Feb 26, 2019 | 12:38 pm | 29
1.1 Background to the Study
It is imperative to note that stable power supply is a necessary condition for development of any economy be it developing or developed countries of the world. There are apparently links between a sustained economic growth and electricity in any economy. Nigeria with her very high population of over 150 million is facing formidable economic, social, industrial, and human development challenges coupled with poor power supply to sustain the real sector of the economy (Uzochukwu, 2012). Due to all these challenges, the country is seen as one of the poorest countries in the world despite the huge resources from crude oil export (Morimoto and Hope 2001). As at the end of 2009, Nigeria has installed electricity capacity of about 6000 MW with only a maximum of about 4,000 MW available, this is made up of a mix of 36% hydro and 64% thermal Uzochukwu and Uche (2012). The Energy Commission of Nigeria (2010), noted that the Federal Government was investing heavily in expanding the generation capacity and had encouraged investments in power production through joint ventures, to make the total installed capacity to be not less than 15,000 MW by 2010.
Despite the investment in the power sector according to ECN and UNDP (2011), 70% of the Nigerian population still lives below $1, while about 91% of the population lives below $2 per day. It has been observed that the citizens of many poor nations of the world have less access to electricity, and the richer countries have more access to electricity and consume far more electricity than the poor countries. This suggests that access to electricity is the driving force for a sustained economic growth of a nation. In real terms, access to electricity is directly proportional to good living standards and that is why Timothy (2005), stated that about 2 billion people globally live without access to modern energy services. The study further noted that, these numbers of people were concentrated mainly in rural and urban areas in developing countries in Africa and Asia. Etiosa (2007) also opined that stable power supply is central to all human activities and it is needed to support development.
It is important to note that despite the abundance of natural gas and renewable energy resources in the country, Nigeria is still bedevilled withepileptic power supply. Some communities do not have access to this basic social infrastructure; those that have it cannot rely on the very poor supply from the Power Holding Company of Nigeria (PHCN). This contributed to adverse impacts on industrialization in the country. The production and provision of stable power supply from renewable energy sources is the new global focus with massive advocacy for increased investment in the Research and development of renewable energy technologies, infact it has been observed that the collapsing nature of industries are due to lack of accessible stable power electricity, and due to lack of accessible electricity, and the overall result of this, is the loss of jobs in the industries and the impoverishment of many (Mark and Tonye, 2009).
In fact, PHCN (2009), stressed that, the gap in the power sector has far reaching implications for improving the business, sustaining economic growth and the social wellbeing of Nigerians. The study revealed that 45% of the population have access to electricity, with only about 30% of their demand for power supply being met. The study further reported that, the power sector was plagued by recurrent outages to the extent that some 90% of industrial customers and a significant number of residential and other non-residential customers provide their power at a huge cost to themselves. Without doubt the epileptic nature of electricity supply in the nation has been a bane to development. Due to the lack of electricity, most businesses have had to rely on generators which are very expensive to run. This has forced many companies to close shop or relocate because they can no longer remain competitive. In recognition of the importance of electricity on industrial production for economic growth in Nigeria, this study would examine the role of stable electricity supply as a drive for economic growth and development in Nigeria.
Economic growth is a prerequisite for a nation to move from a third world country to a developed country. For a developing country like Nigeria, the greater the economic growth the better her chances of becoming a developed economy. With adequate and efficient utilization of energy potentials to meet the demand of a nation, the nation would experience high levels of economic growth.
There is need for regular power supply in the country since it is a leading factor towards achieving economic growth. Energy efficiency does not just connote a reduction in utility cost but it involves increasing revenue through greater productivity. Constant power supply as well as the provision of other infrastructural facilities usually facilitates the industrial development of any economy. In Nigeria, the near absence of these facilities affected most industries negatively. According to Adeyemi (2007) the state of the manufacturing industries in Nigeria at the end of Obasanjo’s administration on May 29, 2007 can be classified as follows: 30 percent have closed down, 60 percent ailing and 10 percent operating at sustainable level.
Irregular powers supply is one of the greatest challenges facing the industrial sector in Nigeria (Offiong 2001; National Planning Commission, 2004). According to Manufacturing Association of Nigeria (MAN, 2005), only 10 percent of industries operated. Besides this 10 percent could not function optimally but at 48.8 percent of their respective installed capacities. According to the survey, 60 percent of the companies were in comatose while another 30 percent had completely closed down.
As a result inadequate power supply and other related factors, industrial sector contribution to the Gross Domestic Product (GDP) has continued to drop since 1990 from 8.2 per cent, to 4.7 percent in 2003; 4.06 percent in 2004 and 4.2 per cent.in2005, the lowest figure since the country got independence in 1960 (Ajanaku 2007).
With the poor power supply situation, almost all the manufacturing companies in operation in Nigeria run their business with private power plant, at great cost. This is evident with the amount of energy spent on the importation of generators into Nigeria. Buttressing this, African Review of Business and Technology (2006) revealed that Nigeria topped the list of generator-importing countries for the fourth year in a row, having surpassed others since 2002. According to the report, Nigeria accounted for 35 per cent or $152 million of the total $432.2 million spent by African countries on generator imports in 2005.
