Impact of Electricity on Performance of SMEs in Nigeria (A Case Study of Selected SMEs in Eti-Osa LGA)
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Impact of
Electricity on Performance of SMEs in Nigeria (A Case Study of Selected SMEs in
Eti-Osa LGA)
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND TO THE STUDY
Access to
electricity and its accompanied high tariffs poses a greater challenge to SMEs
growth and performance in lower income countries like Nigeria, as compared with
those in higher income countries. This assertion is confirmed in a research by
Scott et al (2014) which reveals that, the proportion of SMEs in high-income
countries citing electricity as a major constraint is half of their
counterparts in the Sub-Saharan African and Asia countries. Cost and time spent
on acquiring electricity were also higher in the Less Developed Countries
compared with that of High-Income Countries. However, this study is examining
the effect of electricity on the performance of SMEs in Nigeria.
The effect
of electricity power outage on SMEs in Nigeria posited that, the current
electricity crises in the country were costing the SMEs over US $686.4 million
of annual sales. The SMEs continued to record a huge loss day by day as a
result of poor electricity supply. These
have been partly blamed on market and state failures, which have led to the
poor electricity supply.
In the
interim, a lot has equally been said with regards to the appalling state of
Nigeria’s epileptic power sector according to Akuru and Okoro (2009). Energy
consumers do not get electricity supplied to them because the local utility
companies do not get power transmitted to them from the electric grid. The
managers of electric transmission are quick to accuse the generating stations
of insufficient generating MW capacity. And as if trading of blame has become
routine with each of these sectors, the generating stations either claim they
do not get enough gas to power their plants or they turn around and claim that
the transmission companies themselves cannot boast of a strong transmission
backbone to transmit what is being generated.
Indeed,
modern energy services can impact on the development of SMEs to a great extent.
Issues that can affect the development of SMEs such as gross
undercapitalization, decrepit infrastructural services, high start-up costs,
corruption, and government indifference have been identified by Oboh (2002). A
particular finding revealed the high cost of providing back-up energy (partly
infrastructural) for SMEs which sometimes is as critical as three times the
cost of publicly supplied electricity as discussed elsewhere (Adenikinju, 2003;
Essien, 2001).
In Nigeria
and perhaps generally, SMEs classification have been done on the basis of
capital investment and employed labour force while other criteria could be the
annual turnover or gross output as mentioned by Anyanwu (2001). Until very
recently, energy was rarely cited as one of the problems militating against the
performance of SMEs in Nigeria and elsewhere.
Several
policies has been formulated by government at all levels (Federal, States and
local government) in Nigeria to enhance growth and development of the SMEs as
they contribute significantly to the GDP of the nation. This policies and
objectives can only be realized when there is adequate power supply to the
small business. Currently in Nigeria, managers of small business spend huge
sums in procuring generating sets, fuel and the maintenance of the generators
to operate their business successfully. This has however skyrocketed the
operational cost and reduced their performance.
1.2
STATEMENT OF THE PROBLEM
The
numerical value of Nigeria’s GDP as at 2004 (and by all standards, now, because
there have been no noticeable improvements) is a consequence of its poor
electricity structure and this has affected the performance of SMEs, which is
considered as a yardstick for economic independence of nations. However, a
number of options that can be used to checkmate this unfortunate development
exist. For instance, if the Nigerian government should consider the criticality
of SMEs and fast-track programmes on the expansion and optimal operation of the
current energy mix; within a very short time frame, these could be measured as
an effort towards relief. SMEs villages/clusters can be built to promote
industrial activities on the basis that such basic infrastructure like
electricity, which is needed for spin-off as well as for sustainable operation,
is collectively and affordably provided by the relevant host authorities to
investors and operators. Standalone renewable energy (RE) systems are
increasingly getting better than generating sets which still requires expensive
and pollution-prone fossil fuels for their operation. Hence, efforts are needed
by relevant authorities, tasked with the promotion of SMEs in Nigeria, to
facilitate the provision and subsidized costs of procuring these renewable
energy systems – some of which are readily available for small-scale use.
1.3
OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
To examine
the impact of electricity on the performance of SMEs in Nigeria.
To identify
the effectiveness of the electricity generating and distributing companies in
Nigeria.
To examine
other factors affecting the performance of SMEs in Nigeria.
1.4 RESEARCH
QUESTIONS
What is the
impact of electricity on the performance of SMEs in Nigeria?
What is the
effectiveness of the electricity generating and distributing companies in
Nigeria?
What are the
other factors affecting the performance of SMEs in Nigeria?
1.5
HYPOTHESIS
HO: There is
no significant relationship between electricity and performance of SMEs in
Nigeria.
HA: There is
significant relationship between electricity and performance of SMEs in
Nigeria.
1.6
SIGNIFICANCE OF THE STUDY
The
following are the significance of this study:
The outcome
of this study will educate the general public on the importance of electricity
to the performance of SMEs in Nigeria.
It is also
anticipated that the federal government will tap into the vital information
provided by this research in the overall economic development to set up working
mechanisms for the promotion of SMEs.
Another
important thinking is the fact that it will add to the limited but growing
catalogue of research on electricity economics in Nigeria.
Small
businesses can also benefit, to some extent, from the information presented in
this study which serves as a guide to alternative viable sources of power
generation and even job creation.
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