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Full Project on Effect of Electricity on SMEs

 

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CHAPTER ONE

 

INTRODUCTION

 

  1. BACKGROUND TO THE STUDY

Access to a reliable electricity supply is widely considered to be vital to the operations of most small and medium-scale businesses and firms. There is increasing empirical evidence that electricity matters for the performances of Small and Medium Enterprises (SMEs) as it is a major contributor to their increasing productivity to meet the increasing demands of their customers. Literature on the performance of SMEs has clearly shown the role of electricity in influencing productivity, at least at the micro level. It is suggested that, all other things being equal, SMEs are more likely to be able to work longer, be generally more productive than their relatively less healthy counterparts (without access to constant electricity), thus able to secure higher earnings than disease ridden workers.

 

Indeed, electricity can impact on the development of SMEs to a great extent. Issues that can affect the development of SMEs such as gross undercapitalization, decrepit infrastructural services, high start-up costs, corruption, and government indifference have been identified by Oboh (2002). A particular finding revealed the high cost of providing back-up energy (partly infrastructural) for SMEs which sometimes is as critical as three times the cost of publicly supplied electricity as discussed elsewhere (Adenikinju, 2003; Essien, 2001) as cited by Udochukwu and Ogbonaya (2017).

 

Ahmed et al (2015) examined that electricity supply reliability has become an important public policy issue due to the enormous costs being born by electricity users due to unreliable and inadequate electric power supply. Ensuring electricity supply reliability has also occupied important space in private investment and operating decisions. Consumers of electricity require infrequent occurrence of outages or other power supply disturbances which usually interfere with their use of electrical appliances (for domestic consumers) or halt their production or operational activities. Even at macro level, unreliable power system poses serious challenges to the socioeconomic and political structure of an economy. Some of these challenges manifest in the loss of welfare, pressure on governance, and loss of output among others (Oseni and Pollit, 2013).

 

Surveys also suggest that, in middle and lower income countries, firms themselves consider access to electricity to be one of the biggest constraints to their business (Andrew et al, 2014). 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.

 

In the developed countries, SMEs consist of over 98 per cent of the entire businesses and play a part in more than 65 per cent of employment opportunities (Deen, 2003). In Nigeria, SMEs account for some 95 per cent of formal manufacturing activity and 70 per cent of industrial jobs (Udochukwu and Ogbonaya (2017). In Nigeria and perhaps generally, SMEs classification is have been done on the basis of capital investment and employed labour force while other criteria could be the annual turnover or gross output as mentioned by Anyanwu (2001). Until very recently, energy was rarely cited as one of the problems militating against the development of SMEs in Nigeria and elsewhere.

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