The Central Bank of Nigeria (CBN) Business Expectation Survey (BES) Report for the month of March 2019 reveals that insufficient power supply has remained the leading factor hindering businesses in Nigeria.

According to the CBN report, insufficient power supply recorded the highest points of 63.9 for the period under review. Despite this, the report shows that Nigeria’s industrial sector  witnessed the highest prospects for job creation.

The CBN survey was conducted with a sample size of 1050 businesses nationwide, including small, medium, and large corporations covering both import- and export-oriented businesses.

Some Highlights

  • Businesses’ outlook showed greater confidence on the macroeconomy
  • Operators in industrial and service sectors expressed the greatest optimism for growth
  • Business activity and financial condition outlook remain positive
  • The industrial sector recorded the highest employment outlook
  • Insufficient power supply remains a major constraint to business activity in Nigeria
  • Expectations on the growth of the economy rose steadily in the short run

Industrial and service sectors driving Business Outlook

Recall that despite the consecutive drop in the industrial sector gross domestic product (GDP) in Q2 and Q3 of 2018, the sector showed a sign of recovery and recorded growth in Q4. Overall, Nigeria’s industrial sector grew at 1.94% in 2018. 

The optimism on the macroeconomy in the current month was driven by the
operators in the service sector (16.8 points), industrial (8.6 points),
wholesale/retail trade (2.3 points), and construction sectors (0.5 points).

Similarly, the major drivers of business optimism were service sector (37.0 points), industrial (19.4 points), wholesale/retail trade (6.2 points), and construction sectors (2.2 points).

Business day

Also,  service sector recorded greatest optimism on own operation with an index of 7.1 points, followed by the industrial sector with 3.3 points. Also, the wholesale and retail trade recorded 2.0 points and the construction sector with 0.5 points respectively

Businesses continue to witness power supply glitch

Low capacity utilisation,  insufficient power supply, and huge importation have remained recurring decimal and bane causing a downward trend in Nigeria’s manufacturing sector.

To substantiate this, the CBN business survey report identified insufficiently
power supply (63.9 points) as the leading factor constraining businesses in the country.

Deal book 300 x 250

According to the report, other factors include high interest rate (55.3 points), unfavourable economic climate (54.6 points), financial problems (51.8 points), unfavourable political climate (50.0 points), unclear economic laws (49.4 points), insufficient demand (42.8 points), and access to credit (41.8 points)

Poor power supply has tendencies to slow Country’s growth

Poor electricity supply, for instance, has diminished most economic activities. It has also forced companies to generate their own alternatives to power sources, which adds to the overhead cost.

In a recent power sector’s stakeholders, the Manufacturers Association of Nigeria’s (MAN’s) and Association of Nigerian Electricity Distributors (ANED) in Lagos reportedly stated that Nigeria needs 180,000 megawatts (Mw) of electricity over the next 10 years to drive real and sustainable economic growth.

‘”South Africa with 67 million people generates 48,000Mw and they are now working to increase the generation to 79,000 Mw. In Nigeria, 5,150 Mw was the peak we generated since 1980. Let us be sincere with ourselves, to generate power is expensive. To do 1,000Mw, you will need about $1.2billion”

In a separate report from the Rural Electricity Agency, it was revealed that businesses spend almost $14bn (N5tn) annually on an inefficient power generation (N140/kWh or more). As this continues to linger, tendencies to slow the country’s growth is inherent.

Despite this, the Industrial Sector still shows the highest prospect for job creation 

Despite the power supply glitch, the CBN report employment outlook index by sector showed that the industrial sector (31.5 points), indicates the highest prospects for creating jobs. Followed by services (23.8 points), wholesale/retail trade sector (23.6 points) and construction sector (16.7 points).

Why it matters?

Nairametrics had earlier reported that the latest manufacturing Purchasing Managers’ Index (PMI) covering the month of March 2019, indicates that Nigeria’s manufacturing sector expanded for the 24th consecutive month.

The outcome of the survey underscores the fact that sufficient power supply is a very important component required for businesses to function properly and to expand. Higher electricity costs drive business costs higher and reduce business competitiveness.

Boosting the manufacturing sector could contribute to jobs creation and reduce unemployment which is currently high at around 23 per cent. Growth in the industry is the future, and Nigeria must fix the perennial problem of insufficient power supply to adequately provide power for the sector to achieve its full potential for growth and development.

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