SMEs and need for steady power supply

Small and Medium Enterprises (SMEs) constitute the engine room and the key to the development and growth of any economy. In advanced economies, such as the United States of America, Germany, Spain, Italy and France, the sector employs a huge percentage of the labour force. Since the 1970s, emerging economies have also increasingly become more dependent on small businesses.

In Nigeria, the SME sector accounts for about 45 percent of the rebased Gross Domestic Product (GDP) of $510 billion, according to Olusegun Aganga, minister of Industry, Trade and Investment. A 2010 survey reveals that there are about 17 million SMEs in the country employing more than 32 million people accounting for over 75 percent of the total workforce.

However, unstable, and therefore unreliable, power supply has remained the strongest factor militating against the survival of SMEs in the country – in addition to several others including inadequate financing, unavailability of information for potential investors, poor management practices and low entrepreneurial skill, overbearing regulatory and operational environment, and unfavourable tariff policy.

Electricity, a major cost input into the price of goods and services, has been a major contributing factor to the high cost of doing business in Nigeria. This is because in the face of unreliable public power supply, businesses have resorted to private generation of power using generating sets. This means that they have to spend huge amounts daily on petrol or diesel, a situation that has put a severe strain on their finances.

As a result, many small businesses who cannot cope with this high cost of running generators have closed shop, while others that are managing to stay afloat heave under the huge burden they bear because their profits have been eaten away by electricity cost, thereby making their businesses less profitable. As such, the unemployment situation in the country has gone from bad to worse.

Indeed, SMEs in Nigeria can contribute more meaningfully to employment generation and wealth creation, as they have done elsewhere. Empirical studies have shown that SMEs have in many economies enhanced greater employment opportunities per unit of capital invested as well as aided the development of local technology.

Analysts say adequate power supply is the most important commodity for national development, a prerequisite for cost-effective investment, and an absolute precondition for survival and sustenance of SMEs in the country. We agree. For us, with steady supply of electricity, there will be a boom in economic activities from the domestic level and the cottage industries, through the small and medium scale industries to large-scale manufacturing complexes.

The government and all concerned stakeholders, especially the private operators who bought over the unbundled PHCN assets, must therefore take proactive steps to ensure sustainable power supply in the country. If this is done, the cost of doing business for the existing SMEs would drastically reduce and the money that would have been spent on petrol and diesel would be channelled into expansionary ventures; more small and medium scale businesses would spring up, and more people would be employed. The current situation whereby each SME operator has to provide electricity is, to say the least, unsustainable.