THE IMPACT OF ELECTRICITY CONSUMPTION ON ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE
INTRODUCTION
1.0 Background of the Study
The advent of industrialization comes with growing challenges for the use of electricity in the household, in the industries, in agriculture and in commercial activities. Given the use of electricity in the aforementioned economic activities, one can conclude that electricity is considered the backbone for economic prosperity and progress.
Adegbulugbe and Akinbami (2002) noted that electricity is the preferred energy source for household activities in the urban areas because of its convenience and low operating costs and the associated benefits to its users. Thus, there must be adequate and stable electricity supply for a progressive and positive growth of an economy.
Okonkwo (2002) admitted that electricity is an instrument for industrialization and empowerment of people for better living condition in any society. Electricity provide such services as lighting, comfort by powering gadgets in homes and offices. Hence, it can be said that there is a correlation between electricity supply, industrialization and human comfort. Human development and improvement in living conditions are however the centerpiece of government development agenda, therefore, demand for electricity has increased tremendously with time thereby requiring keen and helpful research to deal with the ascending energy demand (Alter and Syeol, 2011).
Ekpo, Chhuku and Effiong (2011), observed that electricity consumption in Nigeria is classified into: residential consumption, commercial consumption and street lighting and industrial consumption. In some time, it has been observed that industrial electricity consumption had been on the increase. In Nigeria however, what had been noticed over the years is that there had been decline in industrial electricity consumption while residential electricity consumption has been on the increase. The decrease in industrial electricity consumption has been attributed to erratic power supply. This has forced industries to resort to the use of private generating plant. This increases production cost and affect the final price of goods and services. In a way, this has negative impact on macroeconomics goal of growth and development.
Another reason for decrease in industrial electricity consumption is the low capacity utilization in the manufacturing industries. Since the 1980s, there has been drastic reduction in capacity utilization of industry from 85.2% in 1970 to 38.8% in 1986. Though there was modest increase in 1989 to 45.8%, it fell again to 29.3% in 1995 and had remain below 50% between 1998 and 1999 (CBN, 2006).
Apart from erratic power supply and low industrial capacity utilization, electricity consumption has also been found to be influenced by income level and prices of electricity. Income level measures the level of economic activity as well as the living standard of people. As income increases, there will be increase in demand for electrical gadgets and this will inadvertently put pressure on demand for and consumption of electricity. Consequently, increase in prices of electricity will in the short-run influence electricity consumption negatively. However, in the long-run, there could be divergence for alternative energy source. It should also be noted that increase in population, increase in urbanization, prices of energy substitutes, climatic condition and level of industrialization are important elements in electricity consumption. The extent to which these variables may influence electricity consumption may impact positively or negatively on economic growth. Economic growth may be viewed as a long time rise in a country capacity to supply increasingly diverse economic goals to its population, thus growing capacity based on advancing technology and the institutional and ideological adjustments that it demands. This entails a sustain rise in national output which is a manifestation of economic growth (Udabah, 1999; Kuznet, 1973). Ability to provide a wide range of goods and services to the people is a sign of economic growth and maturity. The availability of wide range of goods and services is possible with advanced technology and availability of sustained energy supply. Thus, electricity consumption is a function of its availability. This means that the rate of growth in an economy can be influenced by capacity utilization which in itself is influenced by energy consumption level in each economic activity. This study therefore seeks to examine the relationship as well as the impact of electricity consumption on economic growth in Nigeria.
1.2 Statement of the Problem
The growth of industrialization comes with increasing demand for energy consumption. Globally, there is a strong body of literature that confirms that there is an extremely nexus between a robust power sector and increased levels of economic growth. The power sector directly or indirectly affects the efficiency, competitiveness of every critical economic and social activity such as education, agriculture, health, manufacturing, research and development, telecommunications, banking and finance, recreation, commerce, attracting foreign direct investment and entrepreneurship, especially the growth of SMEs.
Providing adequate power to drive economic activity, has been identified as reason for the occurrence of the East Asian miracle when countries in the region attained and sustained double digit of Gross Domestic Product (GDP) growth rates for several years in the 1990s (Makoju, 2002).
The degree to which electricity consumption affect economic growth is a function of electricity generation. Data on electricity generation shows that between 1970 and 2005, Nigeria electricity generated has never been up to 50% of installed capacity. Capacity utilization within the period averaged only 35.4%. Yet, electricity consumption has been on the increase. The deficit between electricity generation and consumption has much impact on industrial as well as commercial and residential consumption of electricity and by the extension the level of economic activity. The extent to which different electricity consumption impact on economic growth is the basis of this study.
1.3 Objectives of the Study
The broad objective of this study is to examine the impact of electricity consumption on economic growth in Nigeria, specifically, the study seeks to:
Examine the impact of electricity consumption on economic growth in Nigeria.
Examine the impact of domestic investment on economic growth in Nigeria.