How Nigeria’s Energy Crises Is Threatening 5 Million Jobs In The Manufacturing Industry

YEMISI IZUORA, writes that the Manufacturing sector in Nigeria is gradually going into extinction as electricity supply from the grid has reduced drastically and diesel which support alternative power is now too expensive to support their operations

 

The Manufacturers Association of Nigeria (MAN) which is the voice of manufacturers in Nigeria and the leading Business Membership Organization in West Africa and the African Continent represents the interests of over 3,000 manufacturers (small; medium; large and multinational industries) spread across 10 sectors, 76 sub-sectors and 16 industrial zones and currently leading the Federation of West African Manufacturers Association and Pan African Manufacturers Association.

Oriental News Nigeria, writes that Manufacturers are heavy users of electricity in Nigeria and this naturally necessitates our keen interest in all electricity and alternative energy supply related discourse and development.

The manufacturing sector in Nigeria employs over 5 million workers, directly and indirectly with 8.46 per cent contribution to Gross Domestic Product.

The sector also dominates export trade in the West African region, generate foreign exchange, contributes substantially to revenue of Government and human capital development in Nigeria.

Over time, the sector has called on government that the manufacturing be given priority attention and safe guarded against steep deadline which should be backed with comprehensive and integrated support system during times of crisis.Its performance should be enhanced through a pro-manufacturing policy that will encourage scale and lower unit cost of production.

Over the years, the manufacturing sector has faced numerous familiar challenges that have plummeted the number of industries in Nigeria and converted industrial hubs in many parts of the country to warehouses of imported goods and event centres.

Top on the list of challenges confronting the sector is high operating cost environment occasioned largely by inadequate electricity supply and the high cost of alternative sources, excessive regulation and taxation,and inadequate supply of foreign exchange for importation of raw materials, spare parts and machinery that are locally available. All these have culminated into the lacklustre performance of the sector.

Unfortunately, the effects of lingering power outages on the economy are enormous and Manufacturing firms are worst hit as it has added to their cost of production and fuelled inflation through the increase of the factory-gate prices of their products.

This experts have argued is due to the fact that many of these industrial firms rely on diesel for their internal power generation, a situation that has been worsened with the current escalating price of diesel. Many firms have consequently reduced the size of their labour force thereby increasing the spate of job losses and unemployment in the country. Some firms have even closed shop.

Going by current data indicate, there are 23 power generating plants with 11,165 megawatts capacity connected to the national grid which are operated by generation companies (Gencos), independent power producers and the Niger Delta Holding Company with only two of these being hydro plants, namely the Jebba and Shiroro plants. Currently.

Each of these plants have one form of challenge or the other.

The two hydro plants currently have limited or no generating capacity due to poor water management while the remaining 21 generating plants suffer other forms of challenges.

The gas-powered are reportedly generating below expectations due to lack of gas, technical faults, or under some form of seemingly unending maintenance, among others.

The plants in this category at Omotosho, Olorunsogo, Omoku, Delta, Afam, Ihovbor, Sapele, Odukpani, Okpai, Geregu, Alaoji and Egbin.

The Egbin plant which is the country’s largest power generating plant of 514 megawatts and the largest supplier of power to the national grid is currently off the grid due to perennial faults and technical problems.

 

Nigeria’s Weak And Unreliable Grid System

The nation has increasingly been thrown into darkness following the collapse of the national power grid.

In the last seven months in 2022, between January and July, the grid has collapsed five times.

The last grid collapse in June occurred around 6.49pm, leading to the shutdown of the outgoing electricity feeders of some power distribution companies.

The Enugu Electricity Distribution Company Plc and Kaduna Electricity Distribution Company in separate messages obtained confirmed the grid collapse.

Nigeria’s power grid had collapsed twice in March and twice again in April this year, as the power generation on the system had continued to fluctuate due to gas constraint, water management challenges, gas pipeline vandalism, among others.

In April, the quantum of electricity on the grid crashed from over 3,000MW on April 8, 2022, to as low as 10MW around 21.00 hours same day.

Again, another collapse of the grid occurred on Saturday, April 9, 2022, as the nation’s power system collapsed to 33MW around 01.00 hours, after it had earlier posted a peak generation of 3,281.50MW at 00.00 hours the same day.

Also, the national grid collapsed twice in March and this happened within a space of two days.

MAN explains why over 400 manufacturers closed shop, sacked staff - Ripples Nigeria

Counting Costs

Manufacturers in Nigeria, in the last two years, 2019 to 2020, spent about N143.29 billion on alternative power supply.

According the MAN, members in 2020 spent N81.91 billion on alternative power as against N61.38 spent in 2019.

The Association attributed the increase in alternative energy expenditure in the sector to general high inflationary pressures on the economy.

It, however, noted that the increase in petrol pump price exerted significant influence on prices of some of the fuel used by the sector to generate electricity.

In its bi-yearly review of the economy report, the MAN called on the Federal Government to review the recent increase in electricity tariff.

The Association also lamented the negative impact of COVID-19 pandemic on the manufacturing industry following the global lockdown.

It said: “Energy information generated from the sector has shown constant improvement in electricity supply to the manufacturing sector. In the second half of 2020, electricity supply from the distribution companies to the sector increased to 12 hours on a daily average from 10 hours per day on the average recorded since the first half of 2019. The average daily power outage had constantly averaged four times per day.

“However, expenditure on alternative energy in the second half of 2020 increased to N57.75 billion from N34.70 billion recorded in the corresponding half of 2019; thus, indicating N23.05 billion or 66.4 per cent increase over the period.

