Manufacturers, SMEs hit by rising costs as power crisis persists despite tariff hike

By Arthur Eriye

Manufacturers and small enterprises in Nigeria are facing increasing production costs as the rise in electricity tariffs coincides with inconsistent power supply. This situation compels numerous companies to invest heavily in diesel generators and alternative energy solutions to sustain their operations.

While adjustments to electricity tariffs were implemented to enhance liquidity within the power sector and attract investments, stakeholders in the industry contend that the anticipated improvements in power supply have not occurred. Consequently, businesses are left to shoulder the dual burden of elevated tariffs and the expenses associated with self-generated power.

Manufacturers indicate that electricity has emerged as one of their most significant operational costs, especially for those engaged in sectors such as food processing, textiles, plastics, pharmaceuticals, and other industries that are heavily reliant on energy.

Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said manufacturers are under immense pressure as energy costs continue to rise without a commensurate improvement in electricity supply.

He said, “Electricity has become one of the most significant cost drivers for manufacturers. Businesses understand the need for a commercially viable electricity market, but consumers cannot continue to pay higher tariffs without corresponding improvements in service delivery. Manufacturers are effectively paying twice—once for grid electricity and again for diesel generators whenever the grid fails.”

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Ajayi-Kadir added that the persistent reliance on self-generated power has weakened the competitiveness of locally manufactured products, reduced profitability and discouraged expansion by many firms.

The predicament is particularly acute for Small and Medium Enterprises (SMEs), many of which rely almost exclusively on petrol or diesel generators to facilitate their daily operations. From welders and cold-room operators to printers, bakeries and fashion enterprises, countless entrepreneurs report allocating a substantial portion of their earnings to energy costs.

Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said unreliable electricity has become one of the biggest drivers of inflation and declining business confidence.

According to him, “Energy costs now constitute a major burden for businesses. When electricity supply is unreliable, firms are forced to depend on expensive diesel and petrol generators, and these costs are ultimately transferred to consumers through higher prices. Small businesses are particularly vulnerable because they lack the financial capacity to absorb these additional expenses.”

Recent studies concerning Nigeria’s manufacturing sector indicate that escalating electricity tariffs, coupled with an inconsistent supply, have notably raised production costs while diminishing productivity and competitiveness. The research concluded that elevated electricity prices have emerged as a critical factor influencing manufacturers’ cost structures and operational efficiency.

Industry experts note that while tariff reforms were designed to improve the commercial viability of the electricity market, a lack of adequate investment in generation, transmission, and distribution has obstructed the anticipated progress in service delivery.

Energy economist Dr. Kelvin Emmanuel emphasized that for tariff reforms to fulfill their intended goals, they must be accompanied by noticeable enhancements in electricity supply.

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He stated, “Cost-reflective tariffs are crucial for drawing investment into the power sector, yet consumers also demand dependable service. Without substantial investment in transmission infrastructure, distribution networks, and metering, merely increasing tariffs will not solve Nigeria’s electricity issues.”

He recommended boosting investment in embedded generation, renewable energy initiatives, and industrial mini-grids to lessen reliance on the national grid.

Nigeria continues to generate only a fraction of its electricity demand, with millions of households and businesses relying on private generators. Studies estimate that businesses produce a substantial portion of the electricity they consume through self-generation because of persistent outages on the national grid.

For manufacturers, the consequences are reflected in rising production costs, reduced profit margins and declining competitiveness against imported goods.

Higher energy costs are also filtering into consumer prices. Businesses increasingly pass part of their additional operating expenses to customers, contributing to persistent inflationary pressures, particularly on manufactured goods and processed food.

The situation has become especially difficult for SMEs operating on thin margins. Research indicates that access to reliable electricity remains one of the biggest constraints to SME growth in Nigeria, with high tariffs and poor supply significantly undermining business performance.

Analysts contend that enhancing electricity supply is now equally crucial as implementing tariff reforms. They observe that businesses are generally prepared to accept cost-reflective tariffs, provided that the electricity is sufficiently reliable to reduce reliance on costly generators.

Dele Kelvin Oye, the former President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), cautioned that inconsistent electricity supply continues to diminish Nigeria’s appeal as a destination for investment.

He stated, “Investors are not solely focused on tariff rates; they seek reliable and predictable electricity. In the absence of stable power, manufacturers struggle to plan their production effectively, production costs remain high, and investment decisions are postponed.”

He urged the federal government to expedite investments throughout the electricity value chain to guarantee that businesses receive dependable power that fosters industrial growth.

Analysts also advocate for accelerated investment in transmission infrastructure, the expansion of embedded generation, broader deployment of renewable energy for industrial clusters, and enhanced metering to mitigate technical and commercial losses.

For Nigeria’s manufacturing sector, the stakes are considerable. Manufacturers need stable and affordable electricity to increase production, generate jobs, and compete within the African Continental Free Trade Area (AfCFTA). Without substantial improvements in electricity reliability, numerous firms may continue to reduce production, delay expansion plans, or shift investments to countries with more reliable power supplies.

As Nigeria aims to diversify its economy and enhance industrialization, experts assert that addressing the electricity issue remains one of the most vital policy priorities. Until businesses receive reliable power that corresponds with the higher tariffs they pay, manufacturers and SMEs are likely to remain ensnared in a cycle of escalating costs, diminishing margins, and decreased competitiveness.