The Impact Of Electricity Generation And Supply On Economic Growth

Project and Seminar Material for Accountancy / Accounting

The Impact Of Electricity Generation And Supply On Economic Growth

Chapter One

1.0 Introduction

With the collapse of the World Bank and International Monetary Fund policy’s 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. It 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). Our interest in this paper 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 supply 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 customers and a significant number of residential and other non-residential customers 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 operable of which about 1,500 megawatts is available to generate electricity. At 125 kWh per capita, electricity consumption in Nigeria is one of the lowest in the world (AfDB, 2009).

1.1 Background Of The Research

Energy is widely regarded as a propelling force behind any economic activity and indeed industrial production. Therefore, high grade energy resources will amplify the impact of technology and create tremendous economic growth. High grade resources can act as facilitator of technology while low grade resources can dampen the forcefulness of new technology. Ojinnaka (1998) argued that the consumption of energy tracks with the national product. Hence, the scale of energy consumption per capita is an important indicator of economic modernization. In general countries that have higher per capita energy consumption are more developed than those with low level of consumption.

The importance of energy lies in other aspect of development – increase in foreign earnings when energy products are exported, transfer of technology in the process of exploration, production and marketing; increase in employment in energy industries; improvement of workers welfare through increase in worker’s salary and wages, improvement in infrastructure and socio-economic activities in the process of energy resource exploitation. Thus in the quest for optimal development and efficient management of available energy resources, equitably allocationand efficient utilization can put the economy on the part of sustainable growth and development. Arising from this argument, adequate supply of energy thus becomes central to the radical transformation of the nation’s economy.

In Nigeria, energy serves as the pillar of wealth creation evident by being the nucleus of operations and engine of growth for all sectors of the economy. The output of the energy sector (electricity and the petroleum products) usually consolidate the activities of the other sectors which provide essential services to direct the production activities in agriculture, manufacturing, mining, commerce etc. Nigeria is endowed with abundant energy resources but suffers from perennial energy crisis which has defied solution. The co-existence of vast wealth in natural resources and extreme personal poverty referred to as the “resource curse” or ‘Dutch disease’ (Auty,1993) afflicts Nigeria. The size of the economy marked by the Gross National Income per capita is put at $1,190 and ranked 162 out of 213 countries in the world development index in 2009 (The World Bank, 2011). On economic growth, the GDP per capita of Nigeria expanded by 132 percent between independence in 1960 and 1969, and rose to a peak growth of 283 percent between 1970 and 1979. The severity of this malaise led to the restructuring of the economyin 1986. In the period 1988-1997 which constitutes the period of structural economic adjustment and liberalization, the GDP responded to economic adjustment policies and grew at a positive rate of 4 percent. In 2006, the real GDP growth rate was 7 percent. The economy when measured by the real GDP, grew by 7.87% in 2010. (National Bureau of Statistics-NBS, 2010 and Central Bank of Nigeria – CBN, 2010).

The average power per capita (in watts)in USA, Japan, South Africa, China, India and Nigeria were 1,363, 774, 496, 397, 85, and 12 respectively. These roughly correlate with the GDP per capita of the countries in 2008 (The World fact book, 2008). Ironically, while Nigerian energy resources, particularly oil, are exported to other countries; its people and economy suffer from severe shortages of the same product. This is manifested by the epileptic supply of electricity and perennial shortage of most petroleum products.

The survey of literature shows that most empirical studies focus on either testing the role of energy in stimulating economic growth or examining the direction of causality between these two variables. Although the positive role of energy infrastructure on economic growth has become a stylized fact, there are some methodological reservations about the results from these empirical studies. Some authors have used the autoregressive distributed lags bounds test, two-regime threshold co-integration models, panel data approach and multivariate models. A general observation from these studies is that the literature produced conflicting results and there is no consensus on the existence and direction of causality between energy consumption and economic growth. This paper focuses on the causality between GDP and total energy consumption on one part and each of the basic sub-components of energy consumption in Nigeria with a view to finding out if different sources of energy have varying impact on economic growth.

1.2 Statement Of Research Problem

The Nigerian government spend so much, spend high cost of money on the electricity generation and power supply in Nigeria, allocation made to it is relatively equal to the allocation of education which means that much money is put in to electricity. Therefore, this research work will explore, to find out if there is any significance importance to the growth of the economy of Nigeria.

The epileptic nature of electricity has led to scarcity of petrol and kerosene because the citizens have resulted to using generators and kerosene powered equipment to provide energy for use at homes. Also, import content of our domestic fuel usage has grown over the years to about 75% (International Energy Agency, 2012).This has resulted in the use and overdependence on fuel-wood which has led to deforestation and attendant degradation of the environment and worsening desertification (Babanyara& Saleh, 2010).

1.3 Objectives Of The Study

The objective of this research work thus is to investigate whether annual government huge expenditure on the power sector actually worth it by measuring the impact of power supply on key indice of growth in Nigeria. Consequently, the sequence of the research is clear. Following the introduction, section two contains brief review of related literature. In section three, the method of study is unveil. Whilst section four presents and analyses result of findings, section five concludes the research work with brief policy remark.

1.4 Scope Of The Study

This research work covers a limited area or concentration which is on the electricity generation and supply to the nation. This study access the economic growth as impacted by the power generated by the power supply– NNPA.

1.5 Research Question

The research questions will be tailored towards the purpose of the study such that if they are answered, one will clearly realize why model architecture is necessary in the management of staff promotion and remuneration. The questions are the following:

  1. What is the government expenditure on electricity generation per anume?
  2. What are the problems facing the electricity generation in Nigeria?
  3. What possible effects can be made to increase or boost the electricity supply off the country so as boost the country economy too?

1.6 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. this 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 researcher 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.

1.7 Definition Of Terms


Is the set of physical phenomena associated with the presence and flow of electric charge. Electricity gives a wide variety of well-known effects, such as lightning, static electricity, electromagnetic induction and electric current.

Economic Growth:

Is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.


The gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy.

The Impact Of Electricity Generation And Supply On Economic Growth

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