IMPACT OF PUBLIC SECTOR BUDGET ON ELECTRICITY IN NIGERIA
BY
FARIDAH ABUBAKAR OHERE
(171301014)
A PROJECT SUBMITTED TO THE DEPARTMENT OF ACCOUNTING, FACULTY OF
MANAGEMENT SCIENCES, NILE UNIVERSITY OF NIGERIA, ABUJA
IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF
BACHELOR OF SCIENCE DEGREE IN ACCOUNTING
DECLARATION
I, FARIDAH ABUBAKAR OHERE with registration ID 171301014 humbly declare that the
research project titled THE IMPACT OF PUBLIC SECTOR BUDGET ON ELECTRICITY IN
NIGERIA was carried out by me under the supervision of PROF. OFILI UGWUDIOHA. It has
not been presented for award of any degree in any institution. All sources of information are
specifically acknowledged by means of references.
Faridah Abubakar Ohere
………………………
171301014
Signature/Date
CERTIFICATION
This is to certify that this research project titled “THE IMPACT OF PUBLIC SECTOR
BUDGET ON ELECTRICITY IN NIGERIA” written by Faridah Abubakar Ohere has fulfilled
the requirements for the award of Bachelor of Science degree in Accounting, Department of
Accounting, Faculty of Management Science, Nile University of Nigeria Abuja and it is approved
for its contribution to knowledge and literary representation.
Prof. Ofili Ugwudioha
………………………………….
Supervisor
Signature/Date
Prof. Ofili Ugwudioha
…………………………………
Head of Department
Signature/Date
————————————-
……………………………….
(External Examiner)
Signature/Date
————————————
Prof. Ben Akanegbu
(Dean of the Faculty)
…………………………….
Signature/Date
ACKNOWLEGEMENTS
I would like to thank Almighty Allah the merciful, the benevolent for giving me life, grace,
intelligence and ability to complete this work.
I will also like to acknowledge my supportive supervisor, PROF. Ofili Ugwudioha, whose
guardianship brought this work to completion. I would also like to acknowledge the efforts of my
lecturers for imparting me with knowledge and non-teaching staff which made this learning institution
conducive and consequently aided the completion of this work.
I am especially grateful to my parents my mother Mrs. Sidikat Abubakar Ohere and my dad Mr.
Abubakar Sadiqu Ohere for bringing me up with lots of love and encouraging me from the beginning
which helped with the completion of this work.
I would also like to say thank you to my siblings. I am most grateful for your prayers, support and
love which made me more motivated to work harder. May Almighty Allah reward your souls.
ABSTRACT
This study examines the impact the public sector budget (expenditure) on electricity in Nigeria.
The major objective of this study is to investigate the impact public sector budget (expenditure) has
on electricity in Nigeria. The specific objective are (i)To examine the variables that impact on
electricity (ii)Examine the significant effect of budgetary capital expenditure on electricity in
Nigeria (iii)Examine how the budgetary recurrent expenditure significantly affect electricity in
Nigeria. The study made use of secondary data, published articles, CBN statistical bulletin and
reports. From the NERC. For the purpose of data analysis, the descriptive statistics, co-integrated
tests, estimation tests and regression analysis were carried out in testing the research hypothesis.
The results were found based on the research questions, it discovered firstly that they are variables
which impacts the electricity. Secondly, it showed that the capital expenditure has significant effect
on electricity consumption in Nigeria and lastly, it shows that the recurrent expenditure has effects
on electricity consumption in Nigeria. Hence the study recommended that the Nigerian
Government should ensure that the capital and recurrent expenditure are properly managed to
accelerate the growth and efficiency of the electricity sector. The study also recommends that there
should be high degree of transparency when handling funds in the government. Thirdly, when
preparing financial statements, proper accounting should be a top concern, and material facts
should be recorded. Lastly, Additional power generating companies should be established
throughout Nigeria's states.
