The Impact Of Electricity Power Supply On Economic Growth Of Nigeria From 1990 To 2017

ABSTRACT

The study investigated the impact of Electricity power supply on economic growth of Nigeria from 1990 to 2017. It focused on the impact variables; electricity expenditure (ELEX), gross capital formation (GFCF) and Industrial product (INDP) had on economic growth (measured by real gross domestic product). The analysis conducted were unit root (stationarity test), cointegration test, and ordinary least square (OLS). The ADF unit root test showed that the variables are stationary at first difference, while the test statistics proved that there are 2 co-integrating equations. However, the OLS regression result proved that all variables had a positive impact on RGDP, although ELEX was not significant. Hence, the study concluded that electricity power supply had a positive impact on economic growth from the period covered. The study recommended amongst others, that the government should adopt more affordable and efficient sources of power generation other than hydro to invest in and through the encouragement of export boosting policies and ban the importation of goods that can be produced domestically in Nigeria and placing tariffs on luxury commodities imported into Nigeria.

CHAPTER ONE

INTRODUCTION

Background to the Study

The electricity industry is a basic and significant industry of the national economy, which is closely related to economic development. On the one hand, electricity is a driving force of economic development. The shortage of power supply will seriously affect the healthy development of the economy and can cause large economic losses (Woo and Pupp, 2011; Sun, Wang & Ma, 2010). On the other hand, the level and speed of macroeconomic development play a decisive role in determining electricity demand (Shiu and Lam, 2014).

According to the Nigerian Electricity Regulatory Commission NERC (2018) Electricity generation started in Nigeria in 1896 but the first electric utility company, known as the Nigerian Electricity Supply Company, was established in 1929. By the year 2000, a state-owned monopoly, the National Electric Power Authority (NEPA), was in charge of the generation, transmission and distribution of electric power in Nigeria. It operated as a vertical integrated utility company and had a total generation capacity of about 6, 200 MW from 2 hydro and 4 thermal power plants. This resulted in an unstable and unreliable electric power supply situation in the country with customers exposed to frequent power cuts and long period of power outages and an industry characterised by lack of maintenance of power infrastructure, outdated power plants, low revenues, high losses, power theft and non-cost reflective tariffs.

In the year 2001, the reform of the electricity sector began with the promulgation of the National Electric Power Policy which had as its goal the establishment of an efficient electricity market in Nigeria. It had the overall objective of transferring the ownership and management of the infrastructure and assets of the electricity industry to the private sector with the consequent creation of all the necessary structures required to forming and sustain an electricity market in Nigeria {NERC, 2018).

In 2005 the Electric Power Sector Reform (EPSR) Act was enacted and the Nigerian Electricity Regulatory Commission (NERC) was established as an independent regulatory body for the electricity industry in Nigeria (Alams, 2016). In addition, the Power Holding Company of Nigeria (PHCN) was formed as a transitional corporation that comprises of the 18 successor companies (6 generation companies, 11 distribution companies and 1 transmission company) created from NEPA.

The Nigerian Bulk Electricity Trading Plc (NBET) was established in 2010 as a credible off-taker of electric power from generation companies. By November 2013, the privatisation of all generation and 10 distribution companies was completed with the Federal Government retaining the ownership of the transmission company. The privitisation of the 11th distribution company was completed in November 2014.

Access to power expands the number and variety of business and job opportunities available. Electricity means that small businesses, such as barbers hairdressing salons, laundromats, welders etc., rely on energy to function. Energy also leads to the creation of new markets, businesses and job openings, which provide more opportunities for individuals to earn an income and lift them, their families and communities out of poverty (Jonathan, 2017).

The utilization of Electrical Energy is pivotal to the development of any nation and it is directly correlated with a healthy economic growth (Kaseke & Hosking, 2013). Nigeria is a highly populated Western African country. On a rough evaluation only about 40% of Nigerians are connected to the national energy grid. This percentage of Nigerians who actually have electric power supplied to them still suffer electric power problems around 60% of the time (Aliyu et al, 2013).

According to World Bank report (2017), in 2015, about 75 million Nigerians lacked access to adequate electricity and Nigeria was ranked highest amongst the countries with electricity access deficit when energy access, efficiency and renewable are on the rise in many developing nations.  Much of the electricity distribution network at 2010 -2016 was poorly maintained and the supply in a lot of areas was often described as epileptic in nature, characterized by extreme voltage variations, load discharges, frequent and long outages and reliance by small scale businesses, industries and affluent individuals on off-grid generation (Kuale and Jacob, (2017).

