| Summary: |
Access to electricity is a major constraint to economic growth in Nigeria. Small and medium enterprises (SMEs) are arguably the segment of the Nigerian economy most disadvantaged by a lack of access to reliable power. Due to the failure of grid-based supply, over 80 % of SMEs rely on a generator to power operations. Inclusive, diversified growth in the country depends on growth of the SME sector. This paper examines how SME grid access can be improved given the technical inefficiencies and systemic corruption in the sector. In line with the political settlements framework we provide a macro-analysis of the sector which helps address and identify a solution for the main research problem of how to solve the power constraints Nigerian SMEs face. Our research, conducted between 2018 and 2019, but still valid currently, as the features we describe have not evolved substantially, identifies that the reasons for the failure of grid-based supply is a combination of interdependent factors. Technical inefficiency in the grid is high. Revenue shortfalls have also resulted in extensive government bailouts. These inefficiencies are compounded by ‘legacy’ and recent corruption that has led to poor maintenance of the transmission network during state-ownership and to the presence of politically-connected bidders in the recent privatisation efforts, leading to sub-optimal outcomes. Any solution for SMEs has to take this sectoral configuration into account. Our strategy is supported by focus groups discussions and interviews with over 30 clustered firms in the South Eastern SME hubs of Onitsha, Aba, and Nnewi.
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