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THE IMPACT OF POWER GENERATION CAPACITY ON ECONOMIC GROWTH OF NIGERIA (1980 – 2015)
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THE IMPACT OF POWER GENERATION CAPACITY ON ECONOMIC GROWTH OF NIGERIA (1980 – 2015)
The Project File Details
The broad objective of the study is to determine empirically the impact of power generation capacity on economic growth in Nigeria between 1980 and 2015.The specific objective is to investigate if there is any significant relationship between power generation capacity and domestic growth in Nigeria within the study period. The method of data collection used in this project work is secondary data and the method of analysis used is ordinary least squares (OLS) In the model specified, real gross domestic product is a function of power generation, technology, and gross capital formation. The study used co-integration test, error correction mechanism for estimation of the specified model. The results of the estimation shows that there is long run positive relationship between PGW , GCF and TECH relationship with RGDP in the long run. The study therefore recommend that government must ensure transparency in the overall implementation of power sector policy and its attendance reform agenda in order to enhance growth of the economy in power generation capacity. Government should also increase its expenditure in the aspect of technology so as to foster economic growth.
1.1 Background of the Study
With the collapse of the World Bank and International Monetary Fund policy on Structural Adjustment Programme (SAP) in Africa, many questions have been raised by scholars on the factors impeding economic development in leading African nations including Nigeria (Jega, 2003). They argued that economic liberalization in other parts of the world have continued to yield anticipated results, increasing global trade and technological advancements such that by the end of the 21st century some emergent economies have appeared on the global capitalist markets. There is no gainsaying the fact that the likes of Indonesia, China, Japan and Malaysia are now making new waves in the global markets. While this thinking continues about global capitalist development, researches conducted by the United Nations and the World Bank has shown that Nigeria’s economic development is routinely constrained by some inherent cultural factors (NISER, 2000).
Although, Nigeria is rich in human and material resources, its economic and political developments have been fraught with crises since independence in 1960. Indices of the failure of the Nigerian state are today evident in the pervasive cases of hunger, inflation, budget deficits, debt overhang, street begging, prostitution, frauds, high crime rates in major cities, collapse of manufacturing industries, corruption in public service, stagnation in entrepreneurial development and epileptic power supply (Fadeyi and Adisa, 2012). In the face of these crises it becomes difficult for sustainable development to take place in the country (NISER, 2000 and UNDP, 2006). The interest of this research is not all the problems measured, but the huge expenditure injected annually into the power sector and its attendant impact on the Nigerian economy.
Nigeria’s power sector had operated for several decades as a state monopoly then called National Electric Power Authority (NEPA) until 2005. NEPA controls electricity generation, transmission and distribution facilities with all the profound problems inherent in public monopoly. This over centralization made it impossible for electricity generation to keep pace with the growth in population and economic activities. Nigeria has the biggest gap in the world between electricity demand and supply, providing its population of over 160 million with less than 4000 megawatts of electricity. In contrast, South Africa with a population of less than 50 million people generates more than 40,000 megawatts while Brazil, an emerging economy like Nigeria, generates over 100,000 megawatts for its 201 million citizens (FG, 2013). Indeed, the gap in the power sector has far reaching implications for improving the business climate, sustaining economic growth and the social wellbeing of Nigerians. About 45 percent of the population has access to electricity, with only about 30 percent of their demand for power being met. The power sector is plagued by recurrent outages to the extent that some 90 percent of industrial consumers and a significant number of residential and other non-residential consumers provide their own power at a huge cost to themselves and to the Nigerian economy. Installed capacity is 8,000 megawatts, but only 4,000 megawatts is obtainable of which about 1,500 megawatts is available to generate electricity. At 125 kWh per capita, electricity generation and consumption in Nigeria is one of the lowest in the world (AFDB, 2009).
