After the removal of fuel subsidy, which brought about more than a hundred percent increase in the price of goods and services, the Federal Government of Nigeria is set to increase electricity tariff by 40 percent come July 1, 2023. The Manufacturers Association of Nigeria (MAN) has described the proposed hike as outrageous and perilous. This development is one of the many that have brought sadness to Nigerians and will see the price of goods and services increase yet again.
In the aftermath of the fuel subsidy removal, the price of transport services in the country took the first hit. Commercial bus drivers have now set their price as double the amount that was previously enjoyed by the masses. Since Nigeria’s electricity supply is not as efficient the populace expects, producers and manufacturers have to resort to alternative sources of energy, usually fossil fuels such as Premium Motor Spirit (PMS) and diesel. It contributed to the increased price of staple foods, which have to be brought to the market from the farm, using vehicles that run on these fuels.
Increase in tariff will only compound the problem.
This is why MAN’s leadership has released a press statement highlighting the consequences of the proposed increase as well as admonishing the government to reassess the decision for the good of the citizens. The association has noted that the government had increased electricity tariff by at least 186 percent in the past eight years. Ironically, what MAN expects (that electricity generation and distribution be improved) has shown no sign of happening. The organization expects that the government and the Nigerian Electricity Regulatory Commission (NERC) to ensure 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 4000MW.
The manufacturers association expressed these views in a press statement titled, “Possible Impact of Impending Electricity Tariff Hike on Manufacturers.” One of such impacts is that productivity in the country will be affected. The decision will lead to the rise in cost of production, reduction in manufacturers’ profit margin, and potential decline in government’s revenue. In economic terms, the implementation of this proposed tariff will complicate the inflationary pressure on the economy, accelerate the recession in the manufacturing sector, and hurt the competitiveness that manufacturing firms should have in a free market economy.
Manufacturing firms may relocate to another favorable African country.
As it is the case of one successful rice farmer in the northern region of Nigeria, Mr. Williams, who has since planned to relocate his rice farming to other African countries due to insecurity, increase in cost of production may push other firms in the manufacturing industry to relocate to other countries. This was what essentially happened in 2016 barely a year into former President Buhari’s administration. According to the National Bureau of Statistics (NBS) in August 2016, the Nigerian economy slid into a recession in the second quarter.
Many manufacturing firms relocated to other African countries while some just closed up in Africa. The reason behind such decision lies in the fact that the business environment was not favorable and there was increase in cost of production, one of which was in electricity and alternative sources of energy. Presently, the proposed increase in the price of electricity will drive u the cost of manufacturing goods. The chain of distribution will effectively pass on that cost to the final consumer, thereby reducing the purchasing power of the masses.
Cost of alternative energy sources increasing yearly.
According to the director-general of MAN, Mr. Segun Ajayi-Kadir, the absence of a stable, effective and fairly priced electricity supply in Nigeria has been a long-standing challenge for manufacturers. The worrisome outcome is that the industry has been compelled to supplement the unreliable electricity from alternative sources, which have become quite expensive. Survey data by MAN showed that at least N144.5 billion was spent on sourcing alternative energy in 2022, from the N77.22 billion in 2021. This is at least a 100 percent rise year-on-year.