AN EXAMINATION OF THE INCREASE IN ELECTRICITY TARIFF AND ITS NEGATIVE EFFECTS ON INDUSTRIAL PRODUCTION IN NIGERIA

CHAPTER ONE

INTRODUCTION

Background Of The Study

Nigeria is a country blessed with several mineral and agricultural produce which we have harnessed over the years for our collective sustainability. During the pre-colonial era, industries like the textile, pottery, thrived in Nigeria before the arrival of the colonizers (Oyelaran - Oyeyinka, 2015). We have seen significant growth in industries such as textiles, food processing, and beverages.

The Nigerian government has implemented several policies to grow, attract, retain, and encourage both private and foreign investors on the economic viability of the Nigerian industries.  One of the programs implemented by the government is the Structural Adjustment Program (SAP); this policy was to liberalize trade and encourage private sector investment (World Institute for Development Economic Research, 2014). Also, the government implemented an increase in electricity tariff as a way to drive sustainability (NERC, 2020).  However, the increase in electricity tariff has raised concerns about its impact on industrial production in Nigeria (Manufacturers Association of Nigeria, 2020).

Researchers have indicated that electricity consumption leads to economic development in Nigeria (Alley et al., 2016; Nwankwo & Njogo, 2013; Ubi & Effiom, 2013). Electricity and economic growth have a mutually reinforcing effect in Nigeria; economic development drives electricity consumption, and increased electricity consumption drives economic development further (Ogundipe & Apata, 2013; Ologundudu, 2015). 

Other researchers have discovered a uni-directional relationship that runs from economic development to electricity consumption in Nigeria (Ogundipe et al., 2016; Ugwoke et al., 2016). However, research has also shown no effects between electricity consumption and economic development in Nigeria (Ologundudu, 2015). These studies have policy implications, but the diverse research outcomes confuse rather than support policy development for electric power development and economic growth. Electricity and industrial productivity go hand in hand as there cannot be any industrial production without sufficient electricity. Furthermore, studies have shown the significant impact electricity tariff increase can have on industrial production which includes; reduced output, increased cost, and reduced competitiveness (International Energy Agency 2019, Okeke, 2020).

Nigeria's industrial sector has faced significant challenges such as, limited access to finance, poor macroeconomic management, brain drain, and inadequate and unreliable electricity supply, which has resulted in high production costs and reduced competitiveness (Central Bank of Nigeria, 2020). . The high cost of electricity tariffs leads to losses for businesses and potential job losses for citizens of a country.  Furthermore, studies have shown the significant impact electricity tariff increase can have on industrial production which includes; reduced output, increased cost, and reduced competitiveness (International Energy Agency 2019, Okeke, 2020). The hike in electricity tariff has affected the production cost of the industry, which has in turn negatively affected their competitiveness and productivity (Okeke, 2020), hence the need for this study.

Statement Of The Study

The importance of an inexpensive and reliable power supply is widely seen as crucial for the sustainability of industrial production (World Bank Enterprise Survey, 2023). Industries in Nigeria have to generate their own source of power in order for production process to not be delayed, these self-generated power, adds to the cost of production which in turn, adds to the cost of goods and services,

According to the World Bank 2021 energy progress report, Nigeria topped the list of countries with the largest electricity access gap in 2019, with 90 million people without access to electricity. The effect of electricity on economic development in sub-Saharan African (SSA) countries indicates that the poor state of infrastructure and services negatively impact economic growth in the region (Azolibe & Okonkwo, 2020; Chakamera & Alagidede, 2018; Kodongo & Ojah, 2016; Owusu-Manu et al., 2019). Lack of electricity access impedes economic development, health care, and education (Zhang et al., 2019). Urbanization usually puts pressure on existing electricity supply infrastructure leading to power supply shortages (Zhang et al., 2019

This study aims to identify the role electricity tariff hikes plays in the industrial productivity and development of Nigeria.  It also seeks to understand the effects increased electricity tariff has on the competitiveness and productivity of the Nigerian industry and how it affects the cost of products in the markets.

1.3 Objective of the Study

The primary objective of the study is to examine the negative effects hike in electricity tariff has on industrial production in Nigeria. Specifically the study seeks;

Investigate the relationship between the hike in electricity tariffs and industrial production in Nigeria.

To determine the extent electricity tariff hike affects industrial production in Nigeria.

To investigate the causes of hike in electricity tariffs as it affects industrial production in Nigeria.

To examine the impact of electricity tariff hike on industries in Nigeria.

1.4 Research Questions

The following research questions will be answered in the course of this study:

What is the relationship between electricity tariff hike and industrial production in Nigeria?

What is the extent electricity tariff hike affect industrial production in Nigeria?

What are the causes of electricity tariff hike as it affects industrial production in Nigeria?

What are the impacts electricity tariff hike has on industrial production in Nigeria?

1.5 Research Hypothesis

Here are some research hypotheses based on the case study.

Ho: There are no significant relationship between electricity tariff hike and industrial production in Nigeria.

Hi: There is a significant relationship between electricity tariff hike and industrial production in Nigeria.

1.6 Significance of the Study

This study is significant in addressing a critical issue that affects the industrial development and productivity of Industries in Nigeria. It also provides insights for policy decisions and contributes to existing relevant literature. 

The findings would be useful for decision-making, regulation formation, and industry stakeholder insights. It also provides insights into the effects of electricity tariff increases on industrial production in Nigeria, which is critical for policy decisions and industrial development. 

This study will be contribute to existing literature and academic knowledge with regards to the examination of the increase in electricity tariff and its negative effects on industrial production in Nigeria.

Scope of the Study

This study will focus on examining the negative impact hike in electricity tariff has on the competitiveness and productivity of industries in Nigeria. Empirically, this study will investigate the relationship between the hike in electricity tariffs and industrial production in Nigeria, determine the extent electricity tariff hike affects industrial production in Nigeria, and investigate the causes of hike in electricity tariffs as it affects industrial production in Nigeria and finally, examine the impact of electricity tariff hike on industries in Nigeria.

This study will be carried out in Nigeria.

1.8 Limitation of the Study

Like in every human endeavour, the researcher encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. More so, the researcher simultaneously engaged in this study with other academic work. As a result, the amount of time spent on research will be reduced.

Moreover, the case study method utilized in the study posed some challenges to the investigator including the possibility of biases and poor judgment of issues. However, the investigator relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges.

1.9 Definition of Terms.

Electricity: Electricity is the power that is carried by wires, cables, etc., and is used to provide light or heat, to make machines work, etc. It is the flow of electrical power or charge and a secondary energy source because it is produced by converting primary sources of energy into electrical power (USA, Energy information Administration).

Tariff: Tariff is a schedule of duties imposed by a government on imported or in some countries exported goods, a duty or rate of duty imposed in such a schedule. It is a custom duty or tax levied on goods imported into a country (World Trade Organization).

Hike: Hike as an increase or rise in something, such as price, rate, or amount.

Urbanization: Urbanization as the movement of people from rural areas to cities and towns, resulting in the growth and development of the cities.

Industrialization: 

- Industrialization is the transformation of a society from a primarily agrarian or manual labor-based economy to one dominated by industry and machine manufacturing. This transformation has profound implications for social relations, economic systems, and political power.