November 11, (THEWILL) – There are indications that many Nigerian businesses will join the league of exited or closed firms in the coming year, mainly on account of high energy costs, both petroleum products and electricity, among other adverse factors.
Since June 2023 when the Bola Tinubu-led government announced the removal of subsidy on petrol, the floating of the naira and upward review of electricity tariff, many businesses have gone into extinction while others have scaled down their operations massively or exited the country.
A recent media report revealed that over 70 firms exited Nigeria in seven years, creating mass job losses – direct and indirect — as well as huge tax revenue deficiency for the government.
The Manufacturers Association of Nigeria has said that 767 manufacturers shut down operations while 335 became distressed in 2023 following unbearably high cost of operations. .
This came against the backdrop of exchange rate volatility, rising inflation and other economic challenges that have worsened the investment climate. At the centre of the scenario is the high cost of electricity and fuel which crippled many micro, small and medium enterprises, MSMEs.
According to MAN, the negative consequences of high energy cost on the manufacturing sector are humongous and cannot be accommodated at this time of evident downturn in our economy.
They noted that the continued increase in cost of petrol and diesel will worsen the cost of doing business in Nigeria, especially among the manufacturing sector.
“The manufacturing sector is already beset with multidimensional challenges. In the year 2023, 335 manufacturing companies became distressed and 767 shut down,” the group said in a statement.
The statement further noted that high energy costs create additional challenge as the firms battle with capacity utilisation in the sector which has declined to 56 per cent amid rising interest rates and scarcity of forex needed to import raw materials and machinery.
It added that inventory of unsold finished products has increased to N350bn and the real growth has dropped to 2.4 per cent.
“The situation is alarming. There is no reliable and sufficient electricity supply as we have to rely on generators most of the time for our operations. Incidentally, the cost of diesel to run our plants and petrol to drive our distribution vans has gone to the roof tops. Recently, we laid off 25 percent of our workers to enable us to stay afloat. We also cut down on our supply chain to save cost. Energy costs are killing us,” said Engr. Gideon Akalazu, who runs a detergent plant in Lagos.
Engr. Akalazu added that the sachet water section of their business has been shut down because of the high cost of fuel to power production and drive the distribution vans. While the price of the product has been increased by about 70 percent, there is a limit to what the customer can bear, and sales have dropped massively.
Like many other business owners, Engr Akalazu expressed dismay over the high cost of petrol even when the much awaited Dangote Refinery commenced production in early September 2024.
Up till now, Dangote Refinery, the Nigerian National Petroleum Company Limited (NNPCL) and members of the Independent Petroleum Marketers Association of Nigeria (IPMAN) have been engrossed in controversy over pricing and importation of petrol.
While the controversy lingers, the consumers hold the short end of the stick as the cost of petrol has risen to N1,300 per litre and even more in some parts of the country N200 per litre before the subsidy removal.
Likewise, notwithstanding the over 240 percent increase in electricity tariff the country has continued to witness long blackout following frequent collapse of the national grid and the prioritization of revenue over efficient service delivery by the electricity distribution companies (DisCos).
In a paradox that has defined Nigeria’s electricity sector, the eleven Distribution Companies (DisCos) across the country recorded increased revenue during the second quarter of the year (Q2 2024) amid poor power supply and a growing population of estimated billings. Data conveying these facts were obtained from the National Bureau of Statistics (NBS) Electricity Report for Q2 2024.released last week.
According to the report, electricity supply during the review period (Q2 2024) was 5,612.52 Gwh from 5,769.52 Gwh in the previous quarter. Similarly, on a year-on-year basis, electricity supply decreased by 5.03% compared to 5,909.83 (Gwh) reported in Q2 2023.
Despite the poor performance in power supply, the electricity distribution firms accumulated more revenue during the period. According to the report, revenue collected by the DisCos in Q2 2024 rose to N391.72 billion from N291.62 billion in Q1 2024. On a year-on-year basis, revenue generated in the reference period also increased. It rose by 48.90% from N263.08 billion recorded in Q2 2023.
The increased revenue was recorded by the DisCos who continue to feed fat on the anomaly called estimated billing which number during the quarter was 7.07 million, higher by 10.04% from 6.43 million in Q1 2024. On a year-on-year basis, estimated customers increased by 17.86% in Q2 2024 from 6.00 million in Q2 2023.
Estimated billing refers to the system of arbitrary charging against unmetered electricity consumers for the volume of energy they did not actually consume. The billing is based on perceived pattern of consumption, or on the ‘best of judgment’, with unjustified high revenue targets as the motive. Consumers in this system are mandated to pay far above what they consumed on a monthly basis and the charges are usually outrageous.
The fate of the increasing number of electricity consumers under the estimated billing system has become more worrying following the astronomical increase in the cost of electricity metre.
Over the years, the DisCos have blamed the shortage of metres for their inability to provide their customers with the commodity as a result of which majority of the electricity users are placed on the notorious estimated billing system. The affected consumers, in turn, accuse the DisCos for deliberately starving them of meters in order to continue their arbitrary estimated billing system.
Under this scenario many businesses may not afford to remain in operation and that will worsen the ugly unemployment situation amid worsening state of insecurity and continued rise in inflationary trend.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
