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ANALYSIS OF NATIONAL INCOME AND POWER GENERATION IN NIGERIA




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ANALYSIS OF NATIONAL INCOME AND POWER GENERATION IN NIGERIA


ABSTRACT
Electricity Consumption goes hand in hand with industrial production and increase in per capital income of any nation’s economy.
It is noted in Nigeria that effort has been made by various government to boost the supply of electricity to suit the fast breeding population but the supply of electricity is not proportionate to the demand of it. Therefore this research is conducted to examine the level of national income and power generation in Nigeria from 1970 to 2007 under review. The ordinary least square (OLS) regression method was employed to estimate our model. Thus, the national income was used as our dependent variables, while power generation was used as the independent variable. Hence, the study found as positive and highly significant relationship between power generation and national income. Thus, the study concludes that power generation plays a vital role in determining the level of national income of Nigeria. Therefore, the study recommends that policies aimed at increasing a stable and efficient amount of electrical power should be vigorously pursued.


TABLE OF CONTENTS
Title page                                                                         i
Certification                                                                     ii
Dedication                                                                       iii
Acknowledgment                                                             iv
Abstract                                                                           v
Table of contents                                                             vi

CHAPTER ONE: INTRODUCTION
1.1   Background of study                                                        1
1.2   Statement of problem                                              7
1.3   Objectives of study                                                   10
1.4   Research hypothesis                                                        10
1.5   Scope of the study                                                   11
1.6   Significance of the study                                          11
1.7   Limitation of the study                                             12
1.8   Organization of the study                                         12
1.9   Definition of terms                                                   13

CHAPTER TWO: LITERATURE REVIEW AND THEORETICAL FRAMEWORK
2.0   Introduction                                                             16
2.1   Rostow stages of economic growth                             18
2.2   The great spurt theory                                               19
2.3   Critical minimum effort thesis                                   20
2.4   The big-push theory                                                  21
2.5   Theory of balance growth                                                   23
2.6   The concept of unbalance growth                              24
2.7   Harold and Domar Model of economic growth                   26
2.8   The concept capital formation in economic
        development                                                              28
2.9   Keynesian analysis of fiscal policy                             29
2.10 The concept of deficit financing                                 30
2.11 The role of the state in economic development                   32
2.12         Empirical literature review                                          33
2.13.1 Sources of electricity                                                48
2.14 State of electricity in Nigeria                                       53

CHAPTE THREE: METHOD OF STUDY
3.0   Introduction                                                             58
3.1   Research design                                                       58
3.2   Sources of data                                                                58
3.3   Model specification and analysis                             58
3.4   Estimation procedure                                              60
3.5   Evaluation technique                                               61

CHAPTER FOUR
NATIONAL INCOME AND POWER GENERATION IN NIGERIA
4.1   Introduction                                                             62
4.2   Data presentation and analysis                                       62
4.3   Empirical regression result                                      64
4.4   Analysis of regression result                                    64
4.5   Policy implications                                                   68

CHAPTER FIVE
SUMMARY, RECOMMENDATIONS AND CONCLUSION
5.1   Summary of major findings                                     70
5.2   Conclusion                                                              71
5.3   Recommendations                                                   72
        References                                                               73
        Appendix                                                                 78



