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The Effect Of Electric Power Fluctuations On The Profitability And Competitiveness Of SMEs In Nigeria

Business Administration | Electrical Electronics Engineering | Engineering

Electric power fluctuations refer to the irregular changes in the voltage and frequency of electricity supply to businesses, particularly small and medium-sized enterprises (SMEs). These fluctuations can significantly impact the profitability and competitiveness of SMEs by causing disruptions in production processes, damaging sensitive equipment, and leading to unexpected downtime. SMEs heavily reliant on electricity for their operations, such as manufacturing or technology-based companies, are particularly vulnerable to these fluctuations. The financial implications of such disruptions include increased maintenance costs, reduced productivity, and potential loss of customers due to delays in delivery or service. Moreover, SMEs operating in competitive markets may struggle to maintain their market share or meet customer demands if they cannot effectively manage or mitigate the risks associated with electric power fluctuations. As a result, addressing these challenges becomes imperative for SMEs to sustain profitability and remain competitive in their respective industries.

ABSTRACT

The economy of Nigeria has attained a middle-income status and is seeking to advance; hence, an analysis of the economy based on the supply chain management of energy is significant to provide the quantitative results and comprehensive information about how and where the energy use affects economic growth and development. This information is necessary to enable the government to respond promptly with measures that will improve the supply of energy to ensure the profitability and competitiveness of firms. The objective of this paper is to analyse the effect of electric power fluctuations on the profitability and competitiveness of SMEs, using SMEs operating within the Abuja business district of Nigeria as a case study. This research is a cross- sectional survey and it adopted a mixed method approach. A sample of 70 Nigerian SMEs was selected using a systematic sampling approach. Inclusion criterion for the selection of the SMEs was their location within the business district of Abuja as well as their use of electricity in their main business operation. Data was collected with an interviewer-administered structured questionnaire which focused on the effect of power fluctuation on the operations of SMEs, especially on the profitability and its resulting effect on the firms’ competitiveness. The SPSS statistical package was used to group and analyse the data. The study is a single-factor analysis of the exogenous problems facing the Small and Medium Enterprise sector. The study found that without reliable energy supply, SMEs are unable to produce in increased quantities and quality leading to poor sales hence low levels of profitability. It is established that low profitability negatively affects Return on Assets (ROA) and Return on Investment (ROI) of SMEs. Consequently, if the level of profitability is high, it is expected that ROA and ROI will be high and vice versa. With high profits, SMEs are able to increase their competitiveness.

TABLE OF CONTENTS

COVER PAGE

TITLE PAGE

APPROVAL PAGE

DEDICATION

ACKNOWLEDGEMENT

ABSTRACT

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE PROJECT

PROBLEM STATEMENT
AIM AND OBJECTIVES OF THE PROJECT
SIGNIFICANCE OF THE STUDY
RESEARCH QUESTION
SCOPE AND LIMITATION OF THE PROJECT
DEFINITION OF TERMS

CHAPTER TWO

LITERATURE REVIEW

REVIEW OF THE STUDY
ROLE OF ELECTRICITY IN BUSINESS
EFFECT OF RELIABLE ELECTRICITY SUPPLY ON SME OPERATIONS
STATE OF POWER SUPPLY IN NIGERIA
IMPORTANCE OF ELECTRICITY TO SMES
SMEs IN NIGERIA
REVIEW OF EMPIRICAL STUDIES

CHAPTER THREE

METHODOLOGY

RESEARCH DESIGN
POPULATION OF THE STUDY
SAMPLE SIZE AND SAMPLING TECHNIQUES
METHOD OF DATA COLLECTION
METHOD OF DATA ANALYSIS

CHAPTER FOUR

4.0 RESULT ANALYSIS AND DISCUSION

RESULT ANALYSIS
DISCUSSION

CHAPTER FIVE

CONCLUSION
RECOMMENDATION
SUGGESTION

REFERENCES

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Research on SME problems in Nigeria have so far concentrated on variables such as product and service development challenges, difficulties in accessing finance, competitiveness of SMEs and government policy and intervention in the area of SME development (Abdullah, 2013; Olumuyiwa and Mnse (2008). Whiles these variables were studied independently, there is a relationship between other variables like the price of energy (electric power) and an SME’s capacity to produce optimally, its sales volume and labour cost. This study is therefore significant in drawing stakeholder attention to critical effect of energy supply on the growth and development of SMEs in Nigeria with regards to its profitability and competitiveness. For SMEs in particular and for national economic development in general, the activities of electricity power providers are vital and they need to be monitored because “in the utilities industry, where fully/sufﬁciently competitive environments are not achieved, the general public’s interests are at risk, either through price exploitation, or through the degradation of quality of supply and customer services” (Chau, 2009).

The role of electricity in Nigeria’s economy is prodigiously significant for growth and development. The reliable supply of electricity to the SMEs is indeed an important contributor towards the sustenance of Nigeria’s middle income status (Ofosu-Ahenkorah, 2008). The accomplishment of this mission is crucial for many reasons. Principal among them are:

Electricity is the main driver for industrial development. Thousands of industries in Nigeria use hydro-electric power for production, storage and
Electricity serves as raw material for most small businesses (Watson, Viney and Schomaker, 2002).
Electricity is used in every home for domestic purposes and to enhance quality of

Incidentally, in Nigeria, electricity as an essential service enjoys protection from competition and consumers really have little or no choice (Chau, 2009; Watson et al., 2002). Economically, this implies that if there are difficulties along the supply chain of electricity, then the nation’s growth and development will be vulnerable. Secondly, the interests of the general public, especially those who rely significantly on electricity, will be put to risk through price hikes and “degradation of quality of supply and customer service” (Chau, 2009). A study of the effect of power fluctuation on the profitability and competiveness of SMEs is therefore a crucial and necessary step for informed government action on energy.

1.2 PROBLEM STATEMENT

Access to electricity and attached high cost of tariff poses serious challenge to the growth and expansion of SMEs in a developing economy like Nigeria. Furthermore, the cost and time expended to obtain self-generated electricity is higher in developed countries compared to their developed counterparts. Functional power system is very relevant to the growth process and development of an economy. The truth is that without electricity, no country can attain a reasonable level of industrialization and economic development. The power sector serves as an agent of growth across all the sectors of the economy and also revolves around all sectors according to Ofoegbu et al (2013).

Over the years, electricity crises in Nigeria has made SMEs lose significant amount of funds (Akuru et al., 2014). SMEs have continued to incur losses day in and day out due to inadequate supply of electricity. Poor supply of electricity is not unconnected to the ineptitude of electricity providers and government. The poor state of electricity has received comments from stakeholders in various sectors. Consumers are not provided with sufficient amount of electricity because local utility firms receive little power transmission from the electric grid (Iwayemi, 2008). Similarly, transmission companies transfer the blame on the generating stations that generate meager MW capacity. In addition, the generating firms defend themselves by claiming that they are not provided with enough gas to power their plants or put the blame on the failure of the transmission companies to optimally transmit MW capacity that is being generated. This has been the order of the day in the power sector in Nigeria. This work studies the effect of this electric power instability on the profitability and competitiveness of SMEs

1.3 RESEARCH AIM AND OBJECTIVES

The main aim of this paper is to analyze the effect of electric power fluctuations on the profitability and competitiveness of SMEs, using SMEs operating within the Abuja business district of Nigeria as a case study. The specific objectives are:

To analyse the effect of power fluctuations on the Return on Asset (ROA) of SMEs
To analyse the effect of power fluctuations on the Return of Investment (ROI) of SMEs
To ascertain the cost of alternative sources of power and its impact on the competitiveness of SMEs
To examine the effect of power fluctuations on the expenditure patterns of SMEs
To provide recommendations for governmental interventions in SME operations and for development of appropriate policy frameworks for the nation’s energy

1.4 SIGNIFICANCE OF THE STUDY

This study will serve as a means of providing the necessary information about the erratic state of electric in Abuja business district that will be necessary to enable the government to respond promptly with measures that will improve the supply of energy to ensure the profitability and competitiveness of firms.

This study will serve as a means of having a full understanding of the influence electricity on SMEs performance.

The study will also help the government and stakeholders on making recommendation on how electric supply of Nigeria can be improved.

1.5 RESEARCH QUESTIONS

This study seeks to provide answers for the following questions:

what is unstable power supply
How does unstable power supply affect profitability and competitiveness of firms in Nigeria

What can be done to prevent the effect of power fluctuation?

1.6 SCOPE AND LIMITATION OF THE STUDY

This work covers the study of the effect of electric power fluctuations on the profitability and competitiveness of SMEs, using SMEs operating within the Abuja business district of Nigeria.

1.7 DEFINITION OF TERMS

Small and medium enterprises (SMEs): These are privately owned businesses whose capital, workforce, and assets fall below a certain level according to the national guidelines

Power fluctuation: Is a change in the power supply or voltage to electric appliances.

SMEs profitability: The profitability refers to the possibility of SMEs to be financially successful.

SMEs Competitiveness: is the ability of SMEs to produce goods and services that successfully match the market’s needs.