How Big is Nigeria’s Power Demand?


Context: Nigeria has Africa’s largest population and economy, but Nigerians consume 144 kwh per capita annually, only 3.5% as much as South Africans.1 With only 12 GW installed, and typically just one-third of that delivered, Nigerian power production falls far short of demand, which is a primary constraint on economic growth. Self-generation using dirty diesel generators is exceedingly common in Nigeria, and bear a significant economic and environmental cost.2 But exactly how big is the demand-supply gap? And what does future demand look like?

How large is power demand in Nigeria?

Electricity demand estimates and projections for Nigeria suggest that demand is already substantial and increasing rapidly due to population and income growth.

  • Nigeria is one of the most underpowered countries in the world, with actual consumption 80% below expectations based on current population and income levels.3
  • Peer countries consume far more electricity per capita than Nigeria does currently. Ghana consumes over twice as much, Tunisia over ten times, and South Africa almost thirty times as much.
  • Self-generation in Nigeria is extremely prevalent; nearly 14GW capacity exists in small scale diesel and petrol generators, and nearly half of all electricity consumed is self-generated. This implies a huge unserved demand.
  • Due to a population boom and a large gap in electrification, the World Bank projects electricity demand will have grown by a factor of over 5 between 2009 and 2020, and 16.8 by 2035.4

Given this, we can assume that Nigeria’s demand gap is significant, though exactly how large is disputed. The significant differences in these estimates demonstrate the difficulty, and importance, of accurate demand forecasting.

The below estimates show large variance in projections for peak power demand mainly due to differences in scenario assumptions and existing infrastructure during study periods. Projecting power demand in Nigeria is challenging due to difficulty in estimating the large amount of electricity produced by small and unregulated petrol/diesel-powered generators, and in quantifying suppressed demand. Looking at available demand estimates for 2015 (Table 1), Nigeria’s on-grid electricity demand seems to be about 4 – 12 times the total electricity distributed on the grid (at 3200 MW, or 3.2 GW). Even at optimistic capacity factors and assumptions about deliverability, Nigeria needs well over 63GW of new generation to satisfy unmet demand.5 Until then, expensive and dirty self-generation will remain pervasive.

Endnotes

  • World Bank (2019). Electric Power Consumption (kWh per capita). Retrieved from: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=NG
  • IEA (2017), Energy Access Outlook: From Poverty to Prosperity, IEA.
  • Todd Moss and Gailyn Portelance. “Do African Countries Consume Less (or More) Electricity than Their Income Levels Suggest?”
  • R. Cervigni, J. Rogers, and M. Henrion (2018), Low Carbon development: Opportunities for Nigeria, The World Bank
  • GIZ (2015), The Nigerian Energy Sector An Overview with a Special Emphasis on Renewable Energy, Energy Efficiency and Rural Electrification. Nigerian Energy Support Programme (NESP)
  • Olayande, J.S & Rogo, A.T. (2008), Electricity Demand and Supply Projections for Nigeria, Abuja: Energy Commission of Nigeria
  • Sambo, A. S., 2008. Paper presented at the “National Workshop on the Participation of State Governments in the Power Sector: Matching Supply with Demand”, 29 July 2008, Ladi Kwali Hall, Sheraton Hotel and Towers, Abuja.
  • O. Ezennaya, O. Isaac, U. Okolie, O. Ezeanyim (2014), Analysis Of Nigeria‘s National Electricity Demand Forecast (2013-2030), International Journal Of Scientific & Technology Research 3(3)

This article was first published on Energy for Growth Hub

Read More

Poverty Alleviation via Education in Nigeria: Lessons from China

In Nigeria, approximately 50% of the estimated 193 million population live in poverty. In 2018, the World Poverty clock estimates that Nigeria has the highest number of people living in extreme poverty. These trends point to the need to rethink and rejig the government’s approach to poverty alleviation.