CHAPTER ONE
INTRODUCTION
1.1   BACKGROUND OF THE STUDY
        Power generation which is also known as electricity supply is most often generated at a power station by electro-mechanical generators that are primarily generated by heat engines or fueled by chemical combustion or unclear fission and also by other means such as kinetic energy of flowing water and wind. There are many other power generating technologies that are used to generate electrical energy such as solar, biomass, thermoelectric devices, wind vain and various others. In an economy like United State, 50% of her power generations is produced from coal while Nigeria basically generates her power from hydroelectric energy and gas turbines, in fact about 90% of gas produced currently are used in generating electricity.
        Power generation is an important propeller to national income growth. In this sense, power generation refers to the process of converting non electrical energy to electricity, particularly for the production of goods and services and the expansion of the living standard of the people. Electricity is a major determinant of national income growth which implies that an increase in gross national income is a function of an increasing power generations (Moro 1995: 59). There is a strong and persistent relationship between electricity used and gross nation product. Basically power generation affect the level of national income by increasing productivity, employment level, consumption level, urban socialization, and to an extent prices and other economic activities, hence, economic growth and national development (Douglas, 2006: 101).
        Sustainable power generation has become a strong area of focus to increasing national income in Nigeria. This includes managing the demand and supply of power since national income growth and the performance of the economy are embedded in the amount of electricity a nation can produce. The demand or consumption of electricity has increased over the past four decades. Its consumers could be grouped into three areas; the industrial consumers the commercial consumers and domestic consumers. Electricity influences performers in utilities, manufacturing, wholesale and retail trade, mining and constructions, warehousing, information and transportations, finance and insurance, leasing, Real estates and rentals, professions, Scientific and technical services, management of companies and enterprises, supports, waste management Remediation service, Education services, Helath care and social assistance, art, Entertainment and Recreation, Accommodation and food Services and many other areas except primary production areas of agriculture, forestry, fishing and hunting. As economic activities grow, electricity generation and consumption are expected to continue to increase (Douglas, 2006).
        Due to the positive relationships between electricity and gross national output or product, it is expected that close attention be paid to the adequacy of electricity supply to sustain a high future rate of economic growth. The adequacy of electricity supplies can be maintained not only through new generation facilities but also through efficient improvements that uses existing generating capacity better (Bart, 2008:2).
        Sustainable electricity supply is indeed the greatest challenge of Nigeria’s development. It has been noted that the cost of providing independent power (through generators) constitutes an average of 30% or more of the total cost of production in Nigeria.
        Considering the situation on how Nigeria fits-in electricity availability calculation in comparison to other parts of the world. In Africa, the total installed capacity of electricity on the continent is 103,000megwatts (MW). This represents less than 5% of the world’s installed capacity in spite of Africa being the second largest continent in the world with a population that is close to 20% of the world’s population. Even more remarkable is that, much of this electricity is in South Africa and North Africa; therefore the sub-Saharan Africa is left in darkness at night with extremely poor electricity availability and even poorer accessibility by the rural and urban poor. The United States with a population of 300 million has over 900,000 MW. The United Kingdom with a population of 60 million has installed capacity of 77,000MW. Brazil with a population of 180 million has installed capacity of 90,000MW. Germany with a population of 83 million has installed capacity of 115,000MW. Thailand which has a population of 70 million has installed capacity of over 40,000 MW even thought it was at the same generation capacity as Nigeria in early 60s. (Bart 2008:3).
        Many other countries who were at relatively the same level as Nigeria in the 1960s and early 70s have found themselves at 10 times more than Nigerian installed capacity today. In Africa, South Africa with a population of 45 million people has installed capacity of over 46,000 MW. Even Ghana with a population of 21 million has installed capacity of 1800MW. But Nigeria with a population of 150 million can only boast of installed capacity of 4,000MW. This is an extra ordinary poor and embarrassing figure. More startling gap would be seen if we find the per capital power capital measured in watts/persons. For the U.S.A. it is about 2900 watts/persons. South Africa is 105 watts/person; Brazil is 480; India is 110; even Ghana is 85 watts/persons. But Nigeria is 29 watts/person, not even enough to light a bulb how much more to power an industrial machine (Bart, 2008). How then will the country’s gross national income be improved when no light means on life.
        Adequate power supply will courage industrialization, it is clear then that all the country’s noted above are either industrialized or emerging industrialized nations, largely because their electricity production has kept pace with their economic growth needs.
        Electricity consumption goes hand in hand with industrial production and increase in per capital income. In general, the greater the level of electricity consumption, the higher the gross national product thus the correlation between these two point to a basic conflict between societies. Conuntries that can afford to consume great amount of electrical energy continue to expand and increase their living standard whiles those without greater access to electricity energy declines in national output, this create a gap between their economic prospects. Bell-Gam, Arokoyu and Umeuduji (2004:84) stated that power generations still stand-out as a principal driver of development mark by corresponding growth in national income (Y).
        The trend of electricity struggles in Nigeria was 335.9 megawatt per hour (MWh) in 1981; it increase respectively to 898.5 MWh in 1990. Then, 1,017.3 MWh in 2000 and 1,873.1 MWh in 2006. Currently, it is said to be between 4,000 and 4,200 MW with the population of about 150 Million people (CBN, 2006).
        Policies have also been formulated in Nigeria in order to increase power generation. One of such is the National Economic Empowerment and Development strategy (NEEDS) which proposed to increase electricity generation from 4,000 MW to 10,000 MW as at 2010 by exploring alternative energy sources such as coal, solar, power wind power, and hydropower and also to include power sector in participation. However this policy when effectively implemented may increase the percentage contribution of hydroelectricity supply, will extend electricity to rural areas and encourage private investment in the power sector hence increase in national income of Nigeria.
        Finally, this study is an empirical analysis of National Income and Power generation in Nigeria, it cover the period from 1970-2007.

1.2   STATEMENT OF THE PROBLEM
        Despite Nigeria’s endowment in National resources; Renewable and non-renewable such as sun, wind running waters, waves, tide, geothermal energy, fossil fuel, nuclear fuel and variety of nonfuel mineral both metallic and non-metallic.
        There are present shortfalls in power generation and suppy as compared to United State, China, Japan, Russia and even South-Africa, which generates a higher quantity and quality electricity using some of the mentioned sources.
        Over decades Nigeria has been contending adversely with poor electricity generating capabilities. The real GDP of a country are the people’s economic activities. In the world today, the economic performances of any country are calculated in GDP and are basically influence by electricity. Electricity worldwide is the bedrock of every nations economic growth and development, it influences production activities, employment and prices of goods and services. Therefore absent of this vital variable, productions will be delayed, investment may be discourage, structural transformation  may be perturbed and economic resources not  fully employed, which will further lead to closure of many business and stunt the desired growth rate of a nations.
        The country inability of harness her bountiful energy resources into power production weakness her technological capabilities. It is technology capability that distinguishes a strong economy from a weak economy and strong country from a weak country Kalu (2001:63). This then means that the supply of electricity in excess can stimulate advancement in technological industrialization and alleviate technical reliance to a great extent. Electricity incorporates, reflects and perpetuates the value of developing industries tending towards an increase in National income.
        Due to the inconsistencies post by the Nation’s electricity supply to business and comfort, many people have resorted to having “small” generators which produces tremendous decibels of noise as well as the highly toxic carbon monoxide and other dangerous gasses, this is call pollutions. Of recent people experiences all manner of ailments and death arousing from over exposures and debilitating effect cause by these dangerous gasses exert by the “small generators”. On the road, we are constantly fighting with tanker trucks hauling fuel product to various destination in our nation. How about issues of corruption militating against the progress of this sector. These and various others are considered as negative externalities to national economic development.

1.3   OBJECTIVES OF THE STUDY
        The main objective of this study is an econometric analysis of national income and power generation in Nigeria. To this end specially, it aims;
i.      To analyze the relationship between electricity generation and national income in Nigeria.
ii.     To determine whether power generation is significant to national income.
iii.    To review the sources of power generation in Nigeria.

1.4   RESEARCH HYPOTHESIS
        This study shall verify the following hypothesis, which are stated in the null and alternative forms as:
H0:   There is no relationship between power generation and national output in Nigeria.
H1:   There is a relationship between power generation and national      output in Nigeria.

1.5   SCOPE OF THE STUDY
        The study shall cover the period from 1970-2007. Its analysis however, will be centered on the national income and power generation in Nigeria although the experience of other economies would be sighted.

1.6   SIGNIFICANCE OF THE STUDY
        The study benefits the ministry of power and steel in Nigeria, policy makers, and the power holding company of Nigeria (PHCN), investors, scientist, and the Nigeria coal corporation, the national Biotechnology agencies, the Government, private sector, researchers and other developing economies. This is due to its utilization of the modern econometric research method in its analysis, including the latest econometric view software (E-view 3.1) to analyze its liner multiple regression model. It shall also include other variable such as investment as a check variable for national income in the model.
Finally, this work has covered the vacuum of previous researchers who lacks the econometric facilities in their analysis and who centered their analyses on developed economies.

1.7   LIMITATION OF THE STUDY
The limitations faced in this study were basically the absence of economic theories on power generation, and the technically of the study including limited literatures on developing economies.

1.8   ORGANIZATION OF THE STUDY
        This study shall be comprised of five chapters. Chapter one is the introduction which statement of problem, objectives of the study, hypothesis, scope, significance, limitations, organization of the study and the definition of terms. Chapter two shall cover the literature review and theoretical framework. Chapter three is the method of study, which shall include the sources of data, model, variables and the analytical frame work. Chapter four shall be the data presentation and analysis, which shall include the discussion of our findings. Chapter five shall be the summary, recommendations and conclusion of the study.

1.9   DEFINITION OF TERMS
This section shall define the following non-economic terms below to and the understanding of the study.

i.      Kilowatt (KW): Refers to the unit for the retail price of electricity. It is measured in hours.
ii.     Megawatt (MW): A unit of power generating capacity. It represents an instantaneous. Power flow and should not be confused with units of produced energy (i.e. MWh, or megawatt-hours).
iii.    Megawatt-thermal (MWth): A unit of heat-supply capacity used to measure the potential output from a heating plant, such as light supply a building or a neighborhood. More recently, it is used to measure the capacity of solar hot water or heating installations.
iv.    Micro-generation: Micro-generation systems typically range in size from a few kilowatts (KW) to 500KW. Simply, they are small generators installed close to the point of use, either in a small business or for household use.
v.     Renewable Energy: Refers to the use of energy from a source that does not result in the depletion of the earth’s resources, whether this is from a central or local source.
vi.    Hydropower: Simply means electricity from water flowing downhill, typically from behind a dam.
vii.   Solar System: A battery and charge controller that can provide modest amount of power to homes not connected to the electric grid. Typically, it provides and evening’s lighting, using efficient lights and TV viewing from one day’s battery charging.
viii.  Photovoltaic (PV): Isa a device that converts sunlight into electricity.
ix.    Nuclear, Fission: Is the splitting of the nucleus if an atom to produce a large amount of heat energy or cause a large explosion.
x.     Turboelectric effect unit lighting:
xi.    Solar energy: Energy that radiate from the sun.
xii.   Thermoelectric devices: A device use in measuring the percentage output of heat from a generating appliance.











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