TABLE OF CONTENTS
Cover page……………………………………………………………………………………………i
Declaration…………………………………………………………………………………………ii
Certification………………………………………………………………………………………….iii
Acknowledgement …………………………………………………………………………………. iv
Abstract……………………………………………………………………………………………….v
CHAPTER ONE: INTRODUCTION
1.1 Background to the study……………………………………………………………………… 1
1.2 Statement of research problem…………………………………………………………………3
1.3 Objectives of the study………………………………………………………………………….4
1.4 Research questions………………………………………………………………………………5
1.5 Research hypotheses …………………………………………………………………………….5
1.6 Significance of the study………………………………………………………………………..5
1.7 Scope of the study……………………………………………………………………………… 6
1.8 Limitations of the study………………………………………………………………………….7
1.9 Organisation Of Study……………………………………………………………………………
1.9 Definition of terms………………………………………………………………………………7
1.10 Summary ………………………………………………………………………………………8
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction…………………………………………………………………………………….9
2.2 Conceptual literature review……………………………………………………………………9
2.2.1 concept of public sector budget………………………………………………………………9
2.2.2 Concept of Electricity sector………………………………………………………………….23
2.3 Theoretical Review…………………….……………………………………………………..29
2.3.1 Wagner’s Law………………………………………………………………………………30
2.3.2 Wiseman-Peacock Hypothesis……………………………………………………………..32
2.3.3 Musgrave Theory of Public Expenditure Growth………………………………………….33
2.3.4 The Keynesian Theory……………………………………………………………………..35
2.4 Theoretical Framework………………………………………………………………………37
2.5 Empirical Review…………………………………………………………………………….38
2.5 Critique of Empirical Review………………………………………………………………..41
2.6 Summary……………………………………………………………………………………41
CHAPTER THREE: METHODOLOGY
3.1 Introduction………………………………………………………………………………..43
3.2 Research Design……………………………………………………………………………43
3.3 Sources and Methods of Data Collection…………………………………………………..43
3.4 Method of Data Analysis……………………………………………………………………44
3.5 Techniques of Data Analysis…………………………………………………………………45
3.5.1 Estimation Techniques…………………………………………………………………..45
3.5.2 Robustness Test………………………………….………………………………………..46
3.6 Model Specification…………………………………………………………………………46
3.7 A Prior Expectation…………………………………………………………………………..47
3.8 Summary………………………………………………………………………………………47
MW
ABBREVIATIONS
-
Megawatts
GW
-
Gigawatts
NERC
-
Nigerian Electricity Regulatory Commission
PHCN
-
NEPA
-
TCN
-
Transmission Company of Nigeria
DISCOs
-
Distribution Companies
GENCOs
-
Generating Companies
LDCs
-
Local Distribution Companies
ECN
-
Electricity Corporation of Nigeria
NDA
-
Power Holding Company of Nigeria
National Electric Power Authority
Niger Dams Authority
COFOG
-
Classification Of the Functions Of Government
KV
-
NESI
-
Nigerian Electricity Supply Industry
GDP
-
Gross Domestic Product
ECM
-
Kilovolt
Error Correction Model
CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
The word “public sector” simply refers to the portion of the economy that is under government control
in order to provide basic government services. A budget according the Chartered Institute of
Management Accountant (CIMA) “as a plan quantified in monetary terms, prepared and approved
prior to defined period of time usually showing income to be generated and expenditures to be
incurred during that period and the resources to be employed to ascertain given objectives”. In
classical view, the budget represent an estimate balance of revenue and expenditure money of a
country, of a local government, institution etc for a certain period of time (Matei, 1994, p.246).
Besides the accounting and financial nature the budget, has the nature of legal and political Act
“because it is an act of authorisation and financial translation of a political vision (Hoanta, 2000,
p.211).
A budget for the public sector is a structured statement of projected revenue and expenditures focused
on future expectations and goals. The purpose of budget is to monitor job performance over time.
Budgeting in the public sector is a document or collection of documents that refers to the financial
condition of the government (Turns, 2006).
A government budget is the bedrock upon which all government programmes and initiative are built.
The budget of public sector is frequently based on the desired sector of the economy. It combines
public spending programmes, taxes and tax laws to deal with income and expenditure.
The electricity sector in Nigeria is one of the most important aspects of the economy in Nigeria which
as of “2020 job creation budget” emerged as the second largest budget with 127 billion Naira behind
work and housing with 262 billion Naira.
The history of the Nigerian electricity can be traced back in 1886 Lagos although distributes
megawatts of electric power that is significantly less than what is needed to meet basic household and
industrial needs.
Thermal and hydroelectric power are used to produce electricity in Nigeria. Power generation was
primarily the responsibility of the Federal Government through NEPA at the start of the fourth
Nigerian republic however, as a result of ineffective leadership and poor implementation reforms
started in the 2005 with the signing of the electric power sector reforms act opened up the industry to
private investors.
The privatisation process began on the September 2013 under the Goodluck Jonathan regime, the
PHCN ceased to exist instead the Nigerian Electricity Regulatory Commission was formed. The
NERC was tasked with monitoring and regulating the Nigerian electricity industry, with issuing
licenses to market participants, and with ensuring compliance with market rules and operating
guidelines.
The NERC company was divided into separate companies or entities called local electric distribution
companies or local distribution companies (LDC). Each company will be responsible for handling
electricity distribution in each state or region DISCOs and six generating companies (GENCOs) while
retaining 100% ownership of the transmission company of Nigeria (TCN).
The role of the public sector budget on electricity in Nigeria, which primarily affects government
expenditure, particularly recurrent expenditure, which primarily deals with the sector's maintenance.
The country's inability to provide adequate and reliable energy, especially to private and industrial
businesses, as well as the economy in general, is well recognised.
The Nigeria’s shortage of reliable power supply is a constraint on the country's economic growth
(Samuel.A.O,2020).All sectors have become so reliant on self-generated power from petrol and diesel
generators, which are used by more than half of the Nigerian population.
As a result of the above, the relationship between the government budget and electricity in Nigeria
has always been a thorny problem. Despite the fact that they are selective studies that concentrate
exclusively on the government spending on electricity in Nigeria. Thus, the aim of this research is
to find out how the Nigerian government's budget (expenditure) affects electricity
1.2 STATEMENT OF PROBLEM
Observably, from “2020 job creation budget” which shows the amount the government spends (127
billion Naira) on the electricity market, which contributed to the study's main issue being discovered
as inadequate policy execution and mismanagement of funds.
Nigeria which is completely endowed with natural resources and being the 11th largest oil producing
country in the world (J.William Carpenter, 2020). This does not change the fact that there is still a
significant supply gap for electricity in Nigeria.
