22nd May, 2017
By Belije Madu
The creation story of old sets the scene in which the heavens and the earth were covered in darkness. Then there was light. Light was separated from darkness, because light was good. As the story goes, from the start, light was fundamental to the survival, growth and prosperity of man.
A significant thread that would most certainly unravel, isolate and lay bare Nigeria’s problems, jump start unparalleled economic growth and ultimately lead to overall development, peace and simultaneous progress in all geo-political zones of Nigeria, is constant and sustained electricity availability.
Achieving constant and sustainable electricity supply is one of the key elements required to actualise the peace and prosperity of the citizens of any nation. This is a fundamental requirement for advancement, security and progress of any country, including Nigeria.
Energy is vital for economic growth, as production is a function of capital, labour and energy. Energy is required to power industrial processes and to produce goods, equipment and services in a vast majority of productive sectors, within an economy. Insufficient, unreliable or costly access to electricity has remained a binding constraint to business in Nigeria. Over the past two decades, the limited growth of Nigeria’s electricity supply industry, combined with the high cost of diesel and petrol generation, has crippled the growth of the country’s productive and commercial industries. Additionally, it has stifled the creation of jobs in this sector, adding to the burden of unemployment in a large and rapidly growing population.
Residential, commercial, and industrial customers each account for the majority of the nation’s electricity use. The erratic and unpredictable nature of electricity supply has engendered a deep and bitter sense of frustration that is felt across the Nigeria and its urban centres. The Nigerian transportation sector currently does not use electricity for transportation, although this consumption could be introduced, as electric vehicles and trains are introduced.
A report by Overseas Development Institute (ODI), states that half of all businesses in sub-Saharan Africa report the lack of reliable electricity as a major constraint. “Power outages cost African countries an estimated 1-2 percent of their Gross Domestic Product (GDP) annually”. Energy’s key role in the economic growth process is highlighted by the positive correlation between energy use and economic growth. In all cases of sustainable development, studied by ODI, energy use is either the direct cause, or the facilitator of economic growth. It is estimated by the World Bank, that the total loss in GDP to Nigeria over the last 16 years, due to poor electricity supply, can be put at approximately N71 Trillion (US$470 Billion). The World Bank Group enterprise surveys, which examine a sample of an economy’s private sector, reveal that for data samples considered for 108 countries, access to electricity is the top constraint for businesses. Indeed, over 50 percent of the interviewed African businesses identify electricity provision as a major or severe constraint, while 45 percent and 38 percent of businesses identify access to finance and informality respectively, as their biggest constraint. Corruption and tax rates are also important concerns. Currently in Nigeria, electricity is a binding constraint for most sizes of businesses and commercial activities.
How would constant and sustainable electricity supply ultimately result in overall growth, peace and simultaneous progress in all geo-political zones of Nigeria? While being the common denominator for sustainable economic growth, improved electricity supply would simultaneously put money in the pockets of all Nigerians, since most Nigerians currently rely on self-generation that cost more than grid-supplied electricity, in terms of naira/kWhr.
A review of the World Bank Data on Electric power consumption (kWhr per capita), for Nigeria and China, between 1971 and 2015, indicates that the widening gap between China and Nigeria in terms of economic growth could be strongly correlated to the widening gap for electric power consumption. In 1971, China had an electric power consumption of 151.98kWhr per capita, while Nigeria had 28.49 kWhr per capita. Of note, is that by 2013 China had aggressively grown its electric power consumption to 3,762.08 kWhr per capita, while Nigeria had marginally increased to 141.87 kWhr per capita. Currently, the Chinese economy is ranked the second biggest economy in the world, in terms of GDP.
To quantify the effects of electricity on the potential economic growth of Nigeria and thus estimate the value of the money that will be put in the pocket of Nigerians, the economic contributions of a vibrant and growing electricity industry will need to be outlined. Sustainable electricity supply provided by a growing electricity industry will have a five-fold effect on the Nigerian economy, namely:
(i) Direct effect
(ii) Indirect effect
(iii) Induced effect
(iv) Second-order effect
(v) General effect.
These effects increase in funnel-like manner, from the direct effect, to the general effects.
