POWER GENERATION AND PERFORMANCE OF MANUFACTURING COMPANIES LISTED ON THE GHANA STOCK EXCHANGE

ABSTRACT
Manufacturing companies employ electricity as a key resource input in their production mix. This has generally led to a situation where manufacturing companies subsist heavily on electricity for survival and continuity in business. Against this backdrop, the objective of this study was to examine the effect of power generation on the performance of manufacturing companies listed on the Ghana Stock Exchange.
A sample of seven firms was selected for the study using convenience sampling technique. Panel data covering the period 2008-2012 was adapted from the published financial statements of sampled firms. Data on power generation were time series data adapted from the Ghana Energy Commission spanning between the period 2008 and 2012. Multiple linear regression models were used to estimate the relationship between the variables in the study. The results of the study suggest that electricity supply has a significant positive impact on both profitability and efficiency. The effect of System Average Interruption Duration Indexon both profitability and efficiency were found to be negative. However, System Average Interruption Frequency Indexwas found to have an insignificant effect on both profitability and efficiency.

In respect of this, energy ministry should initiate prudent measures to improve electricity supply to ensure efficiency and profitability of manufacturing companies.In addition, manufacturing companies are to invest in other energy efficient technologies to ensure continuous electricity supply in the event of erratic supply of electricity from the national grid.


CHAPTER ONE
INTRODUCTION
Introduction
This study looks at power generation and performance of manufacturing industries listed on the Ghana Stock Exchange. This part looks at the background of the study and the statement of the problem. The chapter further looked at the research objectives, questions and research hypotheses and proceeds to make a justification for the study and ends with limitations and delimitations of the study

Background of the study
Literature has it that infrastructure services (e.g. Electricity supply) isa major factor of economic development.Electricity supply interacts with the economy through multiple and complex processes. It represents an intermediate input to production, and thus changes in electricity supply quality and quantity significantly affect the profitability of production, and invariably the levels of income, output and profit (Adenikinju, 2005). Moreover, electricity supply services raise the productivity of other factors of production (Kessides, 1993). Electricity is a significant component of virtually any production process. As such, limited supply has the potential to, directly and/or indirectly; affect the economic activities of firms.

Ghana, since the establishment of Akosombo Hydroelectric Dam, has experienced several episodes of electricity supply challenges. The first of such experience was in 1983-1985 followed by 1998-2000 and then in the period 2006-2007 and the current power crisis which started in 2012 to 2015 as reported by Tano, (2015) on graphiconline.com. In between these periods there have been several power supply challenges which have lasted for shorter periods.

Failures in the electricity supply system have a negative impact on industries and compelthe industries to adapt any of these four options; decrease productivity, outsourcing, self-generation and energy efficiency technology (Fisher-Vanden, Mansur&Wang, 2014)

Low quality infrastructure has been identified as one of the potential contributors to the large productivity gap between developed and developing countries and one of the obvious examples of infrastructure failures is inadequate electricity generating plant (Allcott, Collard-Wexler & O’Connell, 2014). Electricity is intertwined with every aspect of day-to-day life. From our home to our business, health and recreation, electricity is crucial. The issue of electricity supply reliability is paramount. In addition to the inconvenience experienced by consumers during prolonged periods without electricity service, a power outage can literally mean the difference between life and death (Rouse & Kelly, 2011). Osborn andKawann (2001), defines electricity supply reliability as “the ability of power system component to deliver electricity to all point of consumption, in the quantity and quality demanded by the consumer”.Dabholkar,Thorpe and Rentz, (1996) also defined electricity supply reliability as “the degree to which the retail service provides what was promised and when it was promised”

Rouse and Kelly (2011) explained that electricity was originally intended as a means of powering light bulbs. However, today, electricity is used for a wide variety of critical applications for which reliability is paramount. Industries of all types heavily depend on electricity supply for their operation

Making investment decision is critical to business activities as it relates to or affects the overall business objectives. The profitability level of a firm depends on how good or bad its investment decision is determined. While a good investment decision increases the profitability and enhances the financial viability of firms, poor choice of investment reduces the financial capability and sometimes causes firms to liquidate. Investment in fixed capital, often referred to as business fixed investment, has both the relative costs and expected benefits that often influence firm’s decision to embark on such spending.

Investing in backup generation is a business fixed investment which comes at higher cost to firms and therefore has to be taken judiciously. A firm experiencing power outages would have to consider the marginal benefit of investing in backup and the marginal cost of purchasing and running the plant. For instance, a firm experiencing frequent power outages would have to decide whether to invest in backup generation and be able to continue operations in the events of outages but at the required costs, or not to invest in backup generation and shuts down operations during power outages. A firm will consider either of the options depending on which one makes a rational decision to them. A firm will invest in backup generation if it wants to continue to run its operation even when there is power outage and that there will be marginal gains in production.

Manufacturing is largely dependent on electric power to operate and run the equipment and machines for the process of converting raw materials, components, or parts into finished goods. The Association of Ghana Industries (AGI) in its first quarter report of 2015 indicated that inadequate power supply is the number one on the list of ten major challenges facing the Ghana’s manufacturing sector. In the view of Oviemuno (2006), one of the major requirements for the development of the manufacturing industries is affordable and abundant supply of electricity for driving the industries’ machinery. Power outage is established as a major challenge to industries growth and performance. According to Khattak and Hussain (2014), electricity shortage has a significant effecton theperformance of industries. During long period of power shortage, some industries use alternative means of generating electricity such as electric generators, to produce electricity to power their activities and create convenient working environment for employees. This comes at a higher cost compared to the cost of grid power. Power outages affect output of most manufacturing industries(Doe & Selase, 2014). This is because it serves several purposes ranging from production, storage, powering of office equipment and illumination.

As a resource, power has never been enough for all those who need it for their activities. It is a scares resource and must be treated as such. In Ghana, there have been a number of times where power has to be rationed. This has resulted from inadequate generation capacity by the power generation companies to meet the demand of the country. The total installed power generationcapacity of Ghana is 2,936MW (Energy Commission,Ghana, 2014). With available generation capacity of 2,050MW compared to the installed capacity of 2,936MW, it is obvious that there are some challenges with the generation system. There are however, generation and transmission losses which make power production even less than the available generation capacity when all power generators are operational at 2,050MW (Volta River Authority,2015).

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Item Type: Ghanaian Postgraduate Material  |  Attribute: 82 pages  |  Chapters: 1-5
Format: MS Word  |  Price: GH50  |  Delivery: Within 30Mins.
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