Nigerian manufacturers have lamented over the rising cost of energy, which they said, now gulped about 40 per cent of the production cost.
This is just as the Manufacturers’ total expenditure on alternative energy sources surged to N1.11 trillion in 2024 – a 42.3 per cent increase from N781.68 billion in 2023.
The Director General of MAN, Segun Ajayi-Kadir, disclosed this in the association’s second half of 2024’s economic review.
He said the development was driven by unreliable grid power and increases in prices of Diesel and PMS.
“In response to unreliable grid power and increases in prices of diesel and PMS, manufacturers’ total expenditure on alternative energy sources surged to N1.11 trillion, a 42.3 per cent increase from N781.68 billion in 2023.
“On a half-on-half basis, manufacturers spent N404.80 billion in H1 2024, which increased by 75.0 per cent to N708.07 billion in H2 2024. The Food, Beverage & Tobacco sector recorded N229.41 billion in alternative energy spending, up from N182.76 billion in 2023, while Chemical & Pharmaceutical energy costs doubled to N208.68 billion.
“The Non-Metallic Mineral Products sector’s energy costs increased by 33.7 percent to N118.49 billion, and the Textile, Apparel & Footwear industry saw a fourfold increase, reaching N26.45 billion in 2024, compared to N6.97 billion in 2023,” Ajayi – Kadir said.
The DG said the electricity supply situation for industries improved in 2024, with average daily supply increasing to 13.3 hours per day, up from 10.6 hours in 2023.
He, However, said electricity tariffs surged by over 200 per cent for Band A consumers, significantly increasing manufacturing costs.
“On a half-on-half basis, electricity supply rose from 11.4 hours per day in H1 2024 to 15.2 hours in H2 2024. However, electricity tariffs surged by over 200 percent for Band A consumers, significantly increasing manufacturing costs,” he said.
The DG added that “While power availability improved, many manufacturers still faced frequent outages, and costs as the country witnessed 12 national grid collapses and this remained a major concern.”
Within the period, he also disclosed that manufacturers’ finance costs totaled N1.3 trillion, constraining investment and expansion plans.
“Rising interest rates posed a major financial burden, with commercial bank lending rates to manufacturers surging to 35.5 per cent in 2024 from 28.06 percent in 2023.
“This was driven by continuous CBN rate hikes, which raised the MPR to 27.50 percent,” he said.
According to him, Nigerian manufacturing sector faced significant hurdles in 2024, including high inflation, forex volatility, surging production costs, and declining consumer demand.
He said while some resilience was observed in sectoral performance and increased local sourcing of raw materials, real output remained subdued.
Moving forward, Ajayi – Kadir said advocated for a stabilised macroeconomic conditions, improved energy supply, and access to affordable financing in order to sustain growth and enhance industrial productivity.
Few have their own source of energy sources
In Kano State, bigger and multi-national investments have devised alternative energy sources.
For instance in 2021, a Kano-based manufacturing firm, Aspira Nigeria Limited, switched to generating its own power using gas due to fluctuating diesel prices, as well as reducing cost of production and to reduce pollution.
Another company, Mamuda Group, which is one of the largest manufacturing groups in Northern Nigeria, is ramping production and diversifying its product lines on the strength of their ability to generate their own power using gas. It was reliable gathered that, Mamuda Group currently has a 22MW power plant capacity which it is seeking to upscale to 30MW installed and maintained by Clarke Energy,
Many are battling to remain afloat
However, not many manufacturing companies are financially capable to use alternative energy like gas. It was revealed that many manufacturing companies are battling to remain afloat in the business sector due to high cost of power.
Alhaji Aminu Ahmed Gwagwarwa who is the Chief Executive Officer of Green Oil Mill company situated at the Dakata industrial area stated that production cost has gone up due to use of alternative energy, adding that the only alternative available for them is the use of diesel to fuel their generators.
He explained that due to the high cost many manufacturers and producers have reduced their firm’s working hours and also down-size their workforce to be able to continue the business.
“The electricity tariff has been increased and if you can recall, our people had held a protest last year on the issue. Many of our members have closed their factories and people like us have to down-sized and reduced working hours. I have incurred over 100% increase in sourcing energy for production, initially I spent N200, 000 in 2 weeks on diesel and now I have to spend over N500, 000,” he said.
Another manufacturer that deals in plastics Aminu Roba Bello stated that his company solely relies on electricity despite the fact that it is becoming too expensive. According to him, the nature of their work demands a strong source of energy and as such he can’t afford to source it by himself.
He explained that he only works when there is light, and when there is none, he doesn’t work. He stated that though the electricity tariff is gradually becoming so expensive, many manufacturers like him are leveraging what they can afford to run their firms.
‘We spend about 40 per cent of production cost on energy’
Engr Frank Ike Onyebu, Executive Director, Universal Luggages Industries Limited, manufacturers of assorted luggages and general goods, told Daily Trust that manufacturers now spend about 40 per cent of the production cost on energy.
“We used to spend about 20 – 25 per cent of the total cost of production on energy, but since the Band A issue came up, the thing rose sharply.
“Manufacturers actually spend as much as 40 per cent on just energy. The cost has gone up so high that a substantial part of the cost of production is just on energy. Manufacturers are not finding it.
“You realise that most manufacturers are actually working for the power companies. You start paying from the time the bills comes up maybe about 6th – 7th of the month and you continue paying untill the end of the month.
“In some cases, we have to struggle with the payment of salaries because you have to pay energy bills. So, it hasn’t been easy for most manufacturers.”
On the way forward, Onyebu called on the government to work on power stability and rethink strategy on the power distribution.
Okude Abayomi, Baker, Solochris Food & Confectionery lamented the rising cost of energy, saying he spends N396,000 annually to get power from Ikeja Electric Distribution Company.
He stressed that his request for a prepaid meter to monitor his power usage has not been granted, describing it as deliberate means of stifling small scale business owners.
“We applied for a prepaid meter and IKEDC has not brought the meter and keeps bringing an outrageous amount of N33,000 monthly whether we used it or not.
“That is wrong, how do you expect small scale businesses to grow? I believe it is deliberate not to give prepaid meters,” he said.
He said he uses firewood as an alternative supply of energy owing to his financial constraints to buy a new electric oven which cost N4m.
“This oven is not in a good condition and we want an electric oven, as a small scale business, there is no platform to access funds. We use firewood for bread production,” he said.
Expert speaks
Speaking with Daily Trust, the Chief Executive Officer of Pam Africa, a renewable energy company, Patrick Agese, said, “It is very clear. It’s literally the cost of diesel. If diesel price has gone up then we’ll be spending more on the alternative supply. That’s the high level summary.
“Obviously, there are some other things involved like inflation. It could be the same thing that we are buying but because of the higher cost in terms of currency devaluation, which pushes the Naira up. But it’s the combination of both areas.
“Alternative energy doesn’t mean it is going to be cheaper. In the long term perspective, it’s cheaper but people are looking at things from “I need consistent power. I would rather pay more for consistent power and less for non-consistent power.
“So, if the data is showing you that (increased expenditure), then it is not inaccurate, but I don’t think the consumption has gone up significantly to that amount. I real think it has more to do with the currency.”
He expressed fears that the expenditure could go higher in the current year due to some policies of the government on the need to encourage cleaner and more reliable source of power.
The expert said Nigerians are now becoming comfortable with renewable energy.
“We have seen an uptake in systems and continuous growing for the last three years. Nigerians are becoming more comfortable with the technology now that the technology has improved significantly compared to what it was before.
“So, there’s more comfort in taking up technology now,” Agese said . (Daily Trust)
