Energy cost, biggest challenge facing Nigerian SMEs

High cost of energy is the biggest challenge stifling the operations of start-ups and small businesses, resulting in losses and poor margins for Nigerians businesses.

“Energy supply is one of the most dominant business concerns in Nigeria,” says a report by The Economist titled, ‘Enabling a More Productive Nigeria: Powering SMEs’.

“While multinational companies have the financial resources to absorb some of these challenges, and very few enterprises may have low energy requirements, SMEs in the middle are hard hit by the shortfall, with fuel accounting for up to 40 percent of over heads for some businesses,” the report says.

Micro, small and medium enterprises (MSMEs) account for over 90 percent of businesses in the country, contributing almost 50 percent to the gross domestic product while employing millions of people.

Many MSMEs incidentally rely less on the power from the power distribution companies (DisCos), which is erratic. Many resort to the use of different sizes of generators requiring constant fuelling.

“I need electricity to power my machines, and the issue of poor electricity supply has been frustrating. I spend a lot on fuel and this has increased my production cost. I need electricity to put limestones on textiles but this is not happening,” Tolulope Adebukola Ogundokun, founder and chief executive officer, Pawprint Limited, told Start-Up Digest.

The report shows that some forward-thinking SMEs are turning to small-scale renewable solutions as a stopgap, citing Adamu Waziri, creator of Bino and Fino, who invested in solar, spending US$8,500 on photovoltaic panels. “The generator just did not make any sense any more. So we invested last year and that was one of the best investments that we could do,” Waziri told The Economist.

The report says that Nigeria has the ingredients for a vibrant solar energy market—including sunny weather and a growing consumer need, adding that  solar energy is increasingly powering mobile infrastructure systems, reducing diesel consumption in mobile towers by up to 60 percent.

It further states that solar power could provide a vital energy source for SMEs and warrants donor and government intervention.

But one obstacle to growth in demand for solar power is the high upfront capital cost of a full solar-power system, which deters many SMEs. Partial risk guarantee schemes could encourage more solar developers to enter the market and improve competition and prices, adds The Economist.

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