Impact of Electricity Supply on Economic Growth: A Nigerian Case Study

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Impact of Electricity Supply on Economic Growth: A Nigerian Case Study

Abstract:

This work reviews the impact of electricity supply on economic growth. In this background, power supply in Nigeria was studied from 1983 to 2017. Results obtained show that 100% of stake holders and 68% of the general public in Umudike, Abia State, Nigeria agree that power supply in Nigeria has improved in recent times. For every 1% increase in electricity supply, an economy is expected to grow by 3.94%. Inversely, a 1% increase in real gross domestic product leads to a 0.34% increase in electricity supply and consumption. Although, with an improved current generating capacity of 7000 megawatts and distribution capacity of 4600 megawatts, factors such as an increase in load growth, poor maintenance of existing transmission and distribution facilities and lack of adequate physical structure still cause epileptic power situation in most parts of Nigeria. This study recommends that policies aimed at boosting the generating and distribution of electricity supply in Nigeria should be maintained. This in turn would have a positive impact on the economy. Keywords: Transmission, Electricity, Nigeria, Industry, Economy, Load growth

INTRODUCTION

Electrical power is an important component for the development of any economy and hence for prosperity. Besides capital and labor, it is regarded as a third important production factor in economic models [3]. More than eight years after the new investors took over the assets of the Power Holding Company of Nigeria (PHCN), most electricity consumers begin to testify that power supply in Nigeria has improved slightly. This is an indication that stable power supply is achievable in Nigeria. In Lagos, customers in some areas under the Ikeja and Eko Electricity Distribution Companies (IKEDC) have testified that supplies to the area have improved since August this year [2]. In Awka, power is stable except for the few minutes that residents experience power outages [2]. This shows that power supply have improved in some areas in Nigeria. Nigeria’s electricity supply has shown significant improvements with the current expansion and rehabilitation of the transmissions and distribution systems. Its current generation capacity, however, still continues to hover between 3,000 and 7,000 megawatts [9]. The peak generating capacity was attained in September, 2017 reaching a whooping 7000 megawatts. In order to keep up with the population growth, this generation capacity of 7000 megawatts is plausible.

According to World Bank report [7], 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 [12]. The poor state of power supply in Nigeria was widely viewed as one of the major constraints to the nation’s economic growth [10]. 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 [22]. Today however, with funding from World Bank, Japan International Corporation Agency, the African Development Bank, proceeds from the sale of the National Integrated Power Project (NIPP), EXIM China and contractor-financed turnkey projects all making up funding for the power sector reform, this has helped with massive expansion of the electricity distribution networks in Nigeria [18].

Nigeria loses $25 billion (N75 trillion at the current exchange rate of N305 per dollar) yearly due to irregular electricity supply [7]. Besides, accumulated power sector cash deficits from January 2015 to September 2017 amounted to N931 million ($2.9 billion) [12]. This is the total amount underpaid by all the distribution companies (DISCO’s). A report from the Manufacturers Association of Nigeria (MAN) in 2016 show that member companies in the past years (2013 – 2015) spent N20.8 billion, monthly on power generation to run production process [9]. The ripple effects of power shortages and constant outages are numerous to the industries. This ranges from cut down in production, job loss to outright closure or relocation to other countries. 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 MAN members generate power privately and cut of dependence on the national grid [5]. The consequence of incurring high cost of power generation from the industries makes the nations industries less competitive [9]. A 2015 report on the Good Governance Initiative (GGI), say Nigerians spent N3.5 trillion on fuelling there generators annually and N2 trillion spent on running generators by over 17 million small and medium scale enterprises, banks, other corporate entities and traders across the country [7].

It can be inferred that an improved and stable power supply is vital to boost the growth of any economy. Many functions necessary to present day living comes to a halt when the supply of energy stops or fluctuates. The greater the per capital consumption of electric power in a country, the higher the standard of living of its people [21]. The survival of industrial undertakings and our social structures depends primarily upon low cost and uninterrupted power supply. There is therefore need for an improved and regular electric power supply in the country. This work aims to show that an improved power supply Nigeria is a panacea to her industrial/economic development.

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