The direct effect of providing constant and sustainable electricity, will be that Nigerians are assured of having sufficient supply of electricity to their homes and places of work. The ample supply of electricity would stimulate the creation of additional jobs. First, the increased jobs would be created via the construction and operation of power plants across Nigeria, as well as the construction of facilities needed to supply fuel to these power plants. In addition, the infrastructure required to evacuate electricity from the power plants and distribute the electricity to Nigerians, would also have to be developed. During the construction stage of these facilities, thousands of additional jobs would be needed. The total number of construction jobs created across the electricity value chain would be significant, although they are likely to be of a short-term nature (lasting between three and five years), which is the period required to construct electricity generation, transmission and distribution facilities. Additionally, gas gathering and supply facilities, power plants, transmission lines and distribution facilities would need to be operated and maintained post-construction, creating additional jobs. These jobs would be of a longer-term nature, and would be higher-skilled, though typically, will be fewer in number. Electricity generation from renewable energy sources would also entail the setting up of Photovoltaic solar module manufacturing and assembly plants. The direct jobs will be drawn from all parts of Nigeria for skilled jobs and mainly from communities hosting the power plants, for semi-skilled jobs.
The indirect effect will be that the provision of constant and sustainable electricity supply, will ensure the creation of indirect jobs within the Nigerian economy. These indirect jobs will be created by the suppliers of goods and services used in the construction and operation of power plants, transmission and distribution facilities. Typically, the construction of power plants will entail the supply of civil engineering materials, structural steel, power plant mechanical parts, electrical equipment, instrument and control materials. Also, the construction of transmission projects will entail the supply of structural steel, cables, civil engineering materials and transformers. In the case of thermal generation plants, this will include the suppliers of fuel, whether that is coal, oil, gas or biomass. Renewables projects typically create fewer indirect jobs.
The induced effect will be that the provision of constant and sustainable electricity supply will, in addition, have an Induced effect on the Nigerian economy; the induced effect will come in form of efficiency of services due to increased productivity and increased material demand, created by consumers spending their wages on local goods and services. As a result of the direct and indirect jobs created during the construction and operation phases, new consumers would be added to boost the economy.
The second-order effect will be that the provision of constant and sustainable electricity supply will create second-order economy-wide jobs and output arising from the use of the additional electricity supplied. Electricity generated by the additional power plants will have two effects; first, effects due to improved reliability of electricity and second, effects due to an increase in electricity supplied to the grid.
The general effect on the Nigerian economy with the provision of constant and sustainable electricity supply of energy will include improved human development. The quality of life for residential customers residing in single-family houses and multi-family housing would be improved exponentially. The biggest single uses of electricity for residential customers are air-conditioning, water heating, lighting, appliances and electronics. Electricity demand for residential customers tend to be highest on hot afternoons due to increased air conditioning use, followed by evenings, when lights are turned on.
The general effect will include the commercial sector in Nigeria, including government and private offices, service-providing facilities and equipment, and other public and private organisations. The biggest single uses of electricity in the commercial sector are lighting, refrigeration, cooking, ventilation, and air conditioning. Electricity demand in the commercial sector tends to be highest during operating business hours and increasing substantially during nights and weekends.
Additionally, the general effect will also include industrial customers, typically, facilities and equipment which use electricity for processing, producing, or assembling goods; including diverse industries, such as manufacturing, mining, agriculture, and construction would prosper with uninterrupted electricity supply. Overall, this sector uses more than a third of Nigeria’s electricity. Survey of manufacturing facilities, illustrates that more than half of the electricity used in manufacturing goes to powering various motors (machine drive). Other sizable uses include heating, cooling, and electro-chemical processes in which electricity is used to cause a chemical transformation (for example, the processes that produce aluminum metal and chlorine). Electricity use in the industrial sector tends not to fluctuate through the day or year as in the residential and commercial sectors, particularly for manufacturing facilities that operate around-the-clock.
When the combined effect of all these effects outlined above are felt, due to constant and sustainable electricity supply, the economic growth of Nigeria and overall quality of life of Nigerian residential, commercial, and industrial customers will be dramatically improved. It is expected that this improvement will usher-in an era of unparalleled economic growth and ultimately lead to overall development, peace and simultaneous progress in all geo-political zones of Nigeria.
I believe that part of the reason the then General Muhammadu Buhari was insistent on becoming the president of Nigeria, was the genuine desire to solve Nigeria’s economic problems. The government of President Muhammadu Buhari, can start the process of solving Nigeria’s problem, by first solving Nigeria’s electricity problem. We look forward to the day Nigeria’s electricity problem will be solved, so that our journey into sustainable economic prosperity can really commence.
Belije Madu is an Abuja-based electricity consultant.