The Centre for the Promotion of Private Enterprise (CPPE) has warned that the current surge in global energy prices, largely triggered by geopolitical tensions in the Middle East, has exposed the vulnerability of Nigerian businesses to external shocks in global energy markets.
The CPPE in an advisory note, titled : Mitigating the impact of energy cost escalation: what businesses and governments should do’, said for Nigerian businesses, resilience will depend on improving energy efficiency, diversifying energy sources, strengthening financial management and improving logistics efficiency.
The document signed by the Centre’s Chief Executive Officer, Dr Muda Yusuf, also noted that the crisis underscores the urgency of accelerating reforms in electricity supply, renewable energy adoption and domestic refining capacity by the government.
Following the sustained war in the Middle East, and subsequent suspension of shipping of crude oil through the Strait of Hormuz, global crude oil prices have jumped to as high as $100 per barrel, pushing up the price of refined fuel to over N1000 per litre.
The situation has intensified cost pressures for businesses across many economies.
In Nigeria, the impact is especially severe because enterprises depend heavily on petrol and diesel to power their operations amid persistent electricity supply challenges, while also facing rising transport and distribution costs due to higher energy prices.
“The combined effect is a significant escalation in operating expenses, mounting pressure on profit margins, and heightened risks to business sustainability, particularly for small and medium enterprises”, CPPE said.
It said businesses are already contending with multiple macroeconomic pressures including high inflation, elevated interest rates and weak consumer purchasing power.
“The latest escalation in energy costs therefore compounds an already challenging operating environment. Without deliberate adjustments by businesses and supportive policy interventions from the government, rising energy costs could significantly erode profit margins, weaken business sustainability and dampen economic growth”, it said.
Highlighting strategies that could mitigate the situation, CPPE said, improving energy efficiency remains the quickest and most cost-effective strategy for businesses to manage rising energy costs.
“Firms should undertake a comprehensive review of their energy consumption patterns with the objective of minimizing waste and maximizing productivity per unit of energy used.
“Businesses should intensify efforts to improve energy efficiency within their operations as a key strategy for managing rising fuel costs. This includes optimising generator operating hours, deploying energy-efficient machinery and equipment, strengthening internal energy management practices, and promoting energy conservation among staff. Even relatively modest improvements in energy efficiency can yield significant reductions in fuel consumption and operating expenses, thereby helping to cushion the impact of escalating energy prices on business sustainability.”
It said the current crisis highlights the strategic importance of energy diversification. “Nigerian businesses remain excessively dependent on diesel and petrol generators for electricity generation”, it said adding that this exposes firms to significant fuel price volatility.
It advised businesses to gradually explore alternative energy solutions such as solar power systems, hybrid energy systems combining solar with generators, and gas-powered generators in locations where gas infrastructure is available. “While the upfront investment cost may appear significant, the long-term savings from renewable and hybrid energy solutions are becoming increasingly compelling in the face of persistently high fuel prices“, it stated
