Nigeria’s persistent electricity shortages are imposing significant costs on businesses, with more than 70 per cent of firms now relying on generators and power disruptions eroding an estimated three per cent of annual sales, according to the African Development Bank Group (AFDB).
The finding was contained in the bank’s 2026 African Economic Outlook report, which highlighted the growing economic burden of inadequate infrastructure on businesses operating in Africa’s largest economy.
According to the report, unreliable electricity supply continues to undermine productivity, increase operating costs, and weaken investor confidence.
“Electricity outage losses amount to three per cent of annual sales in Nigeria, and because of this, generator reliance is widespread, with 70.7 per cent of firms in Nigeria owning or sharing generators,” the report stated.
The African Development Bank said Nigeria’s electricity challenges reflect deeper structural and governance issues that are forcing businesses and households to provide essential services for themselves.
The report noted that across Africa, citizens and businesses are increasingly paying out-of-pocket for critical services such as electricity, water, security, healthcare, and logistics—costs that would ordinarily be covered through effective public service delivery.
The bank described these expenses as “parallel levies,” warning that they effectively function as hidden taxes on households and businesses.
According to the report, these additional costs reduce disposable income, increase production expenses, and weaken economic competitiveness.
“Higher domestic resource mobilisation without corresponding improvements in public service delivery imposes large implicit tax burdens on households and firms, which undermines the legitimacy and effectiveness of taxation and leads to a breakdown in the social contract,” the bank stated.
In Nigeria, the consequences are particularly severe as businesses continue to rely heavily on self-generated electricity to cope with erratic power supply.
While generators provide an alternative source of energy, they also increase fuel consumption, maintenance costs, and overall business expenses, making firms less competitive.
The AfDB warned that the situation is contributing to the growth of the informal sector as businesses seek ways to reduce costs and avoid regulatory obligations. This trend, the bank said, weakens tax compliance and reduces government revenue.
To address the challenge, the bank called for substantial improvements in public service delivery, particularly in electricity, healthcare, education, water supply, and sanitation.
“By reducing the need for households and firms to self-provide these services, strengthening performance in these priority areas can enhance taxpayer trust, improve voluntary compliance, broaden the formal tax base, and reinforce the fiscal social contract,” the report added.
Beyond Nigeria, the report painted a broader picture of fiscal pressures facing African countries.
The AfDB said rising debt service obligations, limited access to external financing, and increasing development demands are placing significant strain on government finances across the continent.
According to the bank, Africa loses an estimated $469 billion annually in potential revenue due to weak tax compliance, poor administration, and ineffective policy frameworks.
The report also revealed that inefficiencies in public spending continue to drain resources that could otherwise support economic growth and development.
“More than 40 per cent of public investment is currently lost to inefficiencies, and closing this gap could generate up to $299 billion each year for growth-enhancing investments,” the report stated.
The bank estimated that Africa could unlock as much as $1.43 trillion in additional annual financing by addressing leakages in revenue collection and improving expenditure efficiency.
Speaking on the continent’s long-term economic prospects, Sidi Tah said Africa must achieve and sustain stronger economic growth to address rising unemployment and poverty levels.
“Africa must raise annual growth to 7 per cent or higher, sustained over decades, to enable large-scale job creation and accelerated poverty reduction,” he said.
The report also highlighted structural weaknesses in African tax systems, noting that governments remain heavily dependent on indirect taxes such as Value Added Tax, excise duties, and customs levies.
These taxes accounted for nearly 60 per cent of total tax revenue across the continent in 2023.
In Nigeria and other resource-rich economies, corporate income tax remains heavily linked to extractive industries, underscoring the narrow nature of direct taxation and the need for broader revenue diversification.
The AfDB concluded that improving infrastructure, strengthening governance, and enhancing public service delivery will be critical to boosting productivity, restoring investor confidence, and supporting sustainable economic growth across Africa.