In rethinking Nigeria’s current approach, there are important lessons that could be drawn from emerging economies like China. Between 1990 and 2015, China effectively lifted 745 million out of poverty. This contributed to about 70% of the global poverty reduction over the period and the achievement has been described as the most impressive economic miracle in development history. While the roles of market reform, trade openness and state-led development initiatives in this ‘economic miracle’ are well documented, the role of education in the broader poverty alleviation strategies has been less emphasized. A new book on Poverty Alleviation in China[1] is drawing attention to the role of education in Chinese development narrative and there are many important lessons for countries like Nigeria which is facing similar developmental challenges. In this piece, we highlight four key lessons for Nigeria in order to reduce poverty via education.

First, vocational education was given priority among other levels of education in China. The elevation of the status of vocational training allowed a wider demographic of individuals (young and old) to acquire the benefits of skill development in the short-run through a flexible program. The programs ensured that the skills supplied within these communities matched local demand in order to effectively impact their experience. It also reduced the level of rural to urban migration as the campaign provided local opportunities, developed human capital within the rural areas which consequently broadened their capability. Although Nigeria has set up vocational training programs both in the formal 6-3-3 education system, as well as state governments and civil societies facilitated programs, its impact is limited. This is because the program is not widespread, lacks permeability and the programs are not standardised in delivery. Similarly, the lack of an overarching initiative focused on skill acquisition in the Nigerian education system limits its impact on poverty alleviation and also exclude some demographic groups in the development process.

Second, education policy is considered as a subset of the grander economic policy, as such China’s education policy are jointly designed and implemented by the ministries of finance and education. The synergy between the finance and the educational ministry covers standardisation of education structures across various regions as well as teacher’s training and placement programme. The understanding that education policy is directly related to economic policy is one crucial area that presents an apparatus for policy design which Nigeria can learn from. For instance, the problem of out-of-school children in the Northern Nigeria, many scholars have observed that poverty and other economic fundamentals play a role in the problem[2]. However, policy interventions to address the problem have concentrated mainly on education sector driven solution like building more schools. Predictably, most of the educational interventions to out-of-school children issues in Nigeria have failed to deliver the expected outcome. Again, China’s approach to economic planning through mainstreaming poverty alleviation programs into the education policy could help Nigeria to simultaneously tackle the educational and economic challenges.

Third, China’s intervention in reaching disadvantaged communities and vulnerable groups that are not in school employed a good mix of free education and other incentives to encourage participation. The Chinese government provides region-specific subsidies for students within disadvantaged areas as well as loan schemes to encourage longer years of education in order to effectively improve their quality of life. There is an increasing recognition in the Nigerian context too that making education free does not automatically translate to more inclusion or increase enrolment, but that additional incentive is required to encourage more participation of the disadvantage groups. Also, constraints to schooling extend beyond costs and could be driven by cultural and behavioural factors. Responding to these non-cost elements require additional interventions even when education is free. The federal and state governments recent school feeding programme is an example of balance policy mix to improve inclusion. Going forward, it is crucial to expand the interventions to region-specific incentives to improve educational performance in Nigeria.   

Fourth, it is reassuring that China with outstretched government’s presence still recognizes and ensures robust community participation in its education management. Besides allowing for supplementary training and facilities by the private sector, government-own initiatives also use local role models and organizations to secure wider buy-in from the public.The organizations and individuals were involved in campaign and awareness programme regarding education reform. In the Nigerian system where implementing reform is difficult, more involvement of communities in education policy intervention will be vital and could help restrain vested interests and better communicate reform benefits to the public. This is because the local agents understand the region-specific idiosyncrasies and factors to ensure efficient implantation and implementation of policy. In pursuing poverty alleviation in Nigeria, education system could play a significant role beyond its traditional functions of socialization and capacity and knowledge development. Education can directly work to reduce poverty through promoting inclusiveness, strengthen community engagement and using vocational education as a springboard for development. The Chinese experience offers a template which has worked to lift more than three times the estimated Nigerian population out of poverty and fortunately it only requires looking inward and building broad base local partnership.


