Solve Electricity and You Will Solve Nigeria’s Economy

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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, security, and
simultaneous progress in all geo-political zones of Nigeria, is
constant and sustained electricity availability.
Energy is vital for economic growth, as production is a function of
capital, labor 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 businesses 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 account for 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 Nigeria. The Nigerian transportation
sector currently does not use electricity for transportation, though
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 lack of reliable
electricity is a major constraint. “Power outages cost African
countries an estimated 1-2 per cent 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).
World Bank Group enterprise surveys, which survey 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% of the interviewed African businesses
identify electricity provision as a major or severe constraint, while
45% and 38% 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 2nd 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,
direct effect, indirect effect, induced effect, second-order effect,
and 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,
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, though 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. While
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. Renewable 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; firstly, effects due to improved reliability of
electricity and secondly, 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 tends 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 organizations. 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 President Muhammadu Buhari, was
insistent on becoming the President of Nigeria, was 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