Against the backdrop of the epileptic power supply and the desire of the companies to remain in the business, some multinational companies have devised other alternative sources of power generation. In the recent times quite a number of multinational companies operating in Nigeria generate own power through Independent Power Project (IPP) (Udeajah 2006). However, even with this situation it is on record that some of these companies have continued to post impressive profits and meeting the obligations of their shareholders. But such performance is a reflection of the fact that more and more of production costs are shifted to the final consumers most of whose income have declined steadily as a result of inflation generated by government’s tough economic policies. This has the tendency to reduce consumers’ effective demand and may force some companies to close shop or even relocate to a more investment friendly environment on the long run as recently demonstrated in the case of Michelin (Ogunjobi 2007). It is in the light of all the above that this study is carried out to examine the effect of electricity supply on economic growth in Nigeria.
1.2. Statement of the Problem
Regular power supply is the prime mover of technological and social development of an economy. There is hardly any enterprise or indeed any aspect of human development that does not require electricity in one form or the other such as electric power, fuels etc. Nigeria is richly endowed with various electricity sources, such as crude oil, natural gas, coal, hydropower, solar electricity, fissionable materials for nuclear electricity etc. Despite this, the country consistently suffers from electricity shortage which has a major impediment to industrial and technological growth.
The then National Electric Power Authority (NEPA), a government parastatal, has the sole responsibility for managing the generating plants as well as distribution of power nationally. The poor performance of the parastatals led to the deregulation of the sector to Power Holding Company of Nigeria. Even after deregulation, there has been perennial shortage. This situation is made worse by a grossly inefficient, poorly maintained distribution system. Industry can only cope with power outages by resorting to use of their own generating plants. However, unsteady power supply creates serious problems for manufacturing and industrial sectors. Equipment are often damaged by power surges that usually accompany epileptic power supply also goods at various stages of manufacturing are equally damaged. It is in view of the above that the study is carried out to examine the effect of electricity supply on economic growth in Nigeria.
1.3. Research Questions
The following research questions were raised and answered in the course of this study.
i. What is the trend of electric power supply in Nigeria over the years?
ii. What are the effects of stable power supply on economic growth in Nigeria?
iii. What is the effect of power supply on investment?
1.4. Objectives of the Study
The broad objective of this study was to examine the effect of electricity supply on economic growth in Nigeria. The specific objectives were:
i. To examine the trend of electric power supply in Nigeria over the years.
ii. To identify the effect of stable power supply on the economic growth in Nigeria.
iii. To examine the effect of power supply on investment.
1.5. Research Hypotheses
The following hypotheses were formulated to guide the study:
Ho: Electricity power supply has no significant relationship with economic
H1: Electricity power supply has significant relationship with economic growth in Nigeria
Ho: Stable el power supply has no significant effect on economic growth
in Nigeria relationship
H1: Stable electricity power supply has significant effect on economic grow
growth in Nigeria
Ho: Electricity Power supply has no significant relationship with investment
H1: Electricity power supply has a significant relationship with investment
1.6. Significance of the Study
The study examined the effect of electricity power supply on Economic Growth in Nigeria. It will add to existing literature on the subject matter which will be useful to future researcher. In addition it will provide policy recommendations to policy makers on ways to improve operations and activities of electricity supply and a stable electricity tariff that will favour consumers towards achieving the desired level of economic growth in Nigeria.
1.7. Scope and Limitation of the Study
This study focuses on the effect of electricity power supply on the economic growth of Nigeria from 1986-2017. The study would cover the performance of the electricity sector in Nigeria within this period, and the relationship between stable power supply and economic growth. The scope of the study was limited to economic growth, it is hoped that the exploration of this segment will provide a broad view of the impact of power supply on economic growth.
Some of the limitation, of the study are as follows;
Time constraint: Limited time within which this research work must be completed.
Financial constraints: Inadequate finance to facilitate mobilisation to the various institutions where data can be sufficiently gathered.
The lack of co-operation and unwillingness of institutions such as National Bureau of Statistics (NBS) to provide accurate and relevant data
1.8 Organisation of the Study
This work was structured into five broad chapters. Chapter one is introduction, It comprises of the Background to the study, Statement of problems, Research Questions, Objectives of the study, Research Hypothesis, Significanceof the study, Scope and limitations of the study as well as Organisation of the study. Chapter two is the literature review which include the conceptual review, theoretical reviewand the empirical review, literature gap and theoretical framework. Chapter three deals with the research methodology which centres mainly on the research design, sources of data, model specification, and the estimation techniques. Furthermore, chapter four deals with the data presentation and analysis of results based on the test of the economic criteria, statistical criteria as well as econometric criteria. Finally, chapter five deals with the summary of major findings, conclusion and recommendations.