The planned electricity tariff hike which kicks off on July 1, 2023, will worsen the performance of manufacturers in Africa’s biggest economy, the Manufacturers Association of Nigeria (MAN) has said.
According to a statement on Friday, a further rise in electricity tariff will directly increase the cost of production, leading to a higher probability of activities paralysis, a potential decline in revenue collection, the recession of manufacturing activities and a reduction in the sector’s competitiveness.
Others are low investments, a further rise in the country’s inflation rate and a decline in the profit margin of the manufacturers which will reduce their ability to expand operations thereby affecting the creation of new jobs for the economy.
“As it is today, the manufacturing sector, which is the engine of growth, is still struggling as a result of the inclement production environment in Nigeria. Care should be taken to avoid introducing burdensome measures that will further strangulate the manufacturing sector and the whole economy,” the statement said.
It said manufacturers expect the Federal Government to engage in extensive and intensive consultations with them and focus on measures that will salvage the sector and halt the trend of the shutdown of factories, knowing the implications and the multiplier effects on employment and the economy.
In the first quarter of 2023, the manufacturing sector growth rate slowed to the lowest rate in three years as it grew by 1.61 percent (year-on-year) in real terms, down from 2.83 percent in Q4 2022 and 5.89 percent in the same period last year, according to the National Bureau of Statistics.
Data from MAN shows that on average manufacturers spent at least N144.5 billion on sourcing alternative energy in 2022, up from N77.22bn in 2021. This translates to about 87 percent increase in the cost of access to alternative energy sources by manufacturers within a year.
“In the last eight years, electricity tariff has been increased by 186 percent. The fact that the government itself owes N75 billion in unpaid electricity bills is indicative of how burdensome the cost of electricity has become,” the association said.
They said it is highly concerning for manufacturers to witness the electricity tariff skyrocketing beyond the present embattling high prices, starting July 1. “A 40 percent hike at this time is simply outrageous.”
According to Segun Ajayi-Kadir, director general of MAN, the absence of a stable, effective and fairly priced electricity supply in Nigeria has been a long-standing challenge for manufacturers.
“The worrisome development has compelled many manufacturing industries to supplement the unreliable electricity supply with alternative energy sources. Regrettably, the available alternative energy sources such as diesel have become exorbitantly expensive,” he said.
He added that manufacturers expect the government and Nigerian Electricity Regulatory Commission to ensure the improvement in electricity generation, transmission and distribution that will lead to adequate and reliable electricity supply in the country, rather than increasing the tariff on the mere 4000MegaWatts to meet all revenue needs of stakeholders in the electricity supply industry.
MAN recommends the government should ensure at least 90 percent of electricity consumers are metered to ensure consumption reflective electricity bill payment and formulate electricity policies that will aid investment in the energy industry to increase generation capacities.
“This will usher in large-scale production of electricity and ensure effective implementation of the recent Electricity Act (2023) that is aimed at increasing the electricity supply in the country,” they said.