Rescuing Small and Medium Enterprises from Nigeria’s Electricity Conundrum

Ariaria Market Aba, South Eastern Nigeria, was established in 1976 just after a fire outbreak at the old Ekeoha Market. The idea for the market was borne out of the need to empower many SMEs to come together in one place and produce goods and services for both local consumption and export. While that vision remains, its realisation, more or less, has not fully come to fruition. Asides from the neglected and derelict infrastructure, the electricity challenge remains a huge constraint ensuring inefficiencies in production and production levels lower than planned. The story is the same for most large markets and SME clusters across Nigeria. Standalone SMEs have also not been left behind in bearing the brunt of the endemic power situation.

The current situation
Over the decades, Nigeria’s long-standing power conundrum has remained documented, albeit with various unsuccessful attempts to ensure a long-lasting solution. The mere fact that the country’s total power generation still hovers around the 5000 megawatts (MW) mark remains a constant source of worry, especially for businesses heavily reliant on power. From Aba to Sokoto, small businesses, medium enterprises, and large corporations continue to feel the pinch across the country. Most face two options: either retreat and close shop or continue managing to do business while passing arbitrary power costs to their customers. A greater percentage have chosen the former without a fall back plan from the resultant effects; however, few continue to trudge on, bearing the huge power costs from using generators driven mainly by fossil fuel. For these few, profit margins continue to be negatively impacted, as power costs make up to a whopping 70 percent of total operating expenses for these businesses at an economic cost of about $29billion or 2 percent of Nigeria’s GDP, according to the World Bank. The situation looks bleak.

Recently, the total grid power generation in Nigeria fell below the 4,000MW mark due to gas constraints and water management issues. Given that Nigeria’s grid power generation is highly dependent on gas-fired and hydropower plants, the system has, over the years, continued to suffer from human-made disruptions (cases of pipeline vandalism and forced shut-ins) and effects of forces of nature (availability of rainfall). Therefore, there is not enough generation to cater to business needs. Coupled with the issues surrounding transmission and distribution of grid power, business owners must continue to seek solutions to survive.

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Getting to SME-Friendly Power
Various market options already exist for ensuring sustainable and reliable power to cater to SMEs and their business needs. These range from stand-alone systems, which can power basic lighting and ensure businesses operate for longer hours, to much larger installations that can power appliances and equipment alike. Much larger capacity systems are also able to power heavy production appliances dependent on business power needs assessments.

Principal Actors and Stakeholders
In outlining the principal actors, government agencies such as the Ministry of Power, Rural Electrification Agency (REA) and other state electricity agencies remain key in finding the best methods for enabling SMEs and driving business growth. These agencies can ensure the right regulatory environment is created to attract requisite investments while also acting as the primary coordinator for stakeholder collaboration. Trade unions such as The Nigerian Association of Chamber of Commerce, Industry, Mines and Agriculture (NACCIMA) can play a key role in aggregating SMEs across the country and engagements with the public and private sectors. Private sector think-tanks such as the Nigerian Economic Summit Group (NESG) could play key roles in engaging with the government on policy and economic direction. Working together, these stakeholders could ensure a focused shift towards the adoption of decentralised (or off-grid) power solutions to drive businesses. Also, electricity distribution companies that own the franchise areas and have a responsibility for power supply remain a major stakeholder in this journey.

The way forward
Electricity distribution companies (DisCos) should consider interconnected mini-grid models with developers with decentralised power generation expertise. Such collaborations could ensure sustainable power as such models are easier to operate, monitor and maintain than the centralised grid, which also suffers aggregate technical commercial and collection (ATC&C) losses. Stakeholders such as trade unions, market associations, and the like can also broker engagements and collaboration between the DisCos overseeing their franchise area and suitable developers. Albeit similar to a Power Purchase Agreement (PPA) model, these negotiations could ensure sustainable power is provided for multiple SMEs and drive business growth.

Through its engagement with Green Village Electricity (GVE) Projects Limited, a mini-grid developer, Abuja Electricity Distribution Company (AEDC) plc aims to connect over 2,000 shops within the Wuse market cluster to more reliable power. Other similar DisCos should follow suit, with the clear benefit of redirecting power for use in other areas where power supply issues still linger.

Governments at various levels can create business clusters and ensure off-grid power solutions are utilised to power such clusters, thereby not compounding the issues with an already weak grid. On the other hand, microfinance and commercial financiers could also collaborate with off-grid utilities and developers of decentralised power solutions (and DisCos) to finance off-grid solutions, including stand-alone systems at discounted (or bundled) rates for already existing SME customers.

Apart from interconnected mini-grids, Programs such as the Energising Economies Initiative (EEI) of the Rural Electrification Agency, which has birthed the connection of over 15,000 shops in Sabon Gari, Sura and (a portion of the aforementioned) Ariaria markets should be expanded on by both private and public collaborators beyond the Phase 1 sites.

Conclusion

Like many other sectors, the power sector is now, more than ever, (over)ripe for disruption. Continued over-reliance on unstable grid supply means that SMEs either continue to struggle, go moribund or adapt to the huge costs (and other factors) associated with power generation using conventional fuel sources. Doing so means that business growth, and by extension, national economic growth will continue to stagnate or even recede. Furthermore, production will continue to decline, and imports will continue to outweigh exports on massive levels, constituting an economic dilemma as has been the case over time. Given the huge role electricity plays in business and economic growth, the ripple effects from doing business as usual remain too numerous to mention. Only by seeking out and implementing collaborative solutions can the problem be truly tackled.

There is no better time than now to embrace mutually beneficial stakeholder collaboration and ensure a multi-faceted approach to tackle the power problem faced by businesses rapidly, noting that the negative effects are more impactful on SMEs. These SMEs lack the means that large corporations have to withstand significant hits to their bottom line but remain key in national economic growth.