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SMEs shut down due to fuel cost, poor power

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By Abraham Adekunle

Expert says government should provide enabling environment for businesses.

Businesses in Nigeria are grappling with the twin challenges of epileptic power supply and hike in cost of fuel. Nigeria’s more-than-200-million people depend on just 3,500 megawatts of energy generated. As a result, there is not enough to go round. Even when power is supplied, it is very expensive. Recently, the power distribution companies have proposed a hike in tariffs to the National Assembly. In addition, businesses rely heavily on generators to run. The recent increase in the price of petrol (premium motor spirit) has affected them so much that the burden is being transferred to the masses.

Frequent blackouts and power outages amid high tariffs have become a routine part of life for businesses, disrupting production schedules, leading to losses, and making it difficult to meet consumer demands. Citizens who spoke to the media said that Nigeria is at a critical crossroads and people face a dire economic situation. Because of all these, businesses are shutting down. The commenters said that the impact on the economy and the lives of ordinary citizens was severe and required immediate attention.

Government provides subsidies in other countries.

Against the popularly held belief that subsidy is an enigma and should be done away with, an expert has said that it is a part of government policies in saner climes. Umar Mohammed, an economist who works in a multinational company in the United States, said, “there is nowhere in the world where there is no subsidy.” This will definitely sound strange to Nigerians who have clamored for its removal on petrol. However, it seems that Mohammed means that the price of gas in developed countries may not be subsidized, but the government provides it via other means.

He revealed that small and medium enterprises (SME) are collapsing in Nigeria because there is no subsidy for them at all. These businesses pay a lot of money for electricity, which is not even available in most cases. So, they resort to using diesel or petrol. They also provide their own security for their business premises. Most importantly, they pay multiple taxes. That is not the case elsewhere – in at least four countries that he has worked, which are Germany, Russia, and the United Arab Emirate (UAE). “Governments provide the enabling environment, constant electricity with various options, all in an effort to make people live a fulfilling life,” he said.

Electricity tariff was to rise through Multi Year Tariff Order.

Barely two months after Bola Tinubu was sworn in as president, the price of petrol has jumped from N187 per liter to N617 without a commensurate increase in the income of citizens. In many parts of the country, residents rarely get up to 12 hours of electricity. Some communities live for days in darkness, with only a few capable of buying petrol or diesel. Amidst all these, the House of Representatives had to intervene in the planned increase in electricity tariff by calling on the Nigeria Electricity Regulatory Commission (NERC) to stop it. Distribution companies (DisCos) had alerted customers of this increase, which was based on the Multi Year Tariff Order (MYTO).

If DisCos had had their way, the previous exchange rate of N441 per dollar would be revised to approximately N750. Reportedly, under the planned hike, consumers within “B” and “C” bandwidth with supply hours ranging from 12-16 hours per day would pay N100 per KWh, while Bands ‘A’ with 20 hours and above and ‘B’ with 16 to 20 hours would experience comparatively higher tariffs. So, according to the MYTO, which the NERC approved to run from 2022 to 2026, consumers who were paying about N16 per kilowatt per hour in 2015 now pay about N55, while maximum demand customers under Band A, who were expected to enjoy electricity for 20 hours per day, are paying about N71 to N80 for one kilowatt per hour.

SMEs struggle to stay afloat in this economic situation.

Vulnerable SMEs, which form the backbone of the country’s economy, have been struggling to break even due to the impact of the power crisis. Continuous power disruptions force businesses to turn to expensive alternative power sources, such as diesel generators to maintain operations. Running these is exorbitantly costly and many businesses close up, causing significant job losses and reduced economic growth. An example is Inuwa Muhammad who sells soft drinks in Kano. He said that he closed his shop due to lack of electricity and cannot afford powering his refrigerators with generators.

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