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ENERGY AND INDUSTRALIZATION IN NIGERIA; PROBLEMS AND PROSPECTS

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Abstract

This study shows the relationship between Energy and Industrialization in Nigeria; problem and prospects, over the period of (1981-2015). The study made use of data sourced from the central bank of Nigeria (CBN). The ordinary least squares (OLS) was used to examine the relationship between; industrial output, natural gas, coal, electricity. The explanatory power of the model was given by R2 of 90% approximately and was subjected to t-test and f-test to test the significance of the independent variables. The research revealed that crude petroleum and natural gas and electricity consumption were statistically significant and have a positive influence on industrial output, also manufacturing oil refinery was not significant but had a positive relationship with industrial; output. But solid mineral, coal, and mining was not statistically significant and had a negative influence on industrial output.

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The oil sector has dictated the pace and structure of growth of the Nigerian economy since 1970. According to Chibueze, Jude and Nnaji (2013) in the absence of reliable energy supply, efforts at socio-economic and technological development cannot yield any positive result. It is essential to the production of all goods and services and hence vital to the industrial development of any nation as such Ugwoke, Dike and Elekwa (2016) asserts reliable and adequate electricity supply produces a multiplier effect which goes a long way in tackling the problem of poverty, unemployment and prevalent absence of technological and structural changes that are commonly seen in many developing countries like Nigeria.

As mentioned in Adenikinju (2005), the industrial sector of Nigeria is grossly underperforming due to obstacles posed by infrastructural deficit which include inefficient energy supply. Statistical evidence has shown that the share of the nation’s industrial sector to Gross Domestic Product (GDP) was 51.4 percent in 1981. The Industrial sector experienced a decrease from 51.4 percent in 1981 to 45.7 percent in1984. As compared with 1981, industrial contribution to GDP was not encouraging between 1984 and 1988. But from 1989 to 1992, the share of industrial contribution in total GDP experienced an upward growth from 53.1 percent to 58.9 percent respectively.  But from 1992, the share of industry in total GDP continued on the downward trend except in 1996 and 2000. The industrial sector share to GDP between the year 2000 and 2012 was highly insignificant (CBN, 2013). These periods experienced the greatest decline even in the face of the most sustainable democratic dispensation in Nigeria. This statistical evidence shows that industrial sector contribution to GDP over the years has not been encouraging and this dismal performance may be attributed to several factors which include infrastructural decay, particularly energy deficiency (Bernanrd and Adenuga, 2016). To Campton (2011) Some of the most often cited barriers to investment in industrial energy efficiency, particularly in developing countries, include informational barriers on available benefits, for example, financial barriers such as an absence of credit, high risk of new technology, high transaction costs, shortage of sufficiently trained staff to implement new technologies and an absence of adequate policy and contracting institutions at the national level to encourage investment.

In realizing the central role of energy in sustainable economic growth and development, the Nigerian government embarked on a radical policy and institutional reforms in the energy sector in 1999. Oil, Gas and Electricity was on top of the government’s reform agenda. In this regard, the national energy policy was approved by the government in 2003. It basic aim was to provide for a well synchronized development, utilization, and management of all energy resources in Nigeria. In particular, it recognizes the alternative ways of meeting rural energy supply and demand with conventional energy (petroleum product, gas, coal and electricity) and non-conventional and renewable energy (solar, wind, hydro, biomass, fuel, and wood) (Iwayemi et al, 2014).

Without doubt, these reforms are aimed at improving the industrial sector as a major driver of economic growth in Nigeria. Since the formulation of energy policy that accommodates all aspect of energy use in 2013, no study except Bernard and Adenuga (2016) could be traced to examining the significance of such policy on some sectors of the economy. However, this study intends to examine the effect energy poverty on the output of industrial sector in Nigeria and highlighting the problems and prospect the sector holds.

