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ELECTRICITY CONSUMPTION AND ECONOMIC GROWTH- A COMPARATIVE STUDY OF NIGERIA AND GHANA

ECONOMICS PROJECT TOPICS AND MATERIALS

 

CHAPTER ONE

INTRODUCTION

  • Background to the study

Energy is crucial to the improvement of social and economic welfare. It is necessary to continued economic activity in modern industrial nations, and its absence would result in interruption of economic growth and diminishing standards of living. In fact, in developing nations a lack of modern energy services is a principal cause of low levels of economic and social development (Evans & Hunt 2009). Today’s modern economy thrives on energy consumption. Energy consumption is disaggregated into petroleum and electricity consumption, but this study shall be considering just an aspect of it, which is electricity consumption. Electricity is a key infrastructural element for economic growth. It is a multitalented ‘energy currency’ that underpins a wide range of products and services that improve the quality of life, increase worker productivity and encourage entrepreneurial activity (Adom, 2011). Furthermore, Jumbe (2004) asserts that Electric power is vital for economic growth and quality of life not only because it fosters the productivity of capital, labour and other factors of production, but also because it increases consumption of commercial energy.

Nigeria is Africa’s energy giant. It is the continent’s most prolific oil- producing country, which, together with Libya, accounts for two- thirds of Africa’s crude oil reserves. It ranks second to Algeria in natural gas. Most of Africa’s bitumen and lignite reserves are found in Nigeria. In its mix of conventional energy reserves, Nigeria is simply unmatched by any other country on the African continent (Sambo 2010). It is not surprising therefore, that energy export is the mainstay of the Nigerian economy since 1970s. Ghana on the other hand since her independence has grown her economy through agricultural and mineral export and industrialization. Crude oil imports account for approximately 10 % of total commodity trade (i.e., import plus exports), and consumes between 15 and 40 %of the nation’s export earnings (Armah,2005). Ghana’s Volta River Authority (VRA) owns and operates the hydroelectric project at the Akosombo Dam on the Volta River.  The dam which was completed in 1965 formed Lake Volta, the largest water storage reservoir in Africa and the world.  The lake dominates the geography of Ghana, covering 3.7% of the landmass with a surface area of 8,500 km2.  Lake Volta is more than 50% larger than Southern Africa’s Lake Kariba (Killick, 2010).

On the African continent, much energy is produced than consumed. However, this does not imply that there are no energy security issues. While most developed economies have a low energy/GDP ratio; which implies that economic activities do not depend so much on energy consumption. Evans and Hunt (2009) argued that, the social, economic and environmental development of many developing countries (DCs) is threatened by lack of sufficient, reliable and sustainable supplies of electricity. The surge in electricity supply (consumption) over the years has been a major issue of concern in many economies especially in developing countries. Whereas, reliable and economical provision of electricity ensures that consumption, transportation and production activities are adequately supported (UNIDO, 2008; Sambo, 2008; Yusuf and Nasiru, 2012).

For decades, the electricity sector has been considered a natural monopoly in most developing countries including Nigeria and Ghana, whereby private or public firms operate as monopoly suppliers subject to stringent government regulation. This includes pricing, entry, investment, service quality and other aspects of firm behaviour. Many countries are now introducing structural changes that foster competition in the generating, transmission, and distribution sectors of the industry, since adequate power supply is an unavoidable prerequisite to any nation’s development as argued by Sambo, Garba, Zarma, and Gaji (2010). Of the 15 ECOWAS countries only Benin, Ghana, and Togo have independent distribution companies (Pineau, 2008)

In as much as the demand for electricity varies widely from day to day over the year; it is also important to note that, electricity cannot be stored or inventoried economically by either consumers or distributors. As a result, the generation and consumption of electrical energy must be balanced continuously to maintain the frequency, voltage and stability of an electrical power network. As developing countries grow and expand their economies, their need for electricity increases. Studies have shown that there is a strong correlation between electricity use and wealth creation, income per capita, and socio-economic and physical features (Ekpo, Chukwu, and Effiong, 2011; Ferguson, Wilkinson and Hill, 2000; Ubani, Umeh, Ugwu 2013).

Surprisingly, for most developing countries, per capita electricity consumption has declined even with improved electrification rates. An explanation for this phenomenon is that poverty is the limiting factor for electricity consumption and poor household (have to) continue to use traditional fuels or self-generated electricity via burning of petroleum fuels (UNIDO, 2008). As a matter of fact, approximately 47% of the population in Nigeria has access to electricity as against 54% for Ghana (UNDP/WHO, 2009); beside the extent of electrification, it also has a quality dimension. Often the  population  that  has  access  to  electricity  suffers  from  poor  supply  quality  with  frequent  power blackouts (UNIDO, 2008). Not having access to electricity is an undeniable case of energy insecurity. The International Energy Association (IEA) therefore defines energy supply to be secure if it is adequate, affordable and reliable (IEA 2007).

Electricity consumption brings about changes in the structure of output in the economy by altering the manner in which other activity sector like the agriculture, industrial and service sectors that contribute greatly to economic growth operates. Moreover, one of the key policy objectives of any nation is to promote a sustainable economic growth process that could improve the living standard of the people. Economic growth is therefore considered an important goal of economic policy with a substantial body of research dedicated to explaining how this goal can be achieved (Fadare, 2010).

 

  • PROBLEM STATEMENT

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