Impact of Electricity on the Performance of SMEs in Nigeria
Chapter One
OBJECTIVE OF THE STUDY
The objectives of this study are;
The following are the objectives of this study:
- To examine the impact of electricity on the performance of SMEs in Nigeria.
- To identify the effectiveness of the electricity generating and distributing companies in Nigeria.
- To examine other factors affecting the performance of SMEs in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
This chapter reviews the literature on the the impact of electricity on performance of SMEs in Nigeria. It discusses issues arising from the topic of discuss as viewed from different perspectives, with a view of giving a theoretical and empirical foundation to the study.
LITERATURE REVIEW
They are plethora of literature on the interaction of electricity crisis, industrial growth and economic development. Odell (1995) argued that for Columbia to industrialize, electricity supply and demand are important elements of the process. Iwayemi (1988) argued for the importance of energy Sector in the socio-economic development of Nigeria. He submitted that strong demand and increased supply would stimulate increased income and higher living standards. Okafor (2008) used descriptive analysis to corroborate the views of these authors by arguing that poor and inefficient electricity supply has adverse implication for industrial development in Nigeria. Oke (2006) attributed the non-competitiveness of Nigeria’s export goods to poor infrastructure especially electricity supply, which drives the running cost of firms. Archibong (1997) argued that the positive side of SAP could not be fully established due to administrative bottlenecks, rigidities and poor infrastructure, especially electricity supply. This undermined the effectiveness of fiscal and other incentives designed to stimulate the growth and diversification of the economy. Ndebbio (2006) argued that electricity supply drives industrialization process. He submitted that one important indicator whether a country is industrialized or not is the megawatt of electricity consumed. He further argued that a country’s electricity consumption per-capita in kilowatt hours (KWH) is proportional to the state of industrialization of that country.Ukpong (1976) established the existence of a positive relationship between electricity consumption and economic development. In addition, he submitted that the expansion of energy sector on the demand side is important factor in accelerating the growth of the industrial sector. Ekpo (2009) elaborated on the folly of running a generator economy and its adverse effects on investment. He strongly argued that for Nigeria to jump start and accelerate the pace of economic growth and development, the country should fix power supply problem. Aigbokan (1999) argued in his paper that fixing the energy sector is tantamount to shifting the production possibility curve of the country’s economy. Adenikinju (2005) provided a strong argument to support the importance of energy supply. The poor nature of electricity supply in Nigeria, he argued, has imposed significant cost on the industrial sector of the economy. This result corroborates the survey of the Manufacturers International Global Journal of Management and Business research (IGJMBR) Vol.2 Issue 4, feb. 2015 12 Association of Nigeria (MAN) 2005. In that survey MAN indicated that the costs of generating power constitute about 36 percent of production.
Electricity and business has a symbolic relationship (Velasquez & Pichler, 2010). The reason being that, it is used for different purposes ranging from production, storage, powering of equipment and display of product. The use of electricity consequently serves as input for production and a critical resource needed to make products. Electricity is therefore an essential commodity for all industries, including the manufacturing, service and distribution. Enormous amount of electricity is used by many sectors like manufacturing and transport for operation processes including storage and production. Electricity as a transformed unity in this respect serves as a commodity (Haanes et al, 2011). Ohio, Connecticut, Michigan, Vermont, Massachusetts, and New York all in the United States in August 14, 2003 experienced blackout that caused an estimated loss of $6.4 billion (Anderson & Geckil, 2003). Bental & Ravid (1982) researched on a simple method for evaluating the marginal cost of unsupplied electricity and assumed the cost of power outage to organizations using data on backup generators. It was the first study to indicate the cost of power outages to organizations. It was also estimated that decision makers act rationally and hedge by investing in backup generating plants in order to ensure themselves against part or total damages that can result from power outage or electricity failure. It was also assumed in their study that corporations are competitively risk neutral, and will equate at the margin, (the expected cost of self-generation of a kWh to the expected benefit from that kWh). Marginal cost of unsupplied electricity for Israel and the US was measured. The study incorporated risk aversion phenomenon in computing cost of power outages and also differentiates between absolute, unmitigated costs, and mitigated cost of power outages. Findings from the research paper indicated that the cost of power outage varies proportionally with reliability (low power outage time). US’s (United State) reliability is higher than that of Israel where reliability is lower but power outage cost tends to be higher in the US. Beenstock (1991) stated that there should be a refinement of the methodology proposed by Bental & Ravid (1982). Bental & Ravid (1982) said customers would be prepared to invest in backup as service becomes less reliable but would face a discontinuity (stop operating) at a point when risks associated with additional loss of service appear to be unimportant. Tambunan (2009) investigated on SME in Asian developing countries and found that power among the many obstacles to development of SMEs was mentioned by 62% of the 180 respondents used for the studies as being the prime obstacle to the development of SMEs.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to a critical analysis of the impact of electricity on performance of SMEs in Nigeria.