Total installed capacity for electricity remained at 12,232 MW in 2014, the same level recorded in
2013, but showed an increase of 23.1 per cent above the 2012. The average generation capacity of
electricity has been oscillated within the range of 2,623.1 MW/hr in 2007 and 3,485.5MW/hr in 2014
against the estimated demand of 10,000MW per day (CBN Annual reports) instead outputs has shown
a decrease throughout decades.
The low and unstable capacity utilisation in electricity sub-sector reflected the large gap between
installed and actual operational capacity as evident in an average of less than 40.0 per cent for the
period discussed (Wayemi, 2008:18).
Thus, if the government budget has an effect on the electricity sector is a concern shared by all
Nigerians. As a result, this study is needed to determine the effect of the public sector budget
(expenditure) on electricity from an analysed perspective.
1.3 OBJECTIVES OF THE STUDY
The ultimate objective of this study is to investigate the impact of public sector budget on electricity
in Nigeria. The specific objectives of this study are:
I.
To examine the variables that impact on electricity.
II. Examine the significant effect of budgetary capital expenditure on electricity in Nigeria.
III. Examine how the budgetary recurrent expenditure significantly affect electricity in Nigeria.
1.4 RESEARCH QUESTIONS
The objectives stated above has led to the following questions:
1. What are the variables that impact electricity in Nigeria?
2. What significant effect does budgetary capital expenditure have on electricity in Nigeria?
3. How significant is the effect of budgetary recurrent expenditure on electricity in Nigeria?
1.5
RESEARCH HYPOTHESES
The research questions of the study brought light to the hypotheses of the study. They include
H01: The public sector budget has no significant impact on electricity in Nigeria.
H02: Budgetary capital expenditure have no significant effect on electricity consumption in Nigeria
H03: Budgetary recurrent expenditure has no significant effect on electricity consumption in Nigeria
1.6 SIGNIFICANCE OF THE STUDY
The study's significance is based on the unsatisfactory output of the federal government's electricity
sector, which leaves the researcher uncertain if the supposed theoretical relation between government
expenditure and the electricity sector exists in reality in Nigeria.
As a result, the study's importance is manifested in research results that are useful to the government
and its organisations such as the ministry of finance, budget office, the economic planners, researchers
and the general public on the consequences of a fluctuate in government spending on the electricity
sector.
The study's results would provide a forum for the government to use all of the evaluated governmental
budget on electricity. This will also help the ministry of finance, budget policies and the NERC to
enforce policies and find ways to better allocate funds to where they are needed.
The research findings will also contribute to the creation of information about the research subject,
which will make use of up-to-date data and thus become a reference point. The research proposals
are beneficial to the general public in raising knowledge about the research matter.
1.7 SCOPE OF THE STUDY
This study scope will cover the impact of the public sector budget on electricity in Nigeria. The
variables of this study were critically analysed for the period covering from 2011 to 2020. The reason
for this period is history of the electricity sector before the privatisation of the sector in 2013 hence it
shows the performance of the privatisation and after that. For instance, September 2013 under the
Goodluck Jonathan regime the privatisation of the PHCN was in full effect. The study which was
carried out in Nigeria.
1.8 LIMITATIONS OF THE STUDY
Given the researcher's keen interest in the topic, the analysis will be constrained to some degree.
Limited time was one of the problems encountered in the study due to the researchers commitment
to academic work as lectures and examinations. Access to information from the ministry of finance,
the budget and various government agencies were a bust due to the bureaucratic and bizarre policies
which also shortened the amount of information which was used in the study.
Another limitation faced in this research was insufficient funds in sourcing for relevant materials and
in the process of data collection. There exist hosts of issues affecting electricity in Nigeria but data
unavailability and inaccessibility envelop the length, breadth and depth of this study.
Even though it is important to note that the study's limitations have no bearing on the study's results,
which were utilised to enhance the use of available resources.
1.9 ORGANISATION OF STUDY
This research paper is divided into five chapters:
Chapter one: consist of the introduction, statement of problem, the research questions, the objective
of the study, statement of hypotheses, significance of the study, scope of the study, limitation of the
study, definition of terms and the outline of the study.
Chapter two: This chapter includes the conceptual and literature review of this study.
Chapter three: Includes the methodology, which describes the methods used in designing and
investigating the research, as well as how the information was gathered and collected.
Chapter four: Includes data presentation, analyses and the discussion of findings.
Chapter five: Includes the summary, conclusion and recommendations.
1.10 DEFINITION OF TERMS
IMPACT: The action of one object coming forcibly in contact with another.
PUBLIC SECTOR BUDGET: This is a structured statement of projected revenue and expenditures
focused on future expectations and goals.
ELECTRICITY: This is simply the presence and flow of electric charge or power. It is a secondary
energy source which means we get conversion of other sources of energy.
GOVERNMENT: This is a system to govern a state or a community.
EXPENDITURE: The aggregate amount of money spent by a government or an individual.
PUBLIC EXPENDITURE: This is the amount of money spent by a nation's government on
collective needs and wants.
Electricity Consumption: This refers to the actual quantity of energy used by household and
organisations.
1.11 SUMMARY
This chapter provided a general overview of the effect of the Nigerian government's budget on
electricity. It illustrates the relationship between the budget and energy in Nigeria by looking at
government spending. It also explains why, despite increases in Nigeria's electricity budget
expenditure, the government has been unable to convert these increases into increased power sector
growth. It demonstrates that, despite the large budgeted number, if properly implemented and
controlled, the country will have a more secure power supply.
