Power crisis raises product costs by 40% – Report

The poor state of electricity in Nigeria adds 40 per cent to the cost of manufactured products, a new report by Nanyang Technology University’s Centre for African Studies has stated.

The 150-page report titled “Back to Growth: Priority Agenda for the Economic Revival of Nigeria” was presented by the author and Director of the Centre, Amit Jain, recently in Lagos.

According to the report, the manufacturing sector has much higher productivity than agriculture and can absorb a larger proportion of the workforce.

It said a top-line analysis of the business environment in Nigeria showed that the country lacked many of the factors required to attract investment in the manufacturing sector.

For manufacturing to be competitive, the report said economic activity should, at least to begin with, not deviate too far from the country’s comparative advantage.

The report read in part, “Lack of electricity adds 40 per cent to the cost of everything in Nigeria. That hurts manufacturing the most. Firms suffer from an acute shortage of power supplies.

“Electricity blackouts, together with transport bottlenecks, crime, and corruption, are among the key impediments to firm growth. Outages and voltage fluctuations are commonplace.

“This damages machinery and equipment. Consequently, most firms rely on self-supply of electricity through the use of generators, which increases the cost of production and erodes competitiveness.”

Since guaranteeing uninterrupted power supply across the country is likely to be difficult, the report recommended that the government should consider developing industrial clusters.

According to the report, the main benefit of clustering firms is that it allows for infrastructural provision to be prioritised to give firms a competitive edge while offering access to raw materials, skilled labour, technology, and materials.

It read further, “The clusters should ideally be located within zones that are well connected with roads, power lines, and telecommunications.

“Although Nigeria has scored some success with informal clusters, such as the computer village in Otigba, Lagos; the auto and industrial spare parts fabricators in Nnewi; the leather tannery in Kano; and the footwear, leatherworks, and garment cluster in Aba, very few are working to their full potential.

“Lack of coordination between the federal and state governments and patchy implementation of industrial policy has meant that the infrastructure required to attract manufacturing investment is inadequate.”

In June, the Manufacturers Association of Nigeria said the country’s shortage of electricity supply had been identified as a hindrance to the profitability of manufacturers, with an annual economic loss valued at about N10.1tn, about two per cent share of the country’s Gross Domestic Product.