Manufacturing is the bedrock of every economy since it drives production, jobs, and domestic demand and supply. Energy consumption of Nigeria’s manufacturing sector is substantial. Producers in the following industries have varying energy costs: industrial and consumer products; technology, media, and communications; healthcare and pharmaceuticals; electricity and utilities; financial services; agricultural and oil and gas; and oil and gas exploration and production.
The government of Nigeria has to devise a strategy to boost the country’s manufacturing industry. The Nigerian Manufacturing Association (MAN) estimates a 2,500 MW power shortfall in 2019.
According to the latest data from the National Bureau of Statistics, manufacturing in Nigeria expanded by 5.89% year-on-year in real terms in Q1 2022, up 3.61 percentage points from the previous quarter’s growth rate of 2.28%. In 2021, production in the manufacturing sector reached $64.40 billion, up 17.61% from the previous year.
As time goes on and the population grows, there will inevitably be a greater need for consumer products. That’s why the manufacturing industry in Nigeria has been expanding.
Rapid urbanization and an increasingly young population are fueling manufacturing’s expansion.
According to the Manufacturers Association of Nigeria (MAN), rising consumer demand is driving expansion in Nigeria’s manufacturing industry. The production costs will rise as a result of this demand, and energy is a major factor in manufacturing.
Nigerian factories must rely on diesel generators and inverters to keep up with rising production demands. According to the Manufacturers Association of Nigeria’s second half 2021 report, the organization spent a total of N45.036 billion on renewable energy to power its activities.
The lack of reliable electricity is the biggest problem for the country’s manufacturing sector. In countries where there isn’t a constant source of electricity, diesel generators are often used by factories. As a result, output suffers, and the price paid by consumers rises.
The oldest and biggest food and agricultural manufacturing enterprise in Nigeria, Flour Mills Nigeria, is said to use a mix of a captive power plant, diesel generators, and electricity from the grid to reach output goals.
According to reports, a single FMN power plant may use up to 2100 MW (2,100,000 kW). On average, FMN spends N45/kW for natural gas, N65/kW on grid electricity, and N175/kW on diesel generators.
Natural gas-fired power generation accounts for 55 percent of monthly demand, or 1,092,000 kW. Total gas cost is N49,140,000 ($45 x 1,092,000) per kilowatt-hour.
A total of 630,000 kilowatt hours (30%) of electricity is supplied by diesel per month. The price of fuel is calculated to be N110,250,000 (1,75 x N630,000) for every kilowatt-hour.
The cost of electricity from the grid is N315,000 per month (15%). The total cost for grid-tied generation is N20,475,000 ($65/kW).
With the current energy prices, the total monthly energy cost is N179,865,000.
It has been reported that the additional output necessary to satisfy rising demand, together with the attendant volatility in fuel prices and the Nigerian Naira, has resulted in greater energy expenses for FMN and other industrial enterprises throughout the nation.
MAN also noted that the industry is being held back by rising energy prices. Increased energy prices ultimately result in higher prices for commodities, which means that ordinary Nigerians would pay more.
Suspension of Manufacturing Causes Pain
According to Dr. Muda Yusuf, the former director general of the Lagos Chamber of Commerce and Industry (LCCI), several industries have been forced to shut down due to excessive energy expenses. He said that not all production methods use the same amount of energy, and that those that do face additional difficulties.
The increasing worldwide price of gas is making it difficult for even those who rely on natural gas plants to maintain their standard of living. All of these difficulties, he argues, have an impact on both capacity utilization and the ability to retain people.