The main goals are also mentioned, along with three basic objectives, questions, and hypotheses.
The significance, scope, limitation, and definition of terms were all clearly indicated.
CHAPTER TWO
LITERATURE REVIEW
2.1 INTRODUCTION
This chapter situates the study within the larger body of knowledge. It conceptualises, reviews, and
presents previous research on the Nigerian government's public budget (expenditure) and electricity
in Nigeria. The survey is divided into three sections: conceptual, theoretical, and empirical. A
description of the examined chapter concludes this chapter.
2.2 Conceptual Literature Review
The researcher's synthesis of the literature on how to explain a phenomena is represented by a
conceptual framework. It lays up the steps that must be taken during the course of the research, based
on the findings. The researcher's understanding of how the specific variables in his or her study are
connected is the conceptual framework of this study.
2.2.1 Concept of Public Budget (Expenditure)
According to Charles Horngren, an accounting high priest defined budget as “a quantitative
expression of plan of action and an aid to coordination and implementation”. A budget is simply
defined as a financial plan relating to a period of time. The Institute of Management Accountants
defined budget as “a plan quantified in monetary terms, prepared and approved prior to defined period
of time, usually showing income generated and expenditure to be incurred during that period and the
resources to be employed to ascertain a given objective”.
Olurankise (2012) defined budget as a framework for revenue and expenditure outlays over a
specified period usually one year. Uchegbu (2004) also defined as a financial and or quantitative
statement, prepared prior to a defined period of time, of the policy to be pursued during that period
attaining a given objectives. Ramatu (2020) Budget is the main instrument by which the state manages
the economy to ensure growth and stability in the social circle.
Meigs and Meigs (2004) defined budget as a comprehensive financial plan, setting forth the expected
route for achieving the financial and operational goals of an organisation. Samuel and Wilfred (2009)
opined that budget is a comprehensive document that outlines what economic and non-economic
activities a government wants to undertake with special focus on policies, objectives and strategies
for accomplishment that are substantiated with revenue and expenditure projection.
A budget is prepared to facilitate effective utilisation of funds and for realisation of organisational
objective. Budgeting is one of the management tools for planning and control. Omolehinwa(2003),
viewed budget as the plan of dominant individuals in an organisation expressed in monetary terms
and subject to the constraints imposed by other participants and the environment indicating how the
available resources may be utilised to achieve whatever the dominant individual agreed to the
Organisation's priorities. Ramatu A.Y (2019) defines Budget could be seen as an outlay which defines
government expected income and anticipated expenditure within a given period of time usually one
year.
Within the limited resources available for public expenditure, the public sector budget is the most
important policy instrument for putting a country's economic and social goals into action. The federal
government's public sector budget is a statement of projected spending and receipts for the following
year.
The budget of the public sector is an instrument for accountability and transparency. It offers a
comprehensive examination of budget decision-making in a comparative context, concentrating on
the experiences of a number of nations.
Despite the scarcity of resources, the public sector budget is a government control instrument that
allows managers to distribute scarce resources and assure their sensible use.
As a result, public sector budgeting may be defined as the process of creating budgetary plans for the
federal government. The public sector can also be used to design a country's fiscal year.
Competing policy objectives are also resolved and implemented in tangible terms through this
procedures. Governments may be considered as producers, combining labor with any other input to
generate a variety of outcomes. In the education sector, for example, the government funds instructors
and books to combat illiteracy, which is made possible by public spending.
Okoye et al.(2019) defines public expenditure as the expenses which government incurs for (i) for its
maintenance, (ii) the society and the economy, and (iii) helping other countries. Public Expenditure
also comprises of government payment of goods and services acquired and for the works done
pursuant to their respective laws, social security contributions, interest payments of domestic and
foreign debts, general borrowing expenditures, payment resulting from the discounted sale of
borrowing instruments, economic, financial and social transfers, donations and grants, and other
expenditures ( Ramatu A.Y, 2019).
In Nigeria, public spending is a primary determinant of production growth and an important role in
economic management. The government's intention to promote a favorable business climate by
providing public goods that can boost productivity and output growth in the face of externalities
drives the efficiency and structure of these expenditures.In other words, the form and scale of public
expenditure have a significant impact on the supply of high-quality public goods and other connected
services.
The public expenditure can be used as a lever to raise aggregate demand and thereby to get the
economy out of recession. On the other hand, through variation in public expenditure, aggregate
demand can be managed to check inflation in the economy (supriya guru). The importance of public
expenditure can be used as a regulatory body by the government to control and improve some sectors
in Nigeria. Okoh (2008) sees government expenditures as the expenses the government incurs in
carrying out its programmes. Oriakhi (2004) government expenditures are the expenses which
government incur for the maintenance of the government and the society in general.
It also conventional to classify the public expenditure into various economic categories. Accounting
classification has been there for centuries because it enables the State Executives to maintain an
effective control and check over public expenditure and possible leakages and wastage, diversion and
misappropriations (Chude & Chude, 2013; Oyediran, Sanni, Adedoyin & Oyewole, 2016). It may be
departmental classification or classification according to heads of expenditures. Such a classification
is not good for auditing and for safeguarding against misappropriations, etc., but it does not help in
the understanding of its effects. It is, therefore, difficult to formulate an appropriate expenditure
policy on this basis. There is an increasing demand for effective classification of public expenditure
to enable the gauging of economic effects and proper formulation of policies.
