IMPACT OF ELECTRICITY POWER SUPPLY ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISE (SMSs) IN NIGERIA (1980 – 2014)

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ABSTRACT

This study is a critical evaluation of the Impact of Electricity Power Supply on the Performance of Small and Medium Scale Enterprise in Nigeria.  The researcher made use of Ordinary Least Square (OLS) regression technique in analysing the Impact of Electricity Power Supply on Small and Medium Scale Enterprise in Nigeria.  There are also other variables that determine the performance of Small and Medium Scale Enterprise.  Findings from the study shows that all the variables included in the model contributes in explaining the performance of Small and Medium Scale Enterprise in Nigeria which shows R2 0.8899.  The contributions of these variables may strongly depend on the circumstances in Nigerian economic environment.  The study found out that a unit change in Electricity Power Supply has a positive impact on the output of small and medium scale Enterprise.  Based on the findings, certain recommendations were made which include government increasing investment in the power sector, government policies aimed at encouraging SMEs to access public equity capital and also a need for an opening of the market for greater competition in the supply and distribution of electricity.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Access to a reliable electricity supply is widely considered to be vital to the operations of most small and medium-scale businesses (World Bank Enterprise Surveys, 2013). The analysis of Enterprise Survey data according to Foster and Steinbuks (2008), in middle and lower income countries, firms themselves consider access to electricity to be one of the biggest constraints to their business.

Inadequate electricity services can constrain business operations because a supply of electricity may simply be unavailable and, if it is available, securing a connection may be difficult and the supply unreliable, even before its cost is considered. High quality and accessible infrastructure encourages productivity, business growth and investment, but when it is poor and unreliable, businesses’ productivity and growth suffer.

An unreliable electricity supply can affect several aspects of business operations. The most significant impacts to productivity can be due to forced and unexpected halts in manufacturing processes, including running assembly lines, using machine tools, or producing textiles. Communications, delivery times, lighting and refrigeration are also affected by electricity insecurity, with consequences for the routine operation of businesses and their ability to ensure delivery times (Adenikinju, 2005).

Many small and medium-scale enterprises invest in their own stand-by generators to ensure an electricity supply, but these are often expensive compared to electricity from the grid. Generators also require some technical expertise as well as reliable supplies of fuel and spare parts. Yet, in sub-Saharan Africa and elsewhere own-generation by firms is reported to have increased in recent years.

Empirical studies have shown that the small and medium scale industries (SMEs) have in many state enhanced greater employment opportunities per unit of capital invested and aided the development of local technology. This explains the deep interest which developing nation has shown in the promotion of small and medium scale industries since the 1970s (Moyo, 2012).

1.2 Statement of Research Problem

There are various factors affecting the performance of small and medium scale enterprise 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 enterprise.

Despite series of investments made by past government over the years on the power sector to improve the poor state power situation in the country, the entire nation still suffers power shortage and black out (Godwin, 2015). The privatization of the power sector was meant to improve the power insecurity of the country but the national power grid has been on the decline from about 4000 megawatts in 1999 to 1300 megawatts in 2014 (Amadi, 2010).

The equity and quality of a country’s electricity power supply determines its ability to create competitive industries. Since the performance of SMEs In any state is greatly influenced by the electricity supply. Given the pathetic state of electricity power supply in Nigeria it is no wonder that the contribution of the development the state, manufacturing sector and the economy general is very negligible or unsupported by the government.

Power supply has remained unreliable and power out-ages load shedding and rationing has become very frequent. Power supply has been erratic and unreliable that many businesses have resorted to purchasing private generator at a very high cost. The substantial investment in private generating plants is estimated to be of capacity of over 250mm, which is almost half of power holding company of Nigeria (PHCN) available capacity.