Power generation is a basic necessity and one of the vital components of development delivery process to consumers. The other processes include; power transmission, power distribution, and power regulation. Power generation must be in tandem with population growth and productive capacity in order to derive meaningful economic growth. Nigeria as a developing country with urgent need for increase in power generation has initiated many power generation policies in the form of Power Sector Development in the past decades. PowerSector Development was one of the seven point agenda of President Yar’Dua in 2007. Also, the Presidential Task Force on Power (PTFP) was established by the President Goodluck Jonathan administration, in June 2010 to drive the implementation of the reform of Nigeria’s power sector. The task force was meant to bring together allthe agencies that have a role to play in removing legal regulatory obstacles to private sector investment in the power industry. Its mandate was also to monitor the planning and execution of various short-term projects in generation, transmission, distribution and fuel-to-power that are critical in meeting the stated service delivery targets of the power reform roadmap (Transformation Agenda,2011). The terms of reference of Power Transformation Project (PTP) included close collaboration with various ministries and agencies that have specific contributions to the reform process, these includes the Federal Ministry of Power, the Federal Ministry of Finance, the Bureau of public Enterprises (BPE), the Nigerian Electricity Regulatory Agency (NERC), the Nigerian National Petroleum Corporation (NNPC), the Bureau of Public Procurement, National Gas Company Limited (NGC) and the Power Holding Company of Nigeria (PHCN).
The Nigerian government has also spent huge sums of money to increase power generation since returning to democratic governance in 1999. According to the Daily Trust Editorial on 30thDecember 2014, the electricity sector gulped nearly 4 trillion ($26 billion) since the beginning of the power reforms in 1999. Reiterating the importance of the power sector, former President Goodluck Jonathan, in his inauguration address in 2011, introduced Transformation Agenda (TA) policy of his regime in which the power sector was one of the key components. According to Dr. ShamSuddeenUsman, the former economic planning minister under Jonathan Administration, Transformation Agenda (TA) was a blueprint of the key policies, programmes and projects to be implemented by Federal Government from 2011 to 2015. Usman stated further that the agenda aimed at consolidating the achievements of previous administrations with strong emphasis on infrastructural development.
The power sector roadmap is an integral part of Infrastructural Master Plan (IMP) launched by former President Goodluck Jonathan in 2013, which preceded the Transformation Agenda’s Mid-term Report. According to the policy statement of report, Nigeria was to invest heavily in transport, road construction, power, ICT and water resources in which the power sector had the largest of the expected investments. The report outlined the proposed investment, distribution and alternative energy. The government’s strategy, according to the report was to unbundle the sector through creating a deregulated and competitive electricity market.The unbundling of power has been a continuation of policy framework of subsequent governments in Nigeria towards power sector reforms. Unbundling of the power sector was thought as a strategic policy that somewhat would drive Nigeria’s aspiration to become a major industrial developed nation of the world. The Transformation Agenda (TA) report posited that the reform plan of former President Goodluck Jonathan was to resuscitate and deregulate the sector by investing $3.5 billion annually with the hope of moving the generation capacity from 4,000 MW in 2011 to 20,000 MWby the year 2020. The former minister of power Prof. Chinedu Nebo said that Nigeria was capable of generating 16,000 before the end of 2014, adding that the service companies – generation, transmission and distribution networks were to ensure that all rural areas not connected to national grid were connected even to renewable sources of electricity. Reiterating the investment opportunity in Nigeria, the former Minister viewed Nigeria as a very strategic country to invest in power sector. He asserted that by investing in Nigeria’s power sector, investors can capitalize on growth opportunities in the Nigerian electricity market where demand far outstrips current supply and the potential for strong economic growth is high. Since Nigeria is the largest market in Economic of West African State (ECOWAS) region, investors can use Nigeria to establish a strong presence in West Africa and also as a platform for acquiring further assets in the region. More importantly, in his view, investors can benefit from a Multi Year Tariff Order (MYTO) which brings certainty to the tariffs. In power regulation MYTO is designed to be a cost reflective tariff that accounts for operating cost and capital recovery, incentivizing efficient operations, based on best new entrant capabilities and technology.
Unfortunately, by the end of 2014, the government policy target on power generation capability was not met despite the huge amount already invested in the sector. The effectiveness and efficiency of the policy and investment in increasing the power generation in Nigeria is very much questionable. Referring on the success of power reform in Nigeria, Dr Sam Amadi, the former Chairman of National Electricity Regulatory Commission, stated in 2014 that for 13 years Nigeria has embarked on power sector reforms. According to him, it is arguable whether the reform has been greater success or partial success. He believes that the basic assumption behind the power sector reform in Nigeria was government ownership of electricity assets, which serves as a major cause of the collapse of the industry in the late 1980s. Amadi made passionate appeal for the unbundling, privatization of the sector and enlisted seven critical disciplines for a successful power sector reform in Nigeria through the discipline of maintaining the independence of the regulator, discipline of right pricing, discipline of transparent procurement, the discipline of smart project management, the discipline of accountable public sector investment, the discipline of consistent and intelligent policymaking and the discipline of public participation. Many experts have criticized the power policy reform and investment effectiveness given the increasing power deficiency in Nigeria. In essence, power deficiency has been identified as a major obstacle to Nigeria’s economic growth.
