IMPACT OF ELECTRICITY ON PERFORMANCE OF SMES IN NIGERIA (A CASE STUDY OF SELECTED SMES IN ETI-OSA LGA)
CHAPTER ONE
INTRODUCTION
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 generated.
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.
