•Business owners, economists say further increase will kill businesses, worsen hardship
By Merit Ibe, Lagos and Adanna Nnamani, Abuja
Manufacturers, small and medium-sized enterprises (SMEs) and other stakeholders have expressed concern over alleged plans by the Federal Government to further increase electricity tariff as well as hike vehicle registration fees, including number plates and drivers’ licences, noting that the moves will worsen the already harsh operating environment for businesses.
At a meeting with the chairmen of Generating Companies of Nigeria (GenCos) in Abuja on May 5, Minister of Power, Adebayo Adelabu said Nigerians would have to start paying more for electricity.
Last week, the Joint Tax Board (JTB) also announced major price increases for motor vehicle and motorcycle number plates and driver’s licenses nationwide. The new policy will take effect on Sunday, June 8 2025.
In their argument, the stakeholders said the increased cost of energy and transportation, among others, has continued to significantly raise their operational expenses. The high production costs, they said, will invariably lead to higher inflation, lower sales, collapse of industries, and high poverty rate which will potentially hinder economic growth and discourage investment.
According to them, with the high rate of inflation which has continued to impact the survival of businesses, particularly manufacturers and SMEs, more price hikes might send more businesses packing.
An SMEs expert and member of the Lagos Chamber of Commerce and Industry (LCCI), Daniel Dickson-Okezie noted that the hikes could worsen inflationary trend in the country. Citing the IMF projection that inflationary rate for 2025 in Nigeria is 26.5 per cent, Dickson -Okezie noted that “the challenge we have in Nigeria is that all the three spending units- the family or households, the firms or businesses and then the government, are heavily affected by high costs of electricity as well as other services.”
He pointed out that the continuous increase in inflation rate would definitely lead to elevation of the poverty level.
“The Pricewaterhouse Corporation, for instance, projects that an additional 30 million Nigerians will fall below the national poverty level in this year, which will move the poverty rate to about 47.2%. The World Bank at the same time says that 75.5% of Nigerians who are rural dwellers live below the poverty line.”
He noted that the major problem of increase in electricity tariff is the issue of inflation, which he said eventually leads to poverty.
“Now, businesses are already groaning, so you can imagine how it will affect businesses. It will stretch them, worsen the problems of SMEs, manufacturing sector and eventually lead to shutdown, worsening the crisis of unemployment in Nigeria.”
He insisted that there is no need whatsoever for increase in electricity tariffs now, noting that already, Nigerians are really in deep trouble and are trying to see how they can survive the consequences of inflation and poverty.
For Dr Dapo Omojola, a sales and marketing expert, the increases will definitely have a ripple effect on the economy as a whole.
“For example, the higher electricity tariff will impact businesses by increasing the operating cost, which will be transferred to the consumers.
“So businesses, especially SMEs that are dependent on power for daily operations will be negatively and adversely affected. It’s going to definitely translate to higher production costs. For manufacturers, it will increase machinery cost.”
He noted that many businesses were already supplementing with generators.
“If you now increase or double their expense, it will increase operating costs, which will lead to price transmission or transfer of costs. For them to cover that electricity costs, some companies may have to raise the prices of their goods and services. So consumers will bear the brunt. And this by implication, it can also fuel inflation. It can begin to erode the purchasing power of the consumer.”
He also pointed out that high production cost can also shrink profit margin of businesses.
“The business owner plunges his profit back to power the business to avoid increasing price, due to competition. Because there are some businesses already that cannot afford to increase their prices due to competition in the markets and consumer sensitivity. I mean, as a consumer, you are on edge already.
“So if a product is trying to increase price again, we might just not buy and that will go back to them such that their profit is going to shrink.
“When that happens, then it may lead to downsizing of the staff or in the alternative, you might reduce your investment rather than putting more money into this business.
Also energy cost in a particular kind of business may discourage those who want to start new businesses.”
On vehicle registration fee increase, he said it might affect the cost of operating logistics within the industry.
“Now look at it, the logistics company, with trucks, increased cost of fuel and then another increase of vehicle papers, registration and all that; its operations are definitely going to be more expensive. It might even affect public transportation providers and hit food price.,” he noted.
“People might now begin to cut corners and that will bounce back on the government in the form of shortage on their revenue. The combination of both high tariffs and hike in prices may eventually lead to an escalation in the existing poverty level. Things will get tougher, because as it is already, the rates are killing,” he added.
