IMPACT OF ELECTRICITY POWER SUPPLY ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISE SME IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Access to a reliable electricity supply is widely considered to be vital to the operations of most small and medium-scale businesses (World Bank Enterprise Surveys, 2013). The analysis of Enterprise Survey data according to Foster and Steinbuks (2008), in middle and lower income countries, firms themselves consider access to electricity to be one of the biggest constraints to their business.

Inadequate electricity services can constrain business operations because a supply of electricity may simply be unavailable and, if it is available, securing a connection may be difficult and the supply unreliable, even before its cost is considered. High quality and accessible infrastructure encourages productivity, business growth and investment, but when it is poor and unreliable, businesses’ productivity and growth suffer.

An unreliable electricity supply can affect several aspects of business operations. The most significant impacts to productivity can be due to forced and unexpected halts in manufacturing processes, including running assembly lines, using machine tools, or producing textiles. Communications, delivery times, lighting and refrigeration are also affected by electricity insecurity, with consequences for the routine operation of businesses and their ability to ensure delivery times (Adenikinju, 2005).

Many small and medium-scale enterprises invest in their own stand-by generators to ensure an electricity supply, but these are often expensive compared to electricity from the grid. Generators also require some technical expertise as well as reliable supplies of fuel and spare parts. Yet, in sub-Saharan Africa and elsewhere own-generation by firms is reported to have increased in recent years.

Empirical studies have shown that the small and medium scale industries (SMEs) have in many state enhanced greater employment opportunities per unit of capital invested and aided the development of local technology. This explains the deep interest which developing nation has shown in the promotion of small and medium scale industries since the 1970s (Moyo, 2012).

1.2 Statement of Research Problem

There are various factors affecting the performance of small and medium scale enterprise sub sector ranging from inadequate capital to unfavourable tariff policy, however, the poor state of power supply in Nigeria is one of the significant factors militating against the performance of small and medium scale enterprise.

Despite series of investments made by past government over the years on the power sector to improve the poor state power situation in the country, the entire nation still suffers power shortage and black out (Godwin, 2015). The privatization of the power sector was meant to improve the power insecurity of the country but the national power grid has been on the decline from about 4000 megawatts in 1999 to 1300 megawatts in 2014 (Amadi, 2010).

The equity and quality of a country’s electricity power supply determines its ability to create competitive industries. Since the performance of SMEs In any state is greatly influenced by the electricity supply. Given the pathetic state of electricity power supply in Nigeria it is no wonder that the contribution of the development the state, manufacturing sector and the economy general is very negligible or unsupported by the government.

Power supply has remained unreliable and power out-ages load shedding and rationing has become very frequent. Power supply has been erratic and unreliable that many businesses have resorted to purchasing private generator at a very high cost. The substantial investment in private generating plants is estimated to be of capacity of over 250mm, which is almost half of power holding company of Nigeria (PHCN) available capacity.

1.3 Research Questions

The study would therefore provide answers to the following fundamental questions.

1. What is the impact of electricity power supply on the productivity of SMEs in Nigeria?

1. How does commercial Bank credit impact the productivity of SMEs?

1.4 Objective of the Study

The objectives of this research study are to provide a clear picture on the activities of effects of power on the performance of small and medium scale industries. The specific objectives of the study are:

1. To examine the impact of Electricity power supply on the performance of SMEs in Nigeria.

1. To examine the impact of commercial Bank credit on the performance of SMEs in Nigeria

1.5 Hypotheses

1.         H0:  Electricity Power Supply does not have any significant impact on the productivity of SMEs in Nigeria.

H1:  Electricity Power Supply has significant impact on the productivity of SMEs in Nigeria.

2.         H0        Commercial Bank credit does not have any significant impact on the productivity of SMEs in Nigeria

H1          Commercial Bank credit does significant impact on impact of SMEs in Nigeria     

1.6   Significance of the Study

The outcome of this study will assist government parastatals and it agencies like the Ministry of power, who are the policy makers and regulatory bodies  and also the electricity distribution company scattered across the country for decision and policy making as regards improving the state of small and medium scale enterprise.

This study will create awareness to the government to see the extent to which neglect of infrastructural facilities such as electricity is hampering the performance of SMEs in meeting the potentials of providing employment per unit investment capital, facilitating   the   development   of   indigenous entrepreneurships,  enhancing  local  resources  utilization  and  value added,  expanding  non-oil  exports  at  competitive  prices,  improving balance of payment position and bring about overall growth and development of the state economy.

It will add to the available literature on the areas of study while also providing the platform for other researchers to further this study.

1.7 Scope of the Study

The research work is concerned basically with the roles to lay emphasis on power supply and the performance of small and medium scale enterprise in the state and will cover those SMEs in state that have electricity as relevant infrastructure for their production process. The analysis covers the period of 1980-2014.

1.8 Definition of Terms

-           Electricity Power Supply

-           Small and Medium Scale Enterprises (SMEs)

-           Productivity or Performance of SMEs

-           Commercial Bank Credit to SMEs

1.9 Electricity Supply

According to Energy Networks Association ‘ENA’ (2008), Customer Guide to Electricity Supply (2008),the physical process of electricity supply is divided into three broad stages; generation, transmission, and distribution. Power generation, transmission and distribution involve flow of currents with heat losses in conductors. These losses can be reduced through better design, construction and maintenance. In addition to the physical aspects, there is a commercial overlay involving the trading of electricity between generators and retailers or, in some circumstances, generators and large electricity users.

SMEs:  These are non subsidiary independent firms which employs fewer than a given number of employees of not less than 10 employees and not more than 250. Commercial Bank credit to SMEs in the case of SMEs, bank credit or loan is the major alternative of external funding (James & Ashamu 2014) the findings shows that Bank Credit to SMEs have significant effect of Nigeria economic growth.

Performance of SMEs:  SMEs all over the world have seen playing a crucial role in promoting economic development as well as industrial production in a developing economy such as Nigerian.  SMEs are considered as a living force for a sustainable economic development because of generating employment improving local technology output diversification developing indigenous entrepreneurship and forward integration with large scale industries. (A.O. Adaramola)