How Nigeria’s MSMEs are Growing Thanks to Rural Electrification

by Jerrywright Ukwu

The livewire of every developed or developing economy is the expansion of its middle class. When a nation talks about bringing people out of poverty, it usually is not about increasing the number of those in the upper class but increasing those in the middle class by improving the lives of those in the lower class. How can this be achieved?

Nigeria’s growing middle class accounts for approximately 23 per cent of the population and is estimated to have a combined buying power of over US$28 billion. Several factors have been identified for it to continue to grow: Access to capital, good roads, improved economy, cheap and affordable raw materials, etc. One crucial factor that has been understated is access to power, a situation that is currently improving in Nigeria thanks to the brilliant work being done by the Rural Electrification Agency.

Created by the Electric Power Sector Reform Act in 2006, the agency exists to facilitate the provision of affordable power supply for residential, commercial, industrial, and social activities. In the past three years, however, the agency has improved its electrification project across the nation, evidently transforming into progress in Nigeria’s middle-class expansion.

Through its “Results-Based Financing for Productive Appliances & Equipment” project, the REA aims to increase the productive use of energy in remote communities by increasing access to efficient, electric productive equipment. The component targets to electrify 24,500 Micro, Small and Medium Enterprises (MSMEs) and 1,050,000 with improved access to energy services from productive.

Why is this important, and what value will this bring to Nigeria? Available data shows that the population will reach 400 million by 2050, up from an estimated 206.1 million in mid-2020. With a rising population, there is the potential for unemployment to grow at the same pace or faster. To address this, entrepreneurship and self-owned businesses can help mitigate it. For most businesses, however, especially start-ups, lack of access to power has always made it difficult to establish their businesses. This has forced some skilled people into doing odd jobs like commercial motorcycling, bus conductors, etc.

With the provision of productive appliances and equipment by the REA, young Nigerians can diversify their interests into more productive ventures, thus making them self-sufficient and employers of labour.

A strong link exists between improved power and a nation’s economic development. Research has shown some evidence that the reliability of electricity supply is essential for economic growth and countries that can enhance power through generation and accessibility. According to the International Energy Agency, cost-effective energy efficiency improvements can have positive macroeconomic impacts, boosting economic activity and often leading to increased employment. Improved electricity also means a boost in manufacturing which can help the local industry grow and reduce Nigeria’s importation which is taking its toll on the country’s foreign exchange.

As observed, the REA, under its current leadership, has identified the nexus between the economic development of Nigeria through the expansion of the middle class and improved electrification. Within three years, it has added 31.7kW in four states and provided palm oil and palm kernel processing machines, welding machines, hair clippers, freezers, etc, to young entrepreneurs for them to start their businesses. By providing machines and the means of electricity, REA has identified a significant gap in Nigeria’s economy whose intervention can help solve youth unemployment.

Although many Nigerians expect immediate results, one must commend the REA for kickstarting an electrification intervention that has set Nigeria on the path to progress. There is almost no industry in Nigeria that does not need access to constant electricity. To now have one explicitly designed to address youth unemployment and improve micro, medium, and small enterprises is highly commendable. 

A cursory look at the available data shows that 67 mini-grids have been completed, 1,206, female-headed MSMEs have been electrified, 1,151 jobs have been created, and 267 grant agreements have been signed. These interconnected projects, aimed at improving small businesses for young Nigerians, are timely when youth unemployment stands at 53.40 per cent. To mitigate this growing trend, providing an avenue for young Nigerians to thrive in their self-sustaining business is an extraordinary intervention.

If the REA has achieved this in three years, one can infer that more can be achieved in youth empowerment and business development as long as the streak of management is not broken. Based on its five-year plan, there is a strong confidence that more successes will be achieved as long one does not fix what is not broken.

When critically examined, the REA has done significantly in three years to identify critical electrification projects with a deliberate spread across the nation. This balances the need of Nigerians without making any part of the country feel left out. By mapping out a national spread, the proximity of those who benefit from this electrification to their houses is close.

President Bola Tinubu, in the nation’s best interest, should look into the operations of REA and take two things away from it. The first is to find out how so much stability and success has been achieved within a short time and see how this can be replicated in other agencies. The second one, which is the most important, is to encourage and reward success by sustaining the continuation of the team. This is the best action to achieve the sort of success he envisages.

Jerrywright Ukwu is an Abuja-based journalist. He can be reached on [email protected]