Omojola suggested that there could be some form of targeted subsidies or a form of support for low-income households or for small businesses. He also recommended an improved supply of electricity, adding that reliability is also important.
“Electricity should be improved, such that it can justify the cost of increase. We could also suggest some incentives or tax waivers to cushion businesses that will be affected directly by the vehicle registration hikes. A gradual implementation will help the situation,” he said.
President, Calabar Chamber of Commerce and Industry (CALCCIMA), David Etim, noted that consumers income has remained almost stagnant with increasing cost.
Etim noting that hike in prices is a huge challenge.
While acknowledging that there is production cost escalation for different items, including electricity, vehicle number plates, licences and others, he pointed out that there is erosion of people’s disposable income.
“Definitely when prices go up, it will affect businesses but if there is a better power supply, it will check losses,” he said, noting that 60 to 65 per cent of any business operation is on power.
“If there is regularity, elimination of losses and delivery of more power, then the cost of business will come down,” he said.
Ojei Jato, a manufacturer, regretted that with the poor electricity supply, Nigerian industrialists were now left with the only option of buying diesel and other petroleum products to feed their generators in order to produce at full capacity.
He added that with intermittent power supply, factory machines required to heat up for at least seven hours before production could not be connected to electricity, to avoid damaging the goods at the production stages, as power usually goes off without notice.
He lamented that further hike in electricity tariffs would be detrimental to SMEs, who are heavily reliant on government-supplied electricity.
“The high cost of electricity is a major burden, especially for businesses in Band A, who face very high tariffs,” he lamented.
Meanwhile economic and development experts have urged the Federal Government to suspend plans to increase electricity tariffs and vehicle registration fees, warning that such actions could worsen the economic hardship currently faced by millions of Nigerians.
Prof Akpan Ekpo, Chairman of the Foundation for Economic Research and Training (FERT), professor of Economics and Public Policy at the University of Uyo, Akwa Ibom State, said any further hike in electricity tariffs would heighten the suffering of citizens and cripple small and large businesses alike.
According to Ekpo, “When you increase the tariff, you further heighten the hardship. The government should stop with the increments and wait until the economy recovers and people begin to do better. This hike will hurt small businesses and even big companies.”
He noted that the country’s large population should make electricity more affordable if the government ensures steady supply, adding that any increment would not only fuel inflation but disproportionately impact the poor.
“Already, inflation is too high. When you increase the tariff, it will further worsen the inflation rate. According to the World Bank, for every three Nigerians in rural areas, two live in poverty. Increasing tariffs now will make life unbearable for many,” he said.
He advised the government to instead clear its outstanding debts to power generation companies (Gencos), rather than transferring the financial burden to ordinary citizens.
On the issue of vehicle registration fee hikes, Ekpo stressed that any increase should be marginal, as it would also deepen economic hardship.
Similarly, Dr Chijioke Ekechukwu, former Director-General of the Abuja Chamber of Commerce and Industry (ACCI) and former CEO of Dignity Finance, said an increase in electricity tariffs at a time when citizens are grappling with high inflation and rising food costs would be insensitive.
“This is not a time to worsen the economic situation of Nigerians by increasing electricity tariffs. What we expect is for electricity distribution companies to be more efficient in collecting revenue from all users, whether government institutions, private individuals, or corporate entities,” he said.
Ekechukwu argued that inefficiencies in revenue collection had contributed significantly to the financial shortfalls of electricity providers.
According to him, the DisCos could recover nearly 40 percent more revenue if they embrace technology and block loopholes in their collection systems.
He advised the government to focus on untapped revenue sources, particularly the mining sector, and to reduce wastage in public spending. An economist and development expert, Mr Aliyu Ilias, also expressed concern over the government’s revenue drive, warning that it is shrinking the purchasing power of citizens.
“The continuous increase in the cost of public services like driver’s licenses and electricity, amidst rising inflation, will trickle down and impact families directly,” he said.
Ilias said that the quality of consumption is already deteriorating due to what he described as “strength inflation”, where once-quality goods and services are now downgraded as people struggle to afford basic necessities.
“The government must look inward and delay these increases. If not, this hardship will consume the people, and the current administration risks losing public trust,” he cautioned.