport as well as other social amenities (Azubuike, 2013). Energy also fuels productive activities including agriculture, commerce, manufacturing, industry, and mining. Conversely, a lack of access to energy contributes to poverty and can contribute to the economic decline. Energy and poverty reduction are not only closely connected with each other, but also with the socioeconomic development, which involves productivity, income growth, education, and health (Fagbenle, Adenikinju, Ibitoye, Yusuf and Alayande, 2015).

The energy crisis, which has engulfed Nigeria as a whole has been enormous and has largely contributed to the rate of poverty by paralyzing industrial and commercial activities in the country. To buttress this, The Council for Renewable Energy of Nigeria (2009) estimates that power outages brought about a loss of 126 billion naira (US$ 984.38 million) annually. Apart from the huge income loss, it has also resulted in health hazards (breathing and auditory problems etc.) due to the exposure to noise and carbon emissions caused by constant use of ‘backyard generators’ in different households and business enterprises, unemployment, and high cost of living leading to a deterioration of living conditions.

More so, because of constant power outage in Nigeria, there is always high cost of goods (food stuff) and other services (example computer services by computer operators). Often times, food stuffs spoil and waste in the refuse dumps because of lack of power supply for food preservation and computer operators constantly change their price of typing with the excuse that there is no power supply as well as high cost fuel. Lack of constant power supply in the country also leads to the unsafety of equipment used by small scale business owners. These problems have been the major problem facing the growth of business owners in the area. It is on this note that the researcher tries to investigate the influence of poor power outage on the performance of small scale businesses in Nigeria.

1.2 Statement of the Problem

Small and medium scales industries in both developed and underdeveloped nations plays an important role in the process of economic and industrial development. In spite of the relevance of the small and medium scale industries to Nigeria economy and industrial development, that sector faces a lot of problems.

Although there are various factors affecting the performance of small and medium scale industries sub sector ranging from inadequate capital to unfavourable tariff policy, however, the poor state of power supply in Nigeria is one of the significant factors militating against the performance of small and medium scale industries. The equality and quantity of a country’s power supply determines its ability to create competitive industries. Since the performance of SMIS in any state is greatly influenced by the electricity supply. Given the pathetic state of power supply in Nigeria it is no wonder that the contribution of the development the state, manufacturing sector and the economy in general is very negligible or unsupported by the government.

An overview of the performance of the small and medium scale industries in Nigeria shows that past policies made limited impact on the sector for example, it is estimated that SMIS account for about 80 percent of the total industries employment in Nigeria, but only contribute 15-20 percent of total manufacturing output.

Power supply has remained unreliable and power out-age load shedding and rationing have become very frequent. Power supply had been erratic and unreliable that many businesses have resorted to purchasing private generators. The substantial investment in private generating plants is estimated to be of capacity of over 250mm, which is almost half of Enugu Electricity Distribution Company (EEDC) available capacity.

1.3 Research Questions 

The study would therefore provide answers to the following fundamental questions.

How does power supply affect the performance of small and medium scale industries in Nigeria? Are there any longrun linkage between power supply and the performance of small and medium scale industries in Nigeria?

1.4 Objective of the Study

The objectives of this research study are to provide a clear picture on the activities of effects of power supply failure on the performance of small and medium scale industries. The specific objectives of the study are:

To find out how power supply failure affect the performance of small and medium scale industries in Nigeria? To examine the linkages between power supply and the performance of small and medium scale industries in Nigeria?

1.5 Hypotheses

The broad objective of this study is to assess the performance of power supply to small and medium scale industries in the state. The specification objectives of the study are as follows:

H0: Poor power supply have no significant effect on performance of small and medium scale industries in Nigeria H2: There is no positive linkage between power supply and the performance of small and medium scale industries in Nigeria?

1.6 Justification of Study 

This research work will be of immense benefit to the government, National directorate of employment, ministries of power, comers and industries and small scale business owners. This is because from the study, they will know the problems facing the Nigeria power sector and work out modalities in making sure that there is adequate power supply for the socioeconomic growth in Nigeria.

The result of this study will also be of great importance to the government and stakeholder in knowing the major cause of poor industrial development in the country. The result of the study will also help the private sectors to invest heavily in power generation and development for economic development in the country.

The information emanating from the study would be of great benefit to the ministries of power, commerce and industry who would use the information to formulate better polices in power sector for industrial and power development for socioeconomic development in Nigeria. This would also guide the ministry on the best way to maintaining steady power supply for job creation in the country.

The result of the study will also be of great benefit to small scale business owners. This is because from the result of the study, they will be able to find ways of improving power supply other than the public power supply. Finally, the result of study would also benefit researchers in education (electrical engineering), because the information would be a source of secondary data for future research.

1.7 Scope of the Study

The research work is concerned basically with the roles to lay emphasis on power supply and the performance of small and medium scale industries in the state and will cover those SMIS in state that have electricity as relevant infrastructural for their production process. The analysis covers a period of 1981-2015.  The basic limitation of this study is the completing nature of sources of statistical inputs. The data obtained from the annual bulletin, journal, and statistical data text books, magazines and seminars reports etc. consequently the information given is extracted from the CBN and others sources of secondary data.

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