The poor state of power supply in Nigeria was widely viewed as one of the major constraints to the nation’s economic growth (Joy, 2017). While Nigeria has an abundant supply of natural resources, including large reserves of oil and gas, it had one of the lowest net electricity generations (Uzor, 2017).

Statement of the Problem

Nigeria, though one of the largest primary energy producers in the world still struggles to generate adequate electricity to support its economy and giant population. The Nigerian energy supply crisis refers to the ongoing failure of the Nigerian power sector to provide adequate electricity supply to domestic households and industrial producers despite a rapidly growing economy, some of the world’s largest deposits of coal, oil and gas and the country’s status as Africa’s largest oil producer. The erratic nature of this power supply impede the growth of the Nigerian economy as it causes the following problems

1. Power supply difficulties cripple the agricultural, industrial and mining sectors (Aliyu et al, 2013; Kaseke & Hosking, 2013) and impede the Nigeria’s ongoing economic development. The energy supply crisis is complex, and stems from a variety of issues and has been ongoing for decades. Most Nigerian businesses and households that can afford to do so, run one or more diesel fuelled generators to supplement the intermittent supply.

2.The ripple effects of power shortages and constant outages also impede production, job loss to outright closure or relocation to other countries.

3. Companies bear so much loss as outages often occur when goods are in the middle of production. When power is taken unannounced in the process of production, all goods are destroyed. Many businesses generate power privately and cut of dependence on the national grid (Bacon, 1995).
4. The consequence of incurring high cost of power generation from the industries makes the nations industries less competitive (Ikeonu, 2017).Thus, this work aims to show that an improved power supply in Nigeria is a catalyst for her economic development.

Objectives of the Study

The broad objective of the study is to examine the impact of power supply on the Nigerian economy. Other specific objectives are

1. To determine the impact of electricity expenditure on the gross domestic product per capita.
2. To examine the effect of gross fixed capital formation on the gross domestic product per capita.
3. To investigate the influence of population on the gross domestic product per capita.
4. To examine the impact of industrial production on the gross domestic product per capita.

Research Questions

This study intends to provide answers to the following questions.

1. What is the impact of electricity expenditure on the gross domestic product per capita?
2. What is the effect of gross fixed capital formation on the gross domestic product per capita?
3. What influence does population have on the gross domestic product per capita?
4. What is the impact of industrial production on the gross domestic product per capita?

Statement of Hypotheses

The following research hypotheses were tested during the course of this study.

1. H₀: Electricity expenditure had no significant impact on gross domestic product per capita.
2. H₀: Gross fixed capital formation had no significant impact on gross domestic product per capita.
3. H₀: Population had no significant impact on gross domestic product per capita.
4. H0: Industrial production had no significant impact on gross domestic product per capita

Significance of the Study

This study will be of use to the following groups:

1. Academia: It is expected that this study would contribute to the advancement of the existing literature on power supply and economic growth especially in the Nigerian case. Thus, forming a veritable source of reference for researchers.
2. Governments: It is also expected that the empirical results and recommendations of this work would be useful to policy makers as it would help in adopting suitable trade policies that will promote trade in Nigeria.
3. The general public: The general public would find this study very useful because it will serve as a spring board for continuation of research as well as for detailed information as regards trade activities in Nigeria.

Scope of the Study

The project was on the impact of power supply on the Nigerian economy. The study covered the period of 1990-2017 and an ordinary least square (OLS) technique was used in estimation of the parameters of the variables under consideration. This study focused on variables such as broad power supply and credit to private sector.

1.8.  LIMITATIONS OF THE STUDY

They greatest challenge encountered during the course of this study is the inaccessibility of the researcher to relevant research materials. This arises as a result of the bureaucratic nature of the school library. However, I had to conduct a lecture through which I humbly explain the nature of the research and more so, had to assure them of the fact that it is a normal university requirement for the award of B.Sc. degree and not personalize in any way.

1.9. Organization of the study

This project is divided into five chapters, chapter one generally introduces the work. It comprises the background of the study, statement of problem, objective of study, research questions, hypotheses and so on. Chapter two reviews related literature on the topic matter. It is divided into conceptual, theoretical and empirical framework. Chapter three is the method of study which describes ways the study intends to follow to get to a particular conclusion. Chapter four analyses the various data collected and make findings on them through the test of hypotheses. Chapter five summarizes the findings, concludes and make recommendations.

Pages:  81

Category: Project

Format:  Word & PDF

Chapters: 1-5

Material contains Table of Content, Abstract and References