[1] Editorial board of Poverty alleviation in China ‘Poverty-Alleviation via Education in China’,(2018), First edition

[2] Lincove, J. (2009). Determinants of schooling for boys and girls in Nigeria under a policy of free primary education. Economics of Education Review, 28(4), pp.474-484.

Read More

Electric cars and the future of Nigeria’s oil economy

The Future

Policy makers of about 13 countries including China (the largest car market in the world) and Japan (the third largest car market in the world) are pushing for a phase out of fossil fuel powered cars in order to reduce greenhouse gas emissions and improve urban air quality across board. In December 2019, the Swedish government set up a committee of inquiry to offer proposals on how to enforce a complete ban on the sales of fossil fuel powered cars in the country by 2040. This is coming after Europe’s biggest economy, Germany, through its Bundesrat federal council, agreed to ban fossil fuel powered cars by 2030 in 2016, the same year Norway made its landmark announcement of a proposed ban on fossil fuel cars by 2025 – with a suggestion to the European Union (EU) to also introduce a ban on fossil-fuel powered vehicles. With China as the world’s largest car market announcing to set a deadline for car makers to end sales of fossil fuel-powered cars, the threat of renewable energy powered vehicles to the global oil demand cannot be over emphasized.

The Threat to Nigeria’s Oil Economy

According to a study by the Columbia Center on Global Energy Policy, global policy makers are targeting the automobile sector as part of ambitious plans to meet international agreements to reduce gas emissions because of the probable scenario where full penetration of electric cars and other vehicles could take almost 25 million barrels per day of oil use out of the global oil market.

The International Energy Agency (IEA) also predicts that the overall demand for crude oil will plateau in 2030, due to a rise in the use and market demand for electric cars and other electric powered vehicles. In fact, according to global oil giant British Petroleum (BP), the growth of electric cars will also mitigate the growth in oil demand. BP also estimates that a 100 million increase in electric cars reduces oil demand growth by 1.2 million barrels per day.

These new developments and switch to alternative energy powered cars from the usual fossil fuel powered cars will no doubt have a massive impact on the global demand for oil, a looming problem for countries whose economies are heavily dependent on oil.

It is no longer news that Nigeria is a massively oil dependent nation. In fact, according to statistics from the National Bureau Statistics and the International Monetary Fund in 2019, 94 percent of Nigeria’s export earnings come from oil exports while 57 percent of Nigeria’s revenue comes from its oil exports. More damning are the projections from an Aurora Energy Research press report in 2018 of a dwindling of revenues for oil producing countries in the world by more than $20 billion between now and 2040 – furthermore, an analysis of the demand and supply effects of a ‘burnout scenario’ by the leading energy research and analytics firms predicts a fall in oil prices to $32 per barrel in 2040 (in today’s money).

With statistics like those from the aforementioned, it is imperative to note that a rise in the mass production of electric cars and any other alternatively fueled modes of transportation would adversely affect Nigeria’s fragile oil dependent economy.

Following the global economic trends, it is ominous that Nigeria has to brace up in its diversification drive or face an economic armada in the next three to five decades. Bloomberg New Energy Finance (BNEF), a consultancy, notes that forecasts from oil companies have a lot more electric vehicles in them than they did a few years ago. China, which accounted for roughly half the electric cars sold in 2019, wants to see 2 million electric and plug-in hybrid cars on its roads in 2020, and 35 million car sales by 2025. There is no doubt that recent global trends will push the acceptability for electric powered vehicles and change the global economic dynamics

Not All Gloom

Fossil fuel-powered vehicles will continue to be the norm for a few more decades to come in these parts (Africa) “mostly due to an uneven distribution of the ‘electric car manufacturing’ technology and for the fact many parts of the world are still energy poor”[1]. With this in mind, “the uneven distribution of the technology and enabling infrastructure for electric vehicles will lead to 'dumping' - this is when fossil fuel-powered cars and other vehicles will be exported in their numbers from developed to developing countries as they are phased out by electric cars”[2].

