Monday, July 18, 2016 3:45 PM / PwC
Over the last decade, Nigeria has been one of the shining stars in the African economy, given its status as one of the preferred destinations for global investments. However, in recent times, Nigeria’s positive economic outlook has been severely affected. The GDP growth rate, which had a compound annual growth rate (CAGR) of 5.3% between 2011 and 2014, fell to 2.97% in 20151 and subsequently to – 0.36% in Q1 2016.2 During this period, unemployment also grew from 6% in 2011 to 12.1% in Q1 2016.This period of economic difficulty is expected to continue in the near term, given the drop in oil production and volatility in commodities prices globally.
In spite of the economic slowdown, there still exists significant potential for sustainable growth in Nigeria. There is a sizeable non-oil economy (driven by the services and agriculture sectors) which needs to become revenue and export generating for the government. In addition, Nigeria’s 46 million middle class populations is one of the largest in Africa and is expected to be a key driver for consumption-led growth going forward.
However, in order to emerge from the current situation, Nigeria needs to take specific steps towards building internal capabilities which will enable and support the economy. One area requiring immediate focus and investment is the power sector, where the low availability of power is currently a major obstacle.
Nigeria’s per capita power consumption is now only 151 kWh per year, one of the lowest in the region and globally.4 The sector is currently inhibited by multiple factors such as value chain losses, limited transmission coverage and supply disruptions as well as theft and corruption (especially in distribution).
Based on ongoing projects, the per capita power consumption in Nigeria will only reach 433 kWh per year in 2025.5 given the requirements of the economy and the population, there is a critical need to drive higher power availability, and we believe a stretch target of 982 kWh per year (6.5 times the current level) by 2025 is realistic. This is based on benchmarking with other growth markets, like Vietnam.
Reaching this goal will require a comprehensive transformation of the power sector in Nigeria, with three substantial ‘leaps’ over the next ten years, as outlined below:
• Leap 1: Accelerating growth in power generation capacity and improving utilisation
• Leap 2: Expanding the power transmission network and driving better efficiencies
• Leap 3: Establishing and scaling up efficient power distribution capabilities
This report identifies a total of ten levers within these three Leaps, which will play a critical role in further accelerating the ongoing journey towards a comprehensive transformation of Nigeria’s power sector. This includes a mix of favourable policies, implementation of new technology, faster project execution and improvement in operational efficiencies across the value chain. Executing these levers will also require significant involvement and alignment between the Federal Government of Nigeria, the Ministry of Power and the industry participants. In addition, the implementation needs to be well planned and sequenced appropriately to derive the desired benefits.
Overall, Nigeria has the potential to once again emerge as a shining star, not only within Africa, but in the global economy as well. Enhancing the availability of power over the next decade, based on robust generation, transmission and distribution capabilities will help create a strong foundation towards unlocking this potential and powering Nigeria for the future.
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