IMPACT OF POWER OUTAGE TO SMALL AND MEDIUM ENTERPRISE IN NIGERIA
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IMPACT OF POWER OUTAGE TO SMALL AND MEDIUM ENTERPRISE IN NIGERIA
Chapter one
INTRODUCTION
1.1 Background of the Study
Electricity is an essential component of almost any manufacturing process. As a result, limited supply has the ability to disrupt enterprises’ economic operations, both directly and indirectly.
To illustrate the critical economic importance of energy, a frequent approach in the literature is to evaluate the output loss associated with power outages (Uchendu, 1993).
One of the analytical frameworks utilised is a production function in which electricity contributes directly to firm output as a separate input and indirectly as a determinant of the extent to which other direct inputs, such as capital equipment, are employed (Adenikinju 2005).
An alternative strategy, a subjective method, is based on self-assessment, in which surveys ask businesses to quantify the losses they incur as a result of power outages.
This technique is based on the notion that enterprises are well positioned to provide a relatively accurate appraisal of how much it costs to replace more frequently, repair broken machinery or equipment, or assess lost productivity owing to idled inputs.
To analyse the costs of power outages, just aggregate the cost amounts supplied in the survey. However, various biases might taint the outcome, since enterprises may have a tendency to overestimate the incurred expenses, thereby exaggerating the constraint that electricity poses to their commercial activities (Uchendu, 1993).
Over the years, the manufacturing sector has been recognised as an important driver of economic development in any economy. Admittedly, Olayemi (2012) believes that the manufacturing sector plays an important role in economic development because it acts as a catalyst, accelerating the pace of structural transformation and diversification of the economy;
it allows a country to fully utilise its factor endowment and rely less on foreign supply of finished goods or raw materials for economic growth, development, and sustenance.
As a result, the Nigerian government has made attempts to boost and sustain the productivity of the industrial sector in the economy through budgetary allocations, policies, and announcements (Anyanwu, 1996).
Coupled with the steady drop in oil revenue, which has long been the country’s primary source of income, emphasis has been turned to diversifying the economy and increasing manufacturing sector productivity.
In this regard, Subair and Oke (2008) acknowledged that electricity supply, which is primarily used to power machines used in the production of various items, is a powerful factor that will catalyse the productivity of the manufacturing sector and thus contribute significantly to the development of the economy.
In response to this discovery, successive Nigerian administrations have committed massive amounts of money to the electrical sub-sector, but it appears that this has not translated into a corresponding rise in productivity in the country’s manufacturing sector.
The Nigerian manufacturing sector continues to face the challenges of erratic power supply from the Nigerian Electricity Power Authority (NEPA), now known as Power Holding Company of Nigeria (PHCN), as well as high electricity generation costs from private electricity power generators (Onugu, 2005; Aremu and Adeyemi, 2011).
Because of the high expenses of fuel and maintenance, not all industrial enterprises in a highly competitive and open economy like Nigeria could operate successfully on power generation units.
Ordinarily, the power generating sets which have now become the principal source of electricity supply to enterprises that could afford them ought to function as backups or standby in the event of disruption from government sources (Okereke, 2010). However, due to government inefficiencies, backups are used as the primary source.
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