According to the macroeconomic theory advanced by J.M.Keynes, the role of public expenditure in
the determination of level of income and its distributions is fully recognised. Expenditures of
governments are now being practised all over the world. This results to the need of modern economist
analysing the effect of public expenditure on several sectors in the economy. Public expenditure
involves all the expenses which the public sector incurs for its maintenance for the benefit of the
economy (Anyanwu, 1997).
Economists classify government expenditure into three main types (Oni, Aninkan & Akinsaya, 2014;
Modebe, Okafor, Onwumere & Ibe, 2012): (i) Government purchases of goods and services for
current use are as government consumption; (ii) Government purchases of goods and services
intended to create future benefits, such as infrastructure investment or research spending are classed
as government investment; and (iii) payment for debt services are classified as transfer payments.
The classification of expenditure involves the division of government transactions into categories
that would serve the purposes of government. Nrudeen and Usman (2010) and Taiwo and Agbatogun
(2012) identify five ways of classifying public expenditures: by level of government, by ministries,
extra-ministerial departments and parastatals, by economic life span, by object of expenditure and by
sectoral economic functions. Public expenditures are functionally classified into four in Nigeria
(CBN, 2008): Administration, Economic services, Social and Community services, and Transfers
with capital and recurrent expenditure compositions.
The initial discussion on public expenditure originated from John Maynard Keynes when he
advocated the need for government intervention in the management of macroeconomy of nations after
the devastating effects of the World War I; and in the face of the threatening effects of the World II
(Keynes, 1936). Keynes position is that the existing laissez-faire doctrine of market (pure capitalist)
economy allocating resources will no longer suffice. This was so because the private sector could not
invest after the war as they no longer had financial resources to adequately fund businesses. (Edwin
E.E., Soni E.I., Oluseun A.I.,2014).
The continuous increase in public spending in all nations over the last 150 years indicates a strong
relationship between public spending and economic and social progress. In OECD nations, spending
is presently at historically high levels of 40% of GDP, and it is increasing in emerging nations.
The most important factor in promoting economic growth and development is public spending. It is
necessary for the funding of infrastructure such as roads, power, and water. It offers the health and
educational services that let a modern economy run more smoothly and efficiently.
Public expenditure supports almost half of all jobs in Nigeria. Subsidies, contracts, and investment
financing now tie most sectors of the economy to government expenditure. Public expenditure has
been utilised to give an economic boost and to save the banks through public ownership in order to
combat the recession.
As the role of the country continues to increase in developing nations, public spending will almost
certainly continue to rise rapidly. Public expenditure can also be used to pay off a country's debts.
Government expenditure rose dramatically in the twentieth century, as governments throughout the
world began to devote greater resources to education, healthcare, and social security. Governments
in rich nations now spend more as a proportion of GDP than governments in underdeveloped nations.
Government services are essential because they offer a public good while also reducing some of the
market mechanism's flaws. These functions can be carried out with the use of government expenditure
tools. The most essential weapon of fiscal policy is government expenditure.
Governments practiced laissez-faire economic policies, and their roles were limited to defending the
country against foreign aggression and maintaining peace and order inside their borders. However,
government spending has risen dramatically throughout the world. As a result, modern economists
have begun to examine the impact of government spending on output and distribution.
Government expenditure is critical for influencing changes in national revenue, providing the right
demands for potential output, and safeguarding the economy's health. Government spending, on the
other hand, can direct increases in national income to a desired national output or a new economic
growth equilibrium, but it also has the potential to shift the equilibrium..
To satisfy an economy's many social, economic, and regulatory obligations, government expenditure
is necessary. The link between government expenditure and the electrical industry's growth is well
recognised.
It is important to identify government spending in some concrete way in order to properly understand
the likely effect of government expenditures on the economy and there are various classification
systems, the best one for an expert will depend on the goals to be accomplished.
Dikeogu and Otto (2016) also further recognise classifications of public expenditures in the context
of productive and protective expenditures. Expenditures on infrastructural development, public
enterprises or development of agriculture increase productivity capacity in the economy and bring
income to the government these are referred to as productive expenditure. Protective expenditure
talks about expenditure in the nature of consumption such as defence, interest payments, expenditure
on law and order and public administration.
Egbo, Nwankwo, Okoye and Onuora(2016) views the classification of public expenditure as clearly
of analytical nature. They distinguish two main categories. Category one includes consumption
expenditure. The second category is investments, Investment expenditure includes (i) the investment
that do not generate a financial return, but rather improve the (future) quality of life; (ii) investments
that generate a financial return and lead to an increase of future government revenues (Ramatu
A.Y,2020).
The classification of public expenditure into transfer and non-transfer expenditures was favoured by
pigou (1989). Transfer expenditure relates to the expenditure against which there’s no corresponding
return. This expenditure that’s been incurred, the government does not get any return it only adds to
the welfare of the people. Examples are interest payments, pensions and unemployment benefits. In
these cases, the government is simply transferring the right or claim to use the goods and services to
certain sections of the society. In contrast, non-transfer expenditure relates to expenditure which result
in the creation of income or output. The use of the resources by the state may be for consumption
purposes or for investment purposes. Expenditure on defence and education are non-transfer or real
expenditure (Oziengbe, 2013; Odior, 2014).
