THE NEXUS BETWEEN THE NIGERIAN ELECTRICITY INDUSTRY AND ECONOMIC GROWTH: THE ROLE OF THE NATIONAL GAS POLICY

Abstract

The study evaluates the nexus between the Nigerian electricity industry and economic growth: case of national gas policy for the period of 1986 to 2021. Secondary time-series data were analyzed using co-integration and ordinary least square techniques. Co-integration results show a long run relationship among the variables. The result shows that in the long run, total energy consumption had a similar movement with economic growth except for coal consumption. The empirical results reveal that petroleum, electricity and the aggregate energy consumption have significant and positive relationship with economic growth in Nigeria. However, gas consumption although positive, does not significantly affect economic growth. The impact of coal was negative but significant; therefore this is just the time to increase the use this resource to the nation’s benefit. Therefore, the study recommends that government should encourage a level- playing field for all energy forms available in the country by diversifying its power-generation portfolio. Also, the government should continue to collaborate with the private sector within the context of public-private- partnership (PPP) to further exploit the opportunities in the sector in order to increase economic growth

Chapter one

Introduction

1.1Background of the study

There is a universal consensus on the essential role electricity plays in modern life, bringing in economic benefits and developmental progress to various sectors such as transportation, manufacturing, communication, agricultural, as well as the mining sectors. Such benefits accrue in terms of: production and productivity, human development such as life expectancy, knowledge and decent standard of living. Electricity makes it possible to achieve the full potentials of any society and makes life worthwhile in a modern society. Electric power is vital for economic growth and quality of life not only because it fosters the productivity of capital, labour and other factors of production, but also that increased consumption of energy, particularly commercial energy like electricity signifies high economic status of a country (Jumbe, 2004). These facts have interested authors to investigate the role electricity plays in economic growth and development in different countries; starting with the pioneer work of Kraft and Kraft (1978).

Nigeria is blessed with various energy resources. With an estimated oil reserve of about 36.2 billion barrels, the country has the Africa largest crude oil reserve and the sixth largest in the world. Proven gas reserves are close to 5,000 billion cubic meters, while coal and lignite reserves are estimated to be 2.7 billion tons. Furthermore, the country’s hydroelectricity sites have an estimated capacity of about 14,250 MW. Despite Nigeria’s endowment in energy resources, there has been a wide disparity in the country’s energy demand to the supply over the last two decades, access to energy services has been continuously challenging. The inability to realize the necessary efficiency in the energy sector has meant a continuous fall in the supply of energy and an inability to meet growing energy needs. This problem affects the growth of the two energy markets, that is, petroleum and electricity

Concerning the crises in the electricity market, the Power Holding Company of Nigeria (PHCN) and associated government agencies have failed in providing sufficient and reliable electricity supply to various sectors of the economy. The household sector is most affected, with the majority of the people using more of unconventional alternative energies such as wood fuel, charcoal, and so on, all of which create environmental hazards. Also, other sectors such as industrial, manufacturing, service and so on invest heavily in generation facilities to complement the unreliable power supplies from the national grid, affecting profitability, return on investment and productivity. The other energy crises the country is battling within the petroleum sector includes the chronic severe shortages in the supply of petroleum (PMS, diesel, and kerosene) products over the years, which is caused mainly by the failing refineries, corruption and geopolitical conflicts in the Niger Delta area.

This issue indeed has adverse effects on the country’s economy and may have contributed mainly to the high level of poverty, paralysing industrial and commercial activities. The relationship between energy consumption and economic growth is complex, inconclusive, and has heated much debate in research. Previous studies have shown that energy consumption has a positive relationship with economic growth. However, when testing whether cause and effect could be implied, no causal relationship has been found between energy consumption and growth in Nigeria. It is in light of the distinction between studies on the long-run relationship and those on causality that this study chooses to examine the datasets on energy consumption and economic growth for both type relationships at once.

Statement of the problem

Unfortunately, but true, Nigeria does not only have a problem with the electricity sector but the problem appears to be defining all possible solutions. This is despite our national endowment in terms of: gas, water, wind, solar, etc. The historic gap between the demand for electricity and the available capacity has led to the current widespread power shortage and inefficiency and, consequently, self-generation of power by both industrial and residential consumers. The Manufacturers Association of Nigeria (MAN), and the National Association of Small Scale Industries (NASSI), have estimated that their members spend an average of about N2billion (about $12 million) per week on self-power generation (Vanguard Newspaper 4 March, 2013). To this end, the Nigerian power sector presents immense opportunities for private investment in the electricity power sector; if the country is to achieve the goal of becoming one of the twenty most industrialized economies, as well as improving the standard of living of the people. This is borne from the fact that a nexus exists between electricity, economic growth and national development. Hence, in producing and distributing efficient and affordable electricity for the growth of the national economy, it must be done in a responsible and sustainable manner, i.e. a manner that not only meets the needs of the present but also guarantees the future generations to meet their needs.

Objective of the study

The objectives of the study are;

1. To ascertain the contribution of electricity industry to Nigeria GDP
2. To ascertain the impact of electricity industry on energy consumption
3. To find out the role of the National Gas Policy on electricity industry

Research hypotheses

The following research hypotheses were formulated;

H0: there is no contribution of electricity industry to Nigeria GDP

H1: there is contribution of electricity industry to Nigeria GDP

H0: there is no impact of electricity industry on energy consumption

H2: there is impact of electricity industry on energy consumption

H0: there is no role of the National Gas Policy on electricity industry

H3: there is role of the National Gas Policy on electricity industry

Significance of the study

The study will be very significant to students and Nigeria government. The study will give a clear insight on the nexus between the Nigerian electricity industry and economic growth: The role of the national gas policy. The National Gas Policy commits to ending gas flaring, creating an enabling environment for investors, seeking value addition for gas, and improving governance in the sector. The Federal Government of Nigeria will work to grant open access to all pipelines and other essential midstream infrastructure. The study will also serve as a reference to other researcher that will embark on the related topic

Scope of the study

The scope of the study covers the nexus between the Nigerian electricity industry and economic growth: the role of the national gas policy. The data information in this study will be collected from CBN

Limitation of the study

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

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