Lagos, Nigeria – The Manufacturers Association of Nigeria (MAN) has expressed grave concerns over the impending electricity tariff hike, warning that it will lead to escalated costs of goods for Nigerian consumers. Mr. Segun Ajayi-Kadir, the Director-General of MAN, highlighted the potential adverse effects of the electricity tariff hike in an interview with the News Agency of Nigeria (NAN) on Friday.
According to Ajayi-Kadir, implementing a 40% tariff increase at this juncture would result in higher production costs, reduced profit margins, and a paralysis of manufacturing activities. The Manufacturing sector, often hailed as the engine of growth, is still struggling as a result. Ajayi-Kadir urged the Federal Government to engage in extensive and intensive consultations with the manufacturers to avoid introducing burdensome measures that will further strangulate the manufacturing sector and the whole economy.
MAN vehemently criticized the plan of electricity tariff hike which is to start from July 1, considering them exorbitant, particularly since the real sector is already grappling with a lack of competitiveness due to high prices associated with alternative power sources. The manufacturing industry has long faced challenges stemming from the absence of a stable, efficient, and reasonably priced electricity supply, forcing manufacturers to supplement with alternative energy sources. Unfortunately, these alternatives, such as diesel, have become excessively expensive.
Ajayi-Kadir lamented that the cost of sourcing alternative energy surged from N77.22 billion in 2021 to a staggering N144.5 billion in 2022, reflecting an 87% increase. This significant rise in the cost of access to alternative energy sources is a testament to the financial burden manufacturers have had to bear. Such escalating costs place undue strain on their operations, hindering growth and expansion efforts.
The fact that the Federal Government itself owes N75 billion in unpaid electricity bills demonstrates the burdensome nature of the current cost of electricity. MAN emphasized that power already constitutes between 28% and 40% of the cost structure for manufacturing industries. Energy-intensive sectors such as metal processing, heavy machinery, and chemical manufacturing will be particularly hard hit by a spike in electricity tariffs. The tariff hike would erode manufacturers’ profit margins, hinder their expansion efforts, and impede job creation.
Moreover, manufacturers will inevitably pass on the additional costs to consumers, leading to higher product prices in the market. This, in turn, will exacerbate the already rising inflation rate in the country. Additionally, the competitiveness of locally produced goods will diminish as their higher costs make them less attractive compared to imported alternatives, Ajayi-Kadir warned.
MAN called upon the Federal Government and the Nigerian Electricity Regulatory Commission (NERC) to prioritize improving electricity generation, transmission, and distribution in order to meet the revenue requirements of stakeholders in the electricity supply industry. Instead of burdening manufacturers with higher tariffs, MAN urged extensive consultations and engagement with industry representatives to find viable solutions.
The consequences of electricity tariff hike extend far beyond the manufacturing sector. It will have a ripple effect throughout the economy, impacting businesses and consumers alike. Small and medium-sized enterprises (SMEs), already facing numerous challenges, will bear a disproportionate burden, as they often lack the financial resilience to absorb increased production costs.
Additionally, the higher costs of goods resulting from the electricity tariff hike will further strain the purchasing power of consumers. In a country where a significant portion of the population already struggles with affordability, this will exacerbate the economic hardships faced by many Nigerian households. The new electricity tariff threatens to deepen income inequality and hinder efforts to improve the standard of living for the Nigerian people.
As the implementation date for the new electricity tariff approaches, manufacturers and industry stakeholders await a response from the government regarding their concerns and recommendations. The hope remains that a collaborative approach will be taken to find a balance between the revenue needs of the electricity supply industry and the sustainability and growth of the manufacturing sector.