Plan expenditure and non-plan expenditure are two types of public spending. Non-plan expenditures
are divided into two categories: revenue and capital expenditure. Plan expenditures include
agriculture, rural development, irrigation, flood control, and resources. Although it incorporates some
capital investment, this is mostly a revenue expenditure.It is the amount of money spent by the
government on non-productive sectors.
Government spending that is productive is seen as an important aspect of the development process
and a substantial portion of the public sector. As a result, any substantial investment will improve
public sector performance, create a desirable outcome in terms of production growth, and boost fiscal
policy's ability to control the economy.
For the purpose of this study, government expenditure is disaggregated into recurrent and capital
expenditure. Recurrent expenditure refers to all payments other than capital assets, including on goods
and services examples of these could be wages and salaries, interest payments, subsidies and transfers.
These type of expenditures are recurring in nature. Capital expenditure refers to the payments for
acquisition of fixed capital assets, stock, land or intangible assets. A good example would be building
of infrastructures. They are also seen as long term investments. Although the electricity sector though
recurring in nature is a capital project which an understanding of these two classification are needed.
These categorisation, were not mutually exclusive but were indeed inter-linked. For instance, while
capital expenditure gave rise to recurrent expenditure in most cases through the operational and
maintenance costs of completed capital projects, the amount available for investment was a function
of not only the size of revenue but also the amount that goes annually into the running of the
government (Ramatu A.Y,2020).
The Nigerian economy's government spending is divided into two categories: capital and recurrent
expenditure. The overall expenditure of the government is calculated by adding capital and recurring
expenditures. Despite the varying rate of earnings in recent years, Nigeria's overall spending has
consistently been on the rise. This, however, is owing to rising demand for public utilities as a result
of population expansion and the establishment of new states.
Total spending has continued to fluctuate at an increasing pace in the previous three decades or more,
according to statistical data from the central bank of Nigeria's bulletin. Total government spending,
for example, fell from 14.97 billion Naira in 1980 to a projected 11.41 billion in 1981. Up to the end
of 1985, the downward trend continued.The earlier rise in spending was primarily due to the
multiplier effects and rollover benefit of the 1970s oil boom, which was fueled by higher crude oil
prices.
Public expenditures can also be classified according to the economic nature of the transaction they
involve, ranging from civil service wage compensations, one-time capital expenditures, the financing
of a subsidy or a cash transfer such as pensions or unemployment benefits, to the procurement of
private-sector goods or services that are used as inputs in government production.This categorisation
is related to government expenditures by function since it separates wider categories of the
government's production function and its interaction with the economy.
All government consumption, investment, and transfer payments are included in government
expenditure. Government final consumption expenditure is defined as the purchase of goods and
services by governments for immediate use in order to directly meet the individual or collective needs
of the community in national accounting.Government investment refers to the purchasing of products
and services by the government that will provide future advantages, such as infrastructure investment
or research funding (government gross capital formation). Together, these two forms of government
expenditure, final consumption and gross capital creation, make up one of the largest components of
GDP.
The beauty of public expenditure in promoting the electricity sector in Nigeria lies with the way it is
being spent. There has been several factors found to be responsible for public expenditure rise. These
factors are discussed below:
Inflation: Inflation is a measure of the rate of rising prices of goods and services in an economy.
Inflation can occur when price rise due to an increase in production costs, such as raw materials and
wages. A surge in demand for goods and services can cause inflation this is due to the fact that
consumers are willing to pay for them. Once inflation becomes prevalent throughout an economy the
expectation of further inflation becomes an overriding concern in a nation. Just like a private
individual , the government tend to buy goods and services from the market for development of a
nation. With the increases the government has to incur increasing costs which eventually affects the
growth of public expenditure. In a developing country like Nigeria, the constant fluctuation of
inflation price is an evident worry of the government. The Nigeria’s annual inflation eased to 18.12%
in April of 2021, the first decline since August 2019, down slightly from a four-year high of 18.17%
in March.
Population: Population is a distinct group of individuals, whether that group comprises a nation or
a group of people with a common characteristic. population of developing countries like Nigeria is
increasing fast. As of 2019, the Nigeria population is estimated by the World Bank, United States
Census Bureau at 201 million and still rapidly increasing. The Nigeria population is equivalent to
2.64% of the total world population. The ever evolving changes in the general population rate might
affect some services like defence or electricity sector where the government will have to generate
more electricity which will lead to the growth of electricity. The growth of population has frequently
been cited as a factor that contributes to the growth of public expenditures. Changes in population
tends to affect some services. As a result the government has to incur greater expenditure to fulfil the
needs of the increasing population. With the progress of the economy and the growth of population,
the extent of urbanisation increases. In India, the proportion of urban population to the total
population has raised from 11.3 per cent in 1921 to 25.5 per cent in 1991 and to 27.8 per cent in
2001.The degree of urbanisation grows in tandem with economic expansion and population
expansion. Existing towns expand as a result of increased urbanisation, while new ones emerge.
Greater per capita investment on social and administrative services is required as cities grow. As a
result, India's growing urbanization has tended to boost government spending.
Defence: Another factor which contributes to the growth of public expenditure is the mounting
defence expenditure incurred by countries all the world over. It is not only during wars that defence
expenditure increases but also during the peace times also. The growth of expenditure could also be
that of threat of war. There is arms race going on between countries and a fight against insurgency.
In a developing country like Nigeria one of the prominent problem is that of insecurity. This affects
the growth of public expenditure by ways of police protection or fire protection, armoured tanks and
many other equipments. Thus, mere sovereignty, demands a larger allocation of financial sources for
defence preparedness.