This study will look at the relationship between power generation and economic growth in Nigeria, using gross capital formation, and unemployment as control variables.
1.2 Statement of Research Problem
The real situation of power generation deficiency in Nigeria is unimaginable. The Federal government has initiated many policies, projects and programs to tackle energy problems in Nigeria for decades. However, the problems of power generation deficiency persisted given that the capability is not meeting up to Nigeria’s population growth rate and national economic aspiration. Power distribution, transmission and regulation are still issues to the nation. Depicting power deficiency in Nigeria, about 70 of rural communities do not have access to electricity in Nigeria, contributing to low rate of local economic development and increase to rural – urban migration (Abba, 2014). In essence, power generation deficiency somewhat hampers industrial development, the growth of small and micro entrepreneurs, energy penetration to rural communities and to national economic growth. Even though Nigeria has potentials in energy development, the current situation of low power generation capacity depicts that the country is not well-prepared to benefit from the projected increases in power generation from coal, gas-powered and renewable sources. There have been many policy statements regarding Nigeria’s willingness to increase power generation but the available generation capacity is not meeting up to the population growth. It is also retarding manufacturing capacity and the growth rate of gross domestic product (GDP), resulting in increased unemployment.
Nigeria’s economic growth goal would remain a mirage unless the country explores ways to increase power generation that is commensurate with its population and market size as the largest economy in Africa. For instance available data, the country has not developed a comprehensive policy in renewable energy technologies which experts agrees is best suited for the electrification of remote areas and provide ample opportunities for communities and private sector involvement and subsequently foster local economic development. Moreso, Nigeria has not harnessed the full potentials of energy mix and new energy technologies such as coal and natural gas-fired electricity generation. International Energy Agency (IEA) projected that coal will dominate the power sector, with nearly 50 percent of the total power generation by 2050. According to IEA (2008), gas will come as second source with 23 percent projection. Other sources identified by IEA are nuclear and renewable, such as wind, hydropower and solar which will take bulk decreases from the fossil fuel share of power generation.
Depicting power deficiency in Nigeria, it is estimated that about 70% of rural communities do not have access to electricity in Nigeria, contributing to low rate of local economic development and increase to rural – urban migration (Abba, 2014). In essence, power generation deficiency somewhat hampers industrial development, the growth of small and micro entrepreneurs, energy penetration to rural communities and to national economic growth. Even though Nigeria has potentials in energy development, the current situation of low power generation capacity depicts that the country is not well-prepared to benefit from the projected increases in power generation from coal, gas-powered and renewable sources. There have been many policy statements regarding Nigeria’s willingness to increase power generation but the available generation capacity is not meeting up to the population growth. It is also retarding manufacturing capacity and the growth rate of gross domestic product (GDP), resulting in increase in unemployment.
1.3 Research Questions
In view of the stated problems above, this study seeks to provide answers to the following;
1.4 Objectives of the Study
The broad objectives of this study is to determine empirically the impact of power generation on economic growth in Nigeria.
Specifically, the research tends to;
1.5Hypothesis of the Study
This study will test the following hypothesis;
Ho: There is no significant relationship existing between power generation capacity and the Nigerian economic growth within the period under review.
1.6 Significance of the Study
The following are the significance of this study;
1.7 Scope and Limitation of the Study
During the course of performing/researching this project work, the researcher encountered a lot of challenges as well as opposition which ranges from financial constraints, time factor. These factors in their own ways, slowed down the speedy progress of this work that resulted to the researcher not being able to finish the research work on time as is required.
Also, within the area of study the researcher was faced with some other forms of constrains that contributed to the limitation of this research work, like accessibility to data, information and facts concerning the present study due to some reasons or the other, some not willing to give out information that it is to be within the workers.