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information a critical analysis of the impact of electricity on performance of SMEs in Nigeria. 200 SME owners in Kano Sate were selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain a critical analysis of the impact of electricity on performance of SMEs in Nigeria.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations are made, which in the opinion of the researcher will be of benefit in addressing the challenges of power outage in Nigeria
Summary
This study aimed at having a critical analysis of ascertain a critical analysis of the the impact of electricity on performance of SMEs in Nigeria. Three objectives were raised. These objectives include: To determine the impact of electricity supply on the operational performance of small scale businesses in North West Nigeria, to evaluate the state of power supply in the country, to ascertain the relationship between electrical power outage and operational performance of small scale industries.
Conclusion
Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
The impact of electricity insecurity on SMEs’ productivity is clearly variable, and depends on factors related to both the external context that a firm is operating in and to its internal capabilities. Variation in the findings between countries appears to be related to differences in geography, structure of the economy and SME sector, and the overall business environment. This is consistent with the findings of previous research (World Bank, 2010; Cissokho and Seck, 2013). The statistical analysis, however, does not explain the difference between perceptions, amounting to a conventional wisdom, that electricity insecurity is a major constraint on SMEs’ operations and growth and the empirical evidence that its impact on productivity is limited. The Enterprise Surveys themselves show that firms see the quality of electricity as a major business challenge, though between the two categories of informants in this study, SMEs and stakeholders, it was stakeholders who perceived outages as a bigger problem. Hallward-Driemeier and Aterido (2009) suggest that firm characteristics affect the importance of perceived constraints. It is also possible that perceptions are influenced by the binary nature of electricity supply, either you have it or you do not have it, and by the frustration of managing with outages which may not be reflected in measurable costs.
Recommendation
Based on the findings of the research, the following recommendations have been drawn:
- Government should seek ways to support SMEs and provide the needed infrastructures such as education to aid their survival and also SMEs should work on ways to attract government interest and attention. 2. SMEs should also do more to educate its employees entrepreneurially in order to enhance their performance and thereby the survival of the enterprise.
- Entrepreneurs should also locate their businesses where there is higher proximity to power supply as it will boost their productivity and profitability.
- Government should try as much as possible to provide another means of transportation apart from road as this will ultimately lead to more effective product/service delivery.
- SMEs should outsource for and utilize more sophisticated technology in its operations as this will increase their sales and give them an edge over their competitors.
REFERENCES
- Arnold, J., A. Mattoo and G. Narciso (2006) Services Inputs and Firm Productivity in Sub-Saharan Africa Evidence from Firm-Level Data, World Bank Policy Research Working Paper 4048.
- Aterido, Reyes & Hallward-Driemeier, Mary & Pages, Carmen, 2009. “Big constraints to small firms’growth ? business environment and employment growth across firms,” Policy Research Working Paper Series 5032, The World Bank.
- Attigah, B. and L. Mayer-Tasch (2013) Productive use of Energy (PRODUSE): The Impact of Electricity Access on Economic Development:
- A literature review, GIZ, Eschborn Ayyagari, M., Beck, T and A. Demirgüç-Kunt (2003) Small and Medium Enterprises across the Globe: A New Database, World Bank Policy Research Working Paper 3127, August 2003.
- Beck, T., Demirguc-Kunt, A. and Levine, R. (2005) SMEs, Growth, and Poverty, NBER Working Paper No. 11224, NBER.
- Cecelski, E. (2004) Re-thinking gender and energy: Old and new directions, Energia/EASE Discussion paper.
- Chakravorty, U., M. Pelliz Beyza and U. Marchandx (2012) Impacts of Reliable Electricity Supply: Evidence from India October 2012.
