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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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