“The year 2020 was a very difficult one for the economy and manufacturing sector due to the onslaught of COVID-19 pandemic. Coronavirus had a staggering devastation on global economies as evident in the huge death toll of manpower; crashing of crude oil price, slowing of global supply and demand; and total halting of economic activities throughout the lockdown.”

The MAN said, “The pandemic had a crushing impact on the manufacturing sector as it sector fell into economic recession in the third quarter of 2020. At the moment and following the impact of COVID-19, productivity in the sector is at its lowest and therefore requires an orchestrated action to rekindle significant productive activities in the sector.”

In another figure, Nigerian manufacturers, small scale businesses and families are said to be spending an average of N3.5 trillion yearly to power their generating sets with diesel and petrol due to unstable supply of electricity.

Mr. Festus Mbisiogu, President of Good Governance Initiative, GGI, a Non-Governmental Organisation, who stated this, noted that out that 70 per cent of the problems facing the country could be effectively solved through effective power supply.

He noted that epileptic power supply has posed incalculable hardship to Nigerians, adding that Nigeria has become a dumping ground for all manner of sub-standard generating sets, apart from being one of the highest importers of generating sets in the world to the tune of N17.9 billion annually.

Surging Diesel Price Puts Pressure On Businesses

Escalating Price Of Diesel

Global events have shown that the world is like a village and the emergence of a challenge in one country can become a major constraint with spiral effects for the world. Often times when disruption occurs in any part of the global economy, only countries with functional institutions and strong internal economic mechanisms will be able to respond appropriately to such external shocks.

 

The current increase in prices of crude oil and other refined petroleum products such diesel is one of such disruptions occasioned by external shocks that confirms the interwovenness of economies in the world.

No doubt, the recent short supply and over 200 per cent increase in the price of automotive gas oil, AGO or diesel are part of the backlashes from the ongoing invasion of Ukraine by Russia.

This has also resulted in numerous economic sanctions on Russia by the US and EU, which propped up the price of crude oil to $120 per barrel (now moderated to about $100) as Russia oil export is isolated.

Given the escalating cost of the product, MAN, has raised concerned about the implications of the over 200 per cent increase in the price of AGO on the Nigerian economy and the manufacturing sector.

More worrisome is the deafening silence from the public sector as regards the plight of manufacturers.

The Association has raised four fundamental questions as to- What can we do as a nation to strengthen our economic absorbers from external shocks? Should manufacturing companies that are already battered with multiple taxes, poor access to foreign exchange and now over 200% increase in price of diesel be advised to shut down operations? should we fold our arms and allow the economy to slip into the valley of recession again? Is the nation well equipped to manage the resulting explosive inflation and unemployment rates?

 

In the short term the disruption occasioned by the invasion of Ukraine by Russia will continue to heavily ruffle the global energy space and upset the supply of petroleum products thereby causing persistent increase in the price of refined petroleum products including AGO.

In the long run, it will result in enormous increase in the prices of other manufacturing inputs like wheat, maize, fertilizers and the raw materials.

By the time the current domestic reserve of manufacturing inputs is exhausted, in the face of acute shortfall in supply, the Association expressed fears that the prices of manufactured products will soar.

Ironically, the Nigerian economy is completely dependent on importation of refined petroleum products including diesel and other vital manufacturing raw materials and there are currently no sufficient alternatives.

The Association is painfully concerned about the implications of the sharp increase in the price of diesel on the manufacturing sector, which include: The exertion of untold hardship on the manufacturing sector leading to the closure of many industries, leading to reduction in capacity utilization,further decline in GDP, large scale unemployment across 76 sub-sectorsand increase in crime rate, Further decrease in foreign exchange earnings from the manufacturing sector as high cost of production feeds into export commodity prices and Sharp reduction in Government tax revenue occasioned by drop in sales, lower profitability as lesser quantum of disposable income will be available to purchase manufactured goods.

Other concerns are Reverse-multiplier effect, as cost of production escalates and the headways already made in the sector are grossly eroded, Negative spiral effects on every sector of the economy, resulting in hyperinflation, lower productivity and turnover, Depressing trickle-down effects on productivity, unemployment and standard of living of the citizenry and Uncontrollable incidences of insecurity with dangerous implications for economic and social wellbeing of over 200 million Nigerians.

 

Segun Ajayi-Kadir, Director General, DG, of the MAN in response to the above scenario and in light of the gravity of the precarious situation that members of the Association have found ourselves and as a nation and the looming dangers ahead, demands that as a matter of priority government develop a National Response and Sustainability Strategy to address challenges emanating from the ongoing invasion of Ukraine by Russia and to support manufacturing to accelerate the process of recovery from the aftermath of COVID-19 and previous bouts of recession to avert the complete shutdown of factories nationwide with multiplier effect on the employment.

The DG, said that government should consider Issuing licenses to manufacturing concerns and operators in the Aviation industry to import diesel and aviation fuel directly to avert the avoidable monumental paralysis of manufacturing activities arising from total shut down of production operations and movement of persons for business activities.

Government MAN, said should address the challenge of repeated collapse of the national grid (twice within a week), which is causing acute electricity shortage in the country, especially for manufacturers as well as urgently allow manufacturers and independent petroleum products marketing companies to also import AGO from the Republic of Niger and Chad by immediately opening up border posts in that axis in order to cushion the effect of the supply gap driven high cost of AGO.

In addition they requested for removal of Value Added Tax, VAT on AGO as instant stimulus for immediate reduction in price and expedite action in reactivating or privatizing the petroleum products refineries in the country, restrict the export of maize, cassava, wheat, food related products and other manufacturing inputs available in the country; and then grant concessional forex allocation at the official rate to manufacturers for importation of productive inputs that are not locally available.

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