Nigeria’s energy deficit: Its effect on the Nigerian economy

According to the World Bank, Nigeria has the largest energy deficit in the world, grappling with inefficiencies in electricity generation, transmission, and distribution. With an alarming 45% of its population disconnected from the grid, Nigeria holds the record as the country with the largest population not connected to electricity.

The multiple shortcomings in the Nigerian power sector can be traced to her inability to harness the resources readily available to her. It is estimated that the Nigerian populace has an energy demand exceeding 19,798 MW. This starkly contrasts with Nigeria’s existing transmission capacity of 8,500 MW and its installed generation capacity of 14,000 MW, highlighting a disparity between supply and demand.

Agusto & Co. posits that Nigeria lacks the infrastructure to transmit adequate power to its citizens. Hence, with its current wheeling capacity, Nigeria may be unable to fully exploit the installed 14,000 MW generating capacity.

Nigeria’s recurring electricity challenges have further resulted in weakened industrialization, unemployment, the withdrawal of foreign investments, and her inability to compete in the global market. To elucidate its effect on the Nigerian economy, the World Bank estimated that Nigeria loses about $29 billion a year resulting from unreliable electricity.

Weakened Industrialization and Stifled Business Operations

Being central to Nigeria’s economic growth, the industrial scene suffers a bulk of the direct implication of her epileptic power supply. Persistent blackouts and dependence on self-generating power have contributed to high production and manufacturing costs. Industries turn to and rely on outrageously priced self-generation sources to provide much-needed electricity for business operations.

Bigger factories like Nestle’s Flowergate factory in Sagamu, which require heavy machinery, may be able to afford power sources like compressed natural gas. However, we cannot say the same for smaller industries, as electricity lapses are the foremost factor responsible for the total shutdown of industries and a declining output from industries.

It is estimated that an average of 95 manufacturing companies fold up annually in Nigeria. In a more detailed report, the Association of Small Business Owners of Nigeria stated that 25% of manufacturing businesses have seized operations so far in 2023 alone. A testament to this report is the downward slope of the gross domestic product (GDP) in Nigeria’s manufacturing sector from 21% to 14% between 1994 and 2022.

This worrisome situation is aggravated by Nigeria’s limited ability to compete in the global industrial market owing to its slow integration of innovative technologies. The successful operation of these technologies relies heavily on a relatively stable and reliable power supply—an investment many companies are hesitant to undertake.

Increasing Unemployment

The economic fallout from the energy deficit also contributes to unemployment in the country, leaving over 4% of its population unemployed in 2023. For instance, the Manufacturing Association of Nigeria (MAN) mentioned that jobs created by the manufacturing sector recorded a major decline of 32% in 2022 alone. The group further enunciated that over 4,451 job losses are recorded annually in the manufacturing sector.

It is safe to say that as companies fold or downsize to cut costs due to the high operation costs, many Nigerians become jobless. This, in turn, increases the poverty level in the country. A World Bank analysis shows that Nigeria has a 37% poverty rate, with 84 million people living below the poverty line.

Foreign Direct Investment (FDI) Deterrence

The energy deficit serves as a deterrent to foreign investors looking to establish or expand their operations in Nigeria. This is because investors are wary of unreliable energy infrastructure, which increases operational costs and poses a risk to their investments.

In recent years, Nigeria has recorded the exit of top foreign companies like GlaxoSmithKline Consumer Nigeria Plc, Sanofi, and Unilever due to high operation costs resulting from the electricity deficit, among other stated reasons.

According to the MAN president, “N144bn was spent on alternative sources of energy by manufacturers in 2022.” As a result of these extraneous costs, Nigeria struggles to attract and retain the foreign capital necessary for sustained economic development.

The way forward

To combat Nigeria’s electricity woes and record a surge in economic growth, we must tap into and utilize its available resource bank. Energy solution providers like Millwater have set out to debottleneck the Nigerian energy sector and provide reliable, efficient, and sustainable on-grid power supply to underserved communities and industrial clusters. Their approach is to build strategic partnerships with key drivers in the Nigerian power scene to provide the technical know-how and infrastructure needed to exploit major power projects to reach their full potential.

With stable electricity, both home and foreign industries can survive in Nigeria, the unemployment rate can be drastically reduced, and the cost of living for Nigerians can be significantly improved. Millwater is set to bridge the energy gap and spearhead a change in the Nigerian economy.

Rukevwe Erakpotobor writes from Lagos