A recent report by Nanyang Technology University’s Centre for African Studies has revealed that Nigeria’s poor electricity contributes to up to a 40% rise in the cost of manufactured products.

Nigeria’s manufacturing sector can employ a larger share of the labour force, and has far higher productivity than agriculture, according to a report titled “Back to Growth: Priority Agenda for the Economic Revival of Nigeria,” which was recently presented in Lagos by the author and Director of the Centre, Amit Jain.

“Electricity blackouts, together with transport bottlenecks, crime, and corruption, are among the key impediments to firm growth. Outages and voltage fluctuations are commonplace.

“This damages machinery and equipment. Consequently, most firms rely on self-supply of electricity through the use of generators, which increases the cost of production and erodes competitiveness”, the report said.

Nigeria’s underdeveloped power sector makes it difficult for the country to achieve widespread economic development and compels the majority of companies to produce a sizable amount of their own electricity. The nation has recently seen the departure of well-known companies due to growing operating expenses.

Given the challenges in ensuring steady power supply throughout the nation, the report suggested the government look into creating industrial clusters. The primary advantage of clustering businesses, according to the report, is that it makes it possible to prioritise infrastructure development in order to give businesses a competitive edge while providing access to resources like raw materials, skilled labour, and technology.

It read further, “The clusters should ideally be located within zones that are well connected with roads, power lines, and telecommunications.

“Although Nigeria has scored some success with informal clusters, such as the computer village in Otigba, Lagos; the auto and industrial spare parts fabricators in Nnewi; the leather tannery in Kano; and the footwear, leatherworks, and garment cluster in Aba, very few are working to their full potential.

“Lack of coordination between the federal and state governments and patchy implementation of industrial policy has meant that the infrastructure required to attract manufacturing investment is inadequate.”

Nigeria’s economy is expected to lose $335 million (about N310 billion) in foreign direct investment (FDI) owing to continued exit by multinational companies.

Recently, the country has suffered the exit of high-profile firms amidst rising operation costs. The sum reflects the combined asset value of the most recent exit announcements made by Equinor, a major global player in the upstream oil sector, and Procter & Gamble, a major global player in the Fast Moving Consumer Goods, or FMCG, segment.

The American multinational consumer goods company, Procter & Gamble (P&G), is winding down its on-the-ground presence in Nigeria, while Equinor is also leaving after selling its Nigerian business, including its share in the Agbami oil field to Nigerian-owned Chappal Energies. P&G plans to switch from local production to solely importing its products.

Explaining the decision, Andre Schulten, chief financial officer, P&G, said the decision was a result of “the challenging business environment in Nigeria, as well as the difficulty in creating US dollar value”.

Equinor’s Senior Vice President for Africa Operations, Nina Koch, maintained, “Nigeria has been an important part of Equinor’s international portfolio over the past 30 years, but the transaction becomes necessary as it would enable it to “realise the value and is in line with Equinor’s strategy to optimize its international oil and gas portfolio and focus on core areas.”

A few months ago,  GlaxoSmithKline Consumer Nigeria Plc, a company that developed and manufactured innovative pharmaceutical medicines, vaccines, and consumer healthcare products, shut down its operations in Nigeria, leading to the loss of jobs and ultimately causing a surge in the prices of drugs.

Nigeria’s underdeveloped power sector is a bottleneck to broad-based economic development and forces most businesses to generate a significant portion of their electricity. It has also been a major factor in capital flight from the West African country, Africa’s largest economy.