These arguments not only shift the attention from the impact of alternative powered vehicles on oil dependent economies but also the negative effects on developing countries that may potentially arise due to technology consumption inequality.

Conclusion

With a gradual increase in the global levels of alternative energy consumption, not only the global auto industry but many other vital sectors will look away from fossil fuels as the years go by, ensuring that oil dependent countries like Nigeria have a rethink.

The rethink in this case should heavily depend on structural changes that diversifies Nigeria’s oil based economy as a means to neutralize the impending drop in oil revenues – which is the predicted outcome of the projected global shift from fossil fueled cars to electric powered cars.

In conclusion, the rapid development of hybrid and electric cars represents a substitute to fossil fuel powered passenger cars, thus a threat, to the Nigerian fossil fuel industry – and its “oil economy”.

References

Ishaku, J. (2018). Episode 3; Season 1 [Recorded by MakeWeYarn]. Abuja, Nigeria .

Ishaku, J. (2019). Abuja.


[1] Joseph Ishaku, a research fellow at the Centre for the Study of the Economies of Africa (CSEA Africa) and a development economist at an informal energy discourse explaining why the market dynamics in Africa as regards the auto industry will stay the same regardless of a global shift from fossil fuel powered vehicles to electric powered vehicles. (Ishaku, 2019)

[2] Joseph Ishaku, a research fellow at the Centre for the Study of the Economies of Africa (CSEA Africa) and a development economist on a podcast: “MakeWeYarn” (Ishaku, 2018)

Read More

Three Top Priorities for Nigeria's 2020 Power Agenda


Successive interventions, including privatization, have not yet resolved Nigeria’s persistent power sector challenges. This year, the newly-appointed Honorable Minister of Power will continue on the path towards achieving key power sector goals, namely increased reliability and reduced revenue loss. To succeed, the Minister’s 2020 agenda should include:

1. Taking practical steps to mitigate high losses in transmission and distribution

Recent estimates of technical, commercial and collection losses across DisCos stood at 47%.1 The Minister should:

  • Immediately review the performance agreements with private asset owners.
  • Integrate information technology alongside network upgrades to provide reliable data on consumer demand preferences and market trends.
  • Begin enforcing laws against energy theft.
  • Accelerate implementation of electricity metering.

2. Correcting underpriced tariffs

The Multi Year Tariff Order (MYTO) holds prices too low to recover costs, resulting in chronic shortfalls that require repeated financial injections from the Federal Government.2 The Minister should:

  • Ensure smooth implementation of the recently revised tariffs by more actively engaging electricity consumers, labour unions and business groups.
  • Following implementation of cost-reflective tariffs, the Government could then recapitalize DisCos.

3. Actively foster communication and collaboration across a complex market

The lack of coordination and shared goals by Government, regulators, private investors, and other power sector actors hampers all activities across the sector. The Minister could:

  • Host a monthly platform with all power sector leaders to improve relations.
  • Experiment with different problem-solving models for how sector leaders could exchange information regularly amongst themselves.

Conclusion: These recommended priorities do not cover the full range of the problems facing the sector. However, little can be expected unless meaningful progress is made in these three areas. And momentum on all three would have a positive ripple effect along the entire value chain and finally position Nigeria to begin to tackle its long-term power needs.

Endnote

  1. Association of Electricity Distributors (ANED), 2019Q2.
  2. Association of Nigerian Electricity Distributors (2019); Femi A., Nnodim 0 (2019) The Punch: Discos suffer N1.15tn four-year tariff shortfall.

This article was first published on Energy for growth Hub

Read More

Economic Implications of the Recent Border Closure

By Basil Anthony Abia

In Brief
On 20 August 2019, Nigeria partially closed its land borders with Benin, Togo, Niger, Cameroon and Chad – citing the irate level of smuggling of goods into the country, especially staple food commodities like rice, cooking (vegetable) oil, poultry, tomato, flour and pasta. The closure of Nigeria’s land borders has now been fully consolidated – with further restrictions on import and export of goods through land borders.

Numbers
Since the border closure announcement and its immediate implementation in August, inflation has been on the rise.
The latest consumer price index (CPI) report released by the National Bureau of Statistics (NBS) in November 2019 proved that the year-on-year food inflation rate increased from 13.2% in August 2019 to 13.51% in September 2019 and then from 13.51% in September 2019 to 14.09% in October 2019. This was a 1.33% month-on-month increase – with rice, poultry products, frozen fish, cooking oil/fats and bread/cereals recording the highest increase in cost prices nationally. A huge contrast with regards to decelerating food inflation rates usually recorded during a harvest season.
With the food sub index of the CPI recording an 18-month high in October 2019, it unsurprisingly contributed to the rise in CPI from 11.24% in September 2019 to 11.61% in October 2019.

Context
Staple food commodities like rice, vegetable (cooking) oil, frozen fish, poultry products and packed beef are among the highest hit on the national spectrum in terms of the inflation in food prices since the enforcement of Nigeria’s land border policy.
Rice as one of the main national staple food commodity unsurprisingly has claimed its place as a topic for constant national debate. With context to its massive demand, inability of domestic supply to meet demand, cultural reverence and taste preference, it is inevitable to discuss the land border closure without talking about rice.
The United States Department of Agriculture (USDA) estimates that local demand for rice in Nigeria alone is at 7.3 million metric tonnes. Currently, local production stands at 4.8 million metric tonnes yearly. This suggests that the inability of domestic supply to meet local food demand will cause an inflation of food prices when and if food imports are proscribed.
With Benin and Togo posturing themselves as entrepôt states to Nigeria - where Nigeria’s manufacturing and agro production distortions are actively exploited, Nigeria’s consumption habits over the last three decades has been shaped by its over-dependence on imports from the re-exports of these two neighboring entrepôt states (in particular) into the country.
Given the significance of food import via the entrepôt states for meeting the observed supply gap, abrupt closure of the land border cut that supply channel, further entrenching the observed supply gap. This is where the excess demand is now driving up prices.
For a country with the highest number of extremely poor people in the world, any significant spike in food inflation can cause devastating effects to its already poor population, making social upward mobility more difficult. Hence, policies that further reduce purchasing power predispose the poor to higher vulnerability.
The core question on the national discourse table is what exactly this land border closure aims to achieve – government claims the policy will help curb smuggling of goods through its land borders thereby bolstering domestic food production and national productivity levels in all sectors.
This goal of the government in particular, indirectly implies the ineffectiveness of its customs and immigration service especially with the inability of the country to protect its borders and effectively enforce import restrictions on certain goods. It is not likely that this border policy will achieve its end-goal in the short-term or in the long-term as even with the blanket ban on imports through its land borders, bolstering domestic food production and raising national productivity levels almost immediately will be extremely difficult to attain due to the structural problems abound in the country.

Getting it right
To achieve this set out goal of curbing smuggling and bolstering domestic capacity to attain national productivity at all levels, there should be a multi-pronged approach from government: to improve the capacities of its customs and immigration services, embark on land reforms, improve access to micro and macro-credit for farmers and entrepreneurs, enhance accessibility to affordable and reliable electricity as well as incentivize private sector investments. This is the first step to getting things right – by ensuring government policies improve lives.

Conclusion
With Nigerians already feeling the negative consequences of the land border closure – rising food inflation which in turn is reducing their relative purchasing power, it is important for government to rethink its border policy as it doesn’t sufficiently address the causal factors for irate smuggling and dwindling national productivity in the country.

Read More