AN EMPIRICAL ASSESSMENT OF THE IMPACT OF RISING ELECTRICITY TARIFFS ON THE OPERATIONAL PERFORMANCE OF EMERGING MANUFACTURING FIRMS IN OGUN STATE

CHAPTER ONE INTRODUCTION 1.1 Background to the Study Historically, tariffs have constituted a major source of government revenue, complementing direct taxes, which were traditionally the primary means of financing public expenditure. As Oluwole (2021) explains, tariffs serve not only as a fiscal tool for raising government income but also as a strategic instrument for enhancing the welfare of citizens. Moreover, tariffs function as a protective mechanism for nascent domestic industries by discouraging the importation of foreign goods through price increases. According to Enebong (2023), tariffs often lead to a doubling of the cost of imported products. In many developing countries, the rationale behind the imposition of tariffs and other trade barriers lies in the need to shield emerging industries, limit non-essential imports, and simultaneously encourage the importation of critical capital goods and essential commodities (Adebayo, 2019). The International Energy Agency (IEA) reported in 2020 that approximately 592 million individuals in Africa lacked access to electricity, making the continent home to the lowest electrification rates globally. Only 39% of the general population and 28% of rural residents had reliable electricity access (IEA et al., 2020). Even for those connected to the grid, frequent power instability and supply disruptions hamper economic development and foster dependence on more polluting energy sources (Herman et al., 2017; Mensah, 2018). The cost of delivering one kilowatt-hour (kWh) of electricity in Sub-Saharan Africa exceeds that of most low- and middle-income countries. Furthermore, electricity tariffs for both households and industries in the region often rival or surpass those found in OECD nations (Eberhard & Shkaratan, 2012; Global Petrol Prices, 2021). Consequently, African governments are compelled to subsidize power supply due to the financial non-viability of their power sectors. Nevertheless, despite these subsidies, both households and businesses still contend with high tariffs and unreliable electricity, which contribute to growing quasi-fiscal deficits (Kojima & Trimble, 2016; Batinge et al., 2019). A reliable and affordable electricity supply is essential for enhancing productivity in the industrial sector. Electricity is fundamental to powering machinery and equipment used in the production of goods and services that meet consumer needs (Olayemi, 2022). Mohammed (2023), through his theory of unbalanced growth, underscores the critical role of the power sector, asserting that strategic investments in infrastructure such as electricity can spur complementary investment in sectors like manufacturing, thereby advancing economic development. Electricity is universally acknowledged as a catalyst for economic transformation in developing economies. Access to affordable electricity can stimulate national productivity by enabling firms to adopt electricity-driven technologies that enhance efficiency and output. Due to the anticipated benefits, investment in electrification projects has increased in low-income countries, with World Bank funding for energy initiatives rising from $3.9 billion in 2017 to $8.2 billion in 2021 (World Bank, 2022). However, despite improvements in electrification rates, electricity prices remain prohibitively high for many enterprises. As a result, firms may shift their focus to less energy-intensive, lower-tech production processes to remain viable (Olawale & Garvwe, 2020). According to the International Energy Agency (2018), industrial users in developed countries typically pay lower electricity tariffs than other user categories. This is attributable to the relatively lower costs of supplying electricity to industrial consumers, whose predictable and continuous demand allows for more efficient service delivery at higher voltages, thus minimizing infrastructure costs. Nonetheless, a 2021 World Bank survey indicated that over 36% of manufacturing firms in India identified electricity as a primary constraint to their operations (World Bank, 2021). In Nigeria, the Manufacturing Association of Nigeria (MAN) conducted a survey in Q1 2018 that revealed the challenges confronting the country's manufacturing sector. The findings showed that only 10% of manufacturing firms operated at 48.8% capacity. Furthermore, 60% of these firms managed to cover average variable costs, while 30% ceased operations altogether, largely due to exorbitant electricity tariffs (Ogunjobi, 2022). Given that energy plays an integral role in nearly every aspect of technological and socio-economic advancement, this study is necessitated to examine the implications of rising electricity costs. 1.2 Statement of the Problem The Nigerian manufacturing sector—often regarded as the engine of economic growth—continues to grapple with a challenging operational environment. It is essential to avoid introducing policies that may exacerbate the sector’s difficulties. An affordable and stable electricity supply is widely acknowledged as a fundamental requirement for the survival and growth of emerging manufacturing enterprises (World Bank Enterprise Surveys, 2023). Increases in electricity tariffs directly raise production costs, thereby heightening the risk of business stagnation, reduced competitiveness, and possible enterprise closure. According to MAN (2023), manufacturers in Nigeria collectively spent an estimated ₦144.5 billion on alternative energy sources in 2022, marking an 87% increase from ₦77.22 billion in 2021. This substantial rise underscores the financial pressure that electricity costs exert on manufacturing operations. Infant manufacturing firms—characterized by narrow profit margins—are particularly vulnerable, as higher tariffs erode profitability, restrict reinvestment opportunities, and threaten long-term viability. Without viable coping strategies, many of these firms may be forced to shut down, resulting in economic contraction and job losses. For firms in Ogun State, a region with a growing industrial base, understanding and mitigating the impact of elevated electricity tariffs is crucial to maintaining competitiveness in both domestic and international markets. Therefore, this study seeks to explore how rising electricity tariffs affect the performance of infant manufacturing companies in Ogun State and to identify strategies that can help these firms navigate current challenges.  1.3 Objectives of the Study  The primary objective of this study is to assess the Impact of Rising Electricity Tariffs on the Operational Performance of Emerging Manufacturing Firms in Ogun State. Specifically the study seeks: i.To find out whether there is a relationship between hike in electricity tariff and performance of infant manufacturing companies. ii.To examine the extent hike of electricity tariff affects operational effectiveness of infant manufacturing companies in Ogun State. iii.To determine the extent to which hike in electricity tariff affects the continuity of infant manufacturing companies in Ogun State. iv.To determine the extent to which hike in electricity tariff affects the productivity of infant manufacturing companies in Ogun State. 1.4 Research Questions The following research questions will be answered in this study: i.Is there a relationship between hike in electricity tariff and performance of infant manufacturing companies? ii.What is the extent hike of electricity tariff affects operational effectiveness of infant manufacturing companies in Ogun State? iii.What is the extent to which hike in electricity tariff affects the continuity of infant manufacturing companies in Ogun State? iv.What is the extent to which hike in electricity tariff affects the productivity of infant manufacturing companies in Ogun State? 1.5 Research Hypothesis The following null hypothesis will validate this study: Ho: There is no relationship between hike in electricity tariff and performance of infant manufacturing companies Ha: There is a relationship between hike in electricity tariff and performance of infant manufacturing companies. 1.6 Significance of the study This study will be of interest to scholars, small scale entrepreneurs, manufacturer, the regulators, and government. This study will be of importance to small scale entrepreneurs and manufacturers as it will expand their scope of knowledge, which serves as the foundation for decision making, particularly in relation to hike in tariffs and can enhance their personal and organizational wealth. The study will also assist managers in the infant manufacturing companies in making decisions regarding tariff increase so as to maximise their company's growth through improved production and marketing operations. As a scholar, this study will contribute to the existing body of knowledge in this area, while also serving as a valuable source of empirical reference and literature review. It will also provide a foundation for further research to the scholar. 1.7 Scope of the study The study aims to carry out an assess the Impact of Rising Electricity Tariffs on the Operational Performance of Emerging Manufacturing Firms in Ogun State. This study will be carried out among factories in Agbara industrial zone, Ogun State. 1.8 Limitation of the study The researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing that there was little data on hike in electricity thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size covering only residents of Ogun State. Thus findings of this study cannot be used for generalization for other regions outside Ogun state. Additionally, the researcher will simultaneously engage in this study with other academic work which impeded maximum devotion to the research. Howbeit, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful. Furthermore, the roads leading to infant production enterprises in Ogun state are in a deplorable condition, making it arduous to reach every infant manufacturing company in the state. 1.9 Definition of terms Hike: Hike a sharp increase, especially in price. Electricity: Electricity is the set of physical phenomena associated with the presence and motion of matter possessing an electric charge. Electricity is related to magnetism, both being part of the phenomenon of electromagnetism, as described by Maxwell's equations. Common phenomena are related to electricity, including lightning, static electricity, electric heating, electric discharges and many others Tariff: A tariff is a tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages.    Infant Industry: an infant industry is a new industry, which in its early stages experiences relative difficulty or is absolutely incapable in competing with established competitors abroad