Nigeria’s manufacturing sector is facing a serious crisis as electricity tariffs continue to rise without an improvement in supply. The Manufacturers Association of Nigeria (MAN) has raised an alarm about the negative impact of these hikes on businesses, production costs, and employment. Despite paying more, manufacturers are stuck with an unreliable power supply—driving many to the brink of collapse.
If this trend continues, reduced profit margins, unsold inventory, job losses, and worsening inflation will become unavoidable realities for the country’s industrial base.
Rising Electricity Tariffs: A Major Threat to Manufacturing
Power is the lifeblood of any manufacturing sector. Yet in Nigeria, businesses are paying more for less power.
Electricity Supply Stats:
- Q2 2023: 5,909 GWh
- Q2 2024: 5,612 GWh (Despite a 230% tariff increase!)
Despite the promise of improved power supply after the 2013 privatization of Nigeria’s power sector, the country’s electricity generation remains grossly insufficient. With a national demand of over 30,000 MW for its 200+ million population, actual supply hovers around a meager 4,000 MW.
The Impact on Nigerian Manufacturers
Segun Ajayi-Kadir, Director-General of MAN, warns that rising electricity tariffs are severely hurting the manufacturing sector. The consequences are clear:
- Profit Margins Slashed: Higher production costs reduce profitability, making it difficult for businesses to survive.
- Increasing Unsold Inventory: With production costs rising, consumers struggle to afford locally manufactured goods, leaving manufacturers with unsold stock.
- Job Losses: Companies forced to cut costs often resort to reducing their workforce, worsening the country’s unemployment crisis.
- Inflationary Pressure: Higher costs are passed on to consumers, driving inflation higher and reducing purchasing power.
Privatization of Nigeria’s power sector was meant to increase electricity generation and distribution efficiency. However, challenges persist at every level of the electricity value chain. Manufacturers are forced to rely on self-generated power, which costs three to four times more than grid electricity, further squeezing profit margins.
What Needs to Change?
To stabilize Nigeria’s manufacturing sector and reduce its reliance on expensive self-generated power, urgent reforms are needed:
- Stable and Affordable Power Supply: Ensure consistent electricity supply to industrial zones at competitive tariffs.
- Improved Efficiency in the Electricity Value Chain: Tackle issues in generation, transmission, and distribution to reduce system losses and ensure reliable power delivery.
- Supportive Government Policies: Policies that incentivize local production and protect industries from harsh operating conditions can help manufacturers stay competitive.
Time for Urgent Action
The current trajectory is unsustainable. Nigerian manufacturers cannot continue to pay more for unreliable power while competing in an increasingly globalized market. It’s time for the government, power sector stakeholders, and the business community to collaborate and implement meaningful reforms that will stabilize the sector.
The future of Nigeria’s manufacturing industry—and the millions of jobs it supports—depends on it.
Very insightful..