Technical changes: technological changes can significantly affect the share of social good in an
efficient product mix. Technological change in particular has a major bearing on the development of
the expenditure share. As technology changes, so do the processes of production and the product mix
which is efficient to produce. Technological change refers to the discovery of the new and improved
methods of producing goods. Technological advances sometimes result in the increase in available
supplies of natural resources. This change could lead to increase in output per head of the population
thus it is the prime mover of economic growth. The substantial influence of technology progress on
the economy's social and structural organization indicates at least an indirect influence on public
spending increase. The mix of production within the economy has also been influenced by
technology. As the economy grows, more division of labor and regional integration put pressure on
the service sector to meet these expectations.
The level of savings being low in a developing countries like Nigeria. Costs such as electricity in
Nigeria are underdeveloped. Public expenditure develops the nation through sectors like electricity,
defence and education. They are also made for the maintenance of the government as well as for the
benefit of the society at large.
The categorisation of government functions (COFOG) categories can be used to categorize public
spending. Those are the categories.
1.Social protection—Policies and programs aimed at reducing poverty and vulnerability by
encouraging efficient labor markets, reducing people's risk exposure, and improving their ability to
handle economic and social hazards such as unemployment, pensions, subsidies for family and
children, unemployment subsidies, research and development on social protection.
2. Health: Health is more than just the absence of sickness or weakness; it is a condition of total
physical, mental, and social well-being. Public health services, medical supplies, appliances, and
equipment, hospital services, and healthcare R&D are all government-created services.
4. General public services is a part of the public sector that encompasses operations of legislative
bodies (Chamber of Deputies, Senate), central executive bodies (government, President), and
public authorities at various levels, according to COFOG categorization (administrative agencies
and local government).Such as financial and fiscal affairs, external affairs, foreign economic aid,
public debt transactions and research and development related to general public services.
5. Education- The process of acquiring knowledge is known as education. Pre-primary, elementary,
secondary, and postsecondary education, as well as educational research and development.
6. Economic affairs-Governments maintain the legal and social framework, provide public goods
and services, redistribute income, mitigate externalities, and stabilize the economy. General
economic agriculture, fuel and energy, commercial and labor issues, forestry, fisheries, and many
other expenses fall under this category.
7. public order and safety- The operations of the institutions that safeguard residents' lives, health,
civil property, and property have an impact on public order and safety. The state's ability to
function is also influenced by public order and safety. This role is responsible for law
enforcement, firefighting, and the administration of justice.
8. Defence- This is a way of defending or safeguarding oneself, one's team, or one's country. A
country's government is entirely responsible for its defence, which includes military defence, civil
defence, and overseas military aid.
9. Recreation culture and safety- recreational and sporting services, cultural services and religious
services and so much more.
10. Environmental protection- The practice of individuals, organisations, and governments
maintaining the natural environment is one of the areas in which the government is involved. Its
goals are to protect natural resources and the ecosystem that already exists. Waste management,
pollution reduction, and so on.
11. Housing and community services- One of the most essential functions of government is to provide
affordable housing as well as to improve infrastructure. Housing construction, street lighting, and
water supply are all priorities.
The canons of public expenditure are a set of rules and regulations that regulate the government's
spending policy. The following four canons of public spending have been established by Findlay
Shirras:
1. The benefit canon states that government expenditure should be done in such a way that it
maximises societal benefits.
2. The Canon of Economics states that economics does not imply poverty. Public spending needs
to be productive and efficient.
3. Canon of sanction- Government expenditures should not be done without the approval of an
appropriate authority.
4. Canon of surplus- Public expenditure should be done in a way that avoids deficits, according to
the Canon of Surplus. The government should plan a budget that will result in a surplus.
Public spending benefits the economy in a variety of ways, including growth and
productivity.According to Oyinlola and Akinnibosun (2013), Akpokerere and Ighoroje (2012) and
Ogundipe and Oluwatobi (2016) explains public expenditure affect the level of production in three
possible ways:
I.
Effect on the capacity to work and save: public expenditure provides various kinds of social and
economic facilities stimulating the capacity to work of the people. Increased capacity implies
increased efficiency and greater employment. Level of income and savings tends to rise
facilitating greater investment and adding to the pace of growth. Dalton opines that ‘just as
taxation reduces an individual’s capacity to work, in the same way public expenditures increases
the individual’s capacity to work.
II. Desire to work and save: public expenditure induces the public willingness to work and save. As
a result, their income and standard of living rises.
III. Redistribution of Economic Resources: public expenditure makes the economy balanced by
redistributing the income resource from unproductive to productive activities. This result in the
increase in production. Although the effect varies between the development and developing
countries.
Bhatia (2008) cautions that to maximise the benefits of public expenditure and to avoid possible
harmful incidental effects, firstly, the various projects have the inflationary pressures. Care must be
therefore be taken that inflationary pressures are put under control during the process of development.
Secondly, on account of faulty planning and execution, a lot of wastage can take place in public
expenditure. This must be avoided. Thirdly, given the scarce resources, care must be taken to choose
the most appropriate and most useful projects. Cost-benefits study may be needed to prioritise the
projects. Fourthly, a careful decision has to be taken regarding the volume of public expenditure in
various projects and on various measures expected to stimulate investment. The effects of the sources
of financing the compositions of public expenditure must be considered.
An old-fashioned dictum says that “ the very best of all plans of finance is to spend little, and the best
of all taxes is that which is least in amount.” No-one believes this philosophy.Public spending on
social and economic infrastructure, such as electricity, has the potential to improve the economy's
performance through promoting the economy's newborn industries. As a result, we can see how wellmanaged public spending may boost production by increasing productivity or the ability to create and
save.It can also generate resource reallocation across industries and regions, as well as have a positive
impact on the pattern of production activity done by the government through public businesses.
2.2.2. The Electricity Sector
The electricity sector is considered to be a sector engaging in the processing, distribution and sales of
electric power in forms suitable for feeding industrial processes and household equipment, and
involved in the processing, distribution and sales of electric power from sustainable sources the
exploitation of which does not imply shortages of supplies in a long time perspective , that is such
sources as wind energy, solar energy, biomass, geothermal energy and biogas (kraków, 2013). The
electricity sector covers the generation, transmission, distribution and sales of electricity to general
public and industries. This sector plays a unique role in achieving targets and more importantly to
sufficient electricity to its people. The organisation in charge with the responsibility of the electricity
sector in Nigeria is the Nigerian Electricity Regulatory Commission (NERC) who was formally
addressed as the National Electric Power Authority (NEPA).
Electricity generation in Nigeria can be dated back to 1886 in Lagos where two generating sets were
installed to serve the colony of Lagos although the first electric utility company known as the Nigerian
Electric Supply Company was established in 1929.
The period between 1886 and 1945, the electricity power generation was rather low with power
provided largely.The Nigerian legislative council took the first steps toward integrating the energy
industry in 1950, when it passed a bill establishing the Electricity Corporation of Nigeria, which was
charged with creating and providing electricity. The Nigerian Electrical Corporation assumed control
of the electricity industry.
The company was in charge of 46 megawatts of power in 1951. Between 1952 and 1960, ECN built
coal-fired turbines in Lagos' Oji and Ijora neighbourhoods and began planning a transmission
network. By 1961, the company had constructed a 132 KV transmission line connecting Lagos and
Ibadan through Shagamu, and in 1965, the line was extended to the Western system.
The Niger Dams Authority (NDA), a statutory body founded in 1962 to develop and operate dams
between the Niger and Kaduna rivers, went on to construct a 320 MW hydropower facility at Kainji
in 1969. The National Electric Power Authority was formed in 1972 when the NDA and the ECN
amalgamated to become the National Electric Power Authority (NEPA).
NEPA was in charge of the generation, transmission, and distribution of electricity throughout Nigeria
by the year 2000. It was a vertically integrated utility with a total generation capacity of 6,200 MW,
generated by two hydro and four thermal power facilities. As a result, the country's electrical supply
has become unstable and unpredictable, resulting in frequent blackouts and extended power
outages.Nigeria's economy is the largest in Sub-Saharan Africa, but its electricity sector is
constrained. Lack of upkeep of electricity infrastructure, obsolete power plants, and other issues
characterize the industry's constraints.
The total installed capacity of Nigeria's 25 grid-connected producing facilities is now at 12.5 MW,
although many of them have recurring issues such as maintenance and repair needs. There are 85
percent fossil fuel (gas) fueled power facilities and 15% hydroelectric power plants linked to the grid.
The National Electric Power Policy, which had as its objective the development of an efficient power
market in Nigeria, was promulgated in 2001, kicking off a reform of the electrical industry. Its
ultimate goal was to shift ownership and management to the private sector, which was later
accomplished by former President Goodluck Jonathan's administration.
The electricity sector has been seen by many analyst has a key constraint on economic development.
Assessing the ease of getting electricity, the world bank ranked Nigeria 187 of 189 countries in the
2015 edition of Doing Business report. For a business in Lagos, to obtain permanent electricity
connection takes 260 days (WB;2014:b).
With a population of 186 million people in 2016, it was the most populous country in the world at the
time. Nigeria has a capacity of 12,500 MW installed and a merger producing capacity of
approximately 7,000 MW available. The electrical industry is organised into three sub-companies,
which are as follows:
1. Generating company of electricity in Nigeria:
Nigeria has 23 power plants linked to the national grid, with a total capacity of 11,165.4 megawatts
(MW). Generating corporations (Gencos), independent power suppliers, and the Niger Delta Holding
Company are in charge of these units (NIPP).
Table 1
COMPANY
TYPE
CAPACITY
Kainji Jebba Power Plc
Hydro
1,330 MW
Ughelli Power Plc
Gas
942MW
Sapele Power Plc
Gas
1,020 MW
Shiroro Power Plc
Hydro
600MW
Afam Power Plc
Gas
987.2MW
Niger Delta Power Holding Company Gas
5,455MW
IPPs
Gas
1,392MW
Egbin Power Plc
Thermal 1,020 MW
Table 2
Nigeria’s electricity sources
Source
Gas
Hydropower
Oil
Coal
% Contribution
39.8
35.6
24.8
0.4
2. Distributing Company of electricity in Nigeria: there are currently 11 companies responsible for
distribution in Nigeria.
I.
Abuja Electricity Distribution Company plc
II. Benin Electricity Distribution Company plc
III. Eko Electricity Distribution Company plc
IV. Enugu Electricity Distribution Company plc
V. Ibadan Electricity Distribution Company plc
VI. Ikeja Electricity Distribution Company plