Standard Bank: Nigeria loses $26bn yearly over power outages

Standard Bank says Nigeria is losing an estimated $26 billion annually due to electricity shortages in the country.

In its latest Africa Trade Barometer report, Standard Bank identified electricity supply as a critical barrier to business operations in Nigeria and across other African markets.

The report also said businesses in the country spend around $22 billion yearly on off-grid fuel to offset the impact of unreliable electricity, further driving up operational costs.

“In Nigeria, surveyed businesses must contend with a national grid that frequently collapses as it fails to meet a daily peak demand which is nearly four times its generation capacity,” the report reads.

“Economic losses arising from Nigeria’s electricity shortages are estimated to be USD 26 billion annually, without accounting for spending on fuel for off-grid generators, which is estimated to be a further USD22 billion.” 

According to the report, power outages disrupt production, compromise the quality of temperature-sensitive goods, disrupt water supplies, and affect telecommunications infrastructure critical for payment systems.

The disruptions, the bank said, result in reduced sales and income for businesses.

“Across the 10 African markets, power supply infrastructure remains the most severe obstacle to surveyed businesses’ operations,” Standard Bank said.

“It is reported as one of the most poorly perceived infrastructural attributes as well as the one presenting the most severe obstacle to business operations. 

“Blackouts cause a downtime of production, risk the quality of goods that require controlled environments, impact water supply, and affect telecommunications infrastructure which businesses may rely on for payments. The result is reduced sales and income.”

To address the challenges, the report said there was a need for a diversified energy mix to reduce dependence on the national grid.

Standard Bank also called for policy interventions to stabilise electricity generation and attract investment into renewable energy solutions.

‘BUSINESSES EXPERIENCED LARGEST DECLINE DUE TO  NAIRA DEPRECIATION’

In the report, Standard Bank highlighted that Nigeria experienced the largest decline in business confidence among businesses surveyed in Africa.

“This was primarily due to the significant depreciation of the Naira,” he said.

“The primary driver of this was the liberalisation of the exchange rate by the central bank to consolidate the multiple exchange rate systems into a unified market.

“This aimed to let supply and demand dictate the rates, but in June 2023, the Naira fell further by 36% on the official market, showing notable devaluation amidst dollar scarcity and market unrest.

“Efforts to stabilise the Naira were further compromised by the removal and later partial reinstatement of the fuel subsidy, which had stoked inflation and sparked nationwide protests over increased living costs.”

On October 17, Wale Edun, minister of finance and coordinating minister of the economy, said the FX subsidy era was gone.

Edun said the subsidy had cost the country over 5 percent of its gross domestic product (GDP), causing financial strain.

Also, the International Monetary Fund (IMF), on October 23, said the naira is showing signs of stability due to interest rate hikes.

According to FMDQ Exchange, a platform that oversees the official FX window, the naira closed at N1,600/$ on Friday, compared to N464.51 per dollar when President Bola Tinubu’s administration began.