Analysis of the cost of infrastructure failures in a developing economy: The case of the electricity sector in Nigeria

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Adenikinju, Adeola
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African Economic Research consortium
Infrastructure has been identified as the key constraint to private sector development in Nigeria. Hence, this study analysed the cost of power outages to the business sector of the Nigerian economy using both a survey technique and revealed preference approach. One strong outcome of the study is that the poor state of electricity supply in Nigeria has imposed significant costs on the business sector. The bulk of these costs relate to the firms’ acquisition of very expensive backup capacity to cushion them against the even larger losses arising from frequent and long power fluctuations. Small-scale operators are more heavily affected by the infrastructure failures as they are unable to finance the cost of backup power necessary to mitigate the impact of frequent outages. The smallscale operators that could afford to back up their operations have to spend a significant proportion of their investment outlay on this. The study advocates for institutional reforms of the power supply sector in Nigeria.