Survival of Nigerian businesses amid worsening energy crisis
by JOHNMARK UKOKO
In the 62 years of Nigeria’s independence and 15 administrations, including military juntas and democratic governments after the exit of the British colonial masters, the country has not been able to guarantee stable power supply. Despite the billions of dollars and huge amounts of naira invested in the power sector for 62 years by successive administrations, operators of various businesses that had depended largely on Automated Gas Oil (AGO) or diesel to power their generators, have lamented that they can no longer afford diesel to enable them to continue operations effectively, JOHNMARK UKOKO writes.
Nigeria is endowed with all the natural resources that could have been explored to provide stable electricity for the citizens and boost the economy. The country is blessed with a body of rivers and connects with the Atlantic Ocean in several states, which could have been explored to build more dams to generate constant electricity. The country is also blessed with enough of sunshine that could be tapped to generate solar power to adequately meet its energy needs.
The country also boasts of huge coal deposits in Enugu and Kogi states, which some lesser endowed countries use to generate electricity. The Niger Delta region also has huge gas deposits being wasted through constant flares, instead of being converted to generate cleaner energy, while most of the communities in which natural gas is being flared daily, live in perpetual darkness for the past six decades.
Failure of successive administrations to ensure stable electricity supply led businesses in the country to depend largely on one form of private power supply or the other, irrespective of the sizes or financial status, while a few firms that have the wherewithal embrace gas to power their plants, others settle for solar power to run their firms.
While most micro firms embrace petrol to power their various generating set, the Small and Medium Enterprises (SMEs) have had to rely on diesel to power their generators as alternative source of energy for their operations.
Consequently, findings by researchers in the country a few years ago showed that no business in the country could survive without the provision of generators to power their plants, with public power supply as “standby power source.”
The situation has been such that several local and even foreign firms that operated in the country had to either relocate from the country or shut down their firms due to erratic public power supply, while most local firms had to continue running their factories by relying heavily on diesel.
Over the years, most of the firms have been able to assess diesel to runs their firms, but the Russia and Ukraine conflict worsened the situation, as the product became scarce with the attendant increasing prices. The Russia and Ukraine crisis changed the global economy, especially Nigeria that perpetually relied on diesel and petrol to run their businesses, as the country had continued to find it difficult to provide stable public power supply.
Before Russia’s invasion of Ukraine in March, diesel sold for between N190 and N230 per litre, but shortly after the war began, it sharply rose to between N700 and N900 per litre as of Friday, July 22, 2022.
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Findings in Lagos and Ogun states showed that diesel was available in some filling stations and retail outlets, but the high cost of the product had impacted negatively on the quantity sold prior to the Russia-Ukraine crisis.
Recently, Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, alerted Nigerians to the fact that the real sector was on the verge of collapse due to the inability of members of MAN to afford the product.
Ajayi-Kadir said: “Over the years, the manufacturing sector has been battered by similar challenges that have plunged several industries in Nigeria into collapse to the extent that some industrial hubs in parts of the country converted to warehouses for imported goods and event centres.
“Top on the list of changes confronting the sector is high operating cost environment occasioned largely by inadequate electricity supply and the high cost of alternative sources. Excessive regulations, taxes and inadequate electricity supply, lack of foreign exchange for importation of raw materials, spare parts and locally available machinery have culminated in the lackluster performance of the manufacturing sector.”
But in spite of the challenges, local manufacturers were still trudging on with their operations, as they regularly push the high cost of operations to the consumers of their products. They also resorted to constant increases in the prices of their products, regular reduction of quantity and in some instances, quality of their products to enable them to remain in business.
The MAN boss lamented that the increase in price of diesel and most recently, the price of petrol, is almost totally crippling the local manufacturing sector, adding that global events have shown that the world has become a village, as the challenges in one country could constitute major constraints to the global economy.
“Often when disruptions occur in any part of the global economy, only countries with functional institutions and strong internal economic mechanism, are able to respond proactively to such external shocks. The current increase in prices of crude oil and other refined petroleum products such as diesel is one of such disruptions occasioned by external shocks that confirm the interconnectedness of global economies.
“No doubt, the recent shortage in supply and over 200 per cent increase in the price of diesel are part of the backlashes from Russia’s invasion of Ukraine,” he said.
He said the association was greatly concerned about the implications of the over 200 per cent increase in the price of diesel on the Nigerian economy and the manufacturing sector, adding that more worrisome was the deafening silence of the public sector regarding the plight of manufacturers.
“What can we do as a nation to strengthen our economic absorbers from external shocks? Should manufacturing companies already battered by multiple taxes, poor access to foreign exchange and over 200 per cent increase in the price of diesel shut down their operations? Should we fold our arms and allow the economy to slip into the valley of recession again? Is the country prepared to manage the resulting explosive inflation and unemployment rates? He asked.
“In the short-term, the disruption occasioned by the Ukraine and Russia crisis will continue to heavily ruffle the global energy space and upset supply of petroleum products, thereby causing persistent increases in the price of refined petroleum products, including AGO.
Ajayi-Kadir, who painted a picture of gloom in the country’s manufacturing sector, which has been overwhelmed by various challenges, pointed out that trucks and big buses that use diesel for their daily operations are also in pains, as they fill their tanks with huge amounts of money.
A former driver of BRT bus, which has been sold to private transporters, who identified himself simply as Bayo, told The Trumpet that he spends about N180,000 to fill his tank, adding that he fills the tank twice daily which amounts about N360,000 and that the current high cost of AGO was impacting negatively on such trucks.
He said although the union of transporters had doubled fares, he hardly breaks even at the end of each day, saying: “The recent hike in the price of diesel is making our operations very difficult. How does one use over N300,000 to buy diesel alone. One will still pay park charges, pay touts, security guys and street boys the moment one loads or drops passengers at the parks.
“The prices of vehicle spare parts and tyres have also increased, coupled with the bad road networks. At the end of each day, the vehicle owner will be paid, the driver and the conductors hardly go home with any tangible amounts after operating from morning to evening,” he lamented.
He said if the price of AGO continues to soar, it will no doubt, send many companies and large vehicles that transport passengers or goods will be forced to close their operations, insisting that the failure of successive governments to fix the local refineries in Africa’s largest crude oil producing country, is one error the country would continue to pay for dearly.
Also, bread makers are currently on a four-day warning strike, which began on Wednesday, July 20, 2022 to draw Federal Government’s attention to the plight of the sector and to let the world know that the soaring price of diesel, wheat, flour, sugar and other baking products was unsustainable.
The price of AGO would not have been an issue, if the country could guarantee stable public power supply, as most companies that were now closing their businesses would have managed their operations, even if there was electricity for a certain number of hours daily.
As of the time of writing this analysis, the country had experienced the seventh collapse of the national grid, which was reported on Tuesday, July 19, 2022 and lasted till Thursday, July 21, 2022, a situation that seem to have no solution in sight for now. In such a scenario, businesses and rich Nigerians have no other choice than to rely on diesel to power their operations and their homes.
The MAN urged the Federal Government to urgently address the power challenge, especially the incessant collapse of the national grid, which has been responsible for acute outages in the country, particularly for the manufacturing sector.
“Government should also urgently allow manufacturers and independent petroleum products marketers to start importing diesel from the Republic of Niger and Chad by immediately opening up the land borders in those axis to cushion the effect of the supply gap driven by the high cost of AGO,” he stated.
It is sad that while countries like Republic of Niger and Republic of Chad could refine the little crude oil they have, Nigeria was still relying on importation of petroleum products from other countries. As gloomy as the situation looks and the level to which Nigeria has sank, beg the question-will Nigeria ever rise again?