 

1.2       Statement of the Research Problem

Nigeria is fortunate to have huge energy resources, which potentially give the country ample opportunity to transform her economy and the lives of her citizens. Nigeria sits astride of over 35 billion barrels of oil, 187 trillion cubic feet of gas, 4 billion metric tons of coal and lignite, as well as huge reserves of tar sands, hydropower and solar radiation, among others Adenikinju (2008).

Between 1985 and 2000, electricity generation capacity grew by a mere 10% in Nigeria compared to 332 per cent in Vietnam, 142 per cent in Iran, 237 per cent in Indonesia, 243 per cent in Malaysia and 205 per cent in South Korea (Maigida, 2008). Electricity generation capacity is also far below comparator countries. Nigeria, with a population of over 150 million people, has an installed generation capacity of 6000MW compared to UAE 4740MW to a population of 4 million or South Africa that has 46000MW to 44million people and only 40% Nigerians have access to electricity (Adenikinju, 2008).

In realizing the central role of energy in sustainable economic growth and development, the Nigerian government embarked on a radical policy and institutional reforms in the energy sector in 1999. Oil, Gas and Electricity was on top of the government’s reform agenda. In this regard, the national energy policy was approved by the government in 2003 (Bernard and Adenuga, 2016). It basic aim was to provide for a well synchronized development, utilization, and management of all energy resources in Nigeria. In particular, it recognizes the alternative ways of meeting rural energy supply and demand with conventional energy (petroleum product, gas, coal and electricity) and non-conventional and renewable energy (solar, wind, hydro, biomass, fuel, and wood) (Iwayemi et al, 2014).

Despite these reforms, Adenikinju (2005) claims the industrial sector of Nigeria is grossly underperforming due to obstacles posed by infrastructural deficit which include inefficient energy supply. Statistical evidence has shown that the share of the nation’s industrial sector to Gross Domestic Product (GDP) was 51.4 percent in 1981. The Industrial sector experienced a decrease “from 51.4 percent in 1981 to 45.7 percent in1984. As compared with 1981, industrial contribution to GDP was not encouraging between 1984 and 1988. But from 1989 to 1992, the share of industrial contribution in total GDP experienced an upward growth from 53.1 percent to 58.9 percent respectively.  But from 1992, the share of industry in total GDP continued on the downward trend except in 1996 and 2000. The industrial sector share to GDP between the year 2000 and 2012 was highly insignificant (CBN, 2013).

An empirical analysis of this issue is appropriate especially now that the federal government of Nigeria is facing economic challenges. Given the central role of the industrial sector places in the development process of any nation of the world. As such this study intends to investigate the effect of energy sector on industrialization in Nigeria and also identify the challenges faced by the industrial sector in Nigeria.

1.3       Research Question

The above research question gives rise to the following research question

1. What is the effect of the disaggregated use of energy on industrial growth in Nigeria?

1.4       Research Objectives

The broad objective of this study is investigate energy and industrialization in view of the challenges faced by the Nigerian industrial sector, while the specific objective is to

1. Determine the effect of the disaggregated use of energy on industrial growth in Nigeria

1.5 Research Hypothesis

The hypothesis which guides the study is as stated in its null form:

1. H

   0

   : There is no effect of the disaggregated use of energy on industrial growth in Nigeria

1.6       Scope of the Study

The study examined the relationship between energy poverty on the industrial output in Nigeria, highlighting its problem and prospect for the period of 35 years (1981 – 2015).

1.7       Significance of the Study

This study will be of significance to government agencies in charge of power generation and distribution as a tool of informing these agencies on the need of power on the path of industrialization of the economy and also show the dangers of neglecting the power need of the manufacturing sector of the country. It will also serve as bedrock for further studies and a reference point for students and researchers alike.

1.8       Limitation of the Study

One limitation of this study is with the issue of time, as the researcher is also a student who needs to allocate time to other course work. And the issue of unavailability of finance to carry out a more comprehensive research and funds for travelling to necessary institutions to obtain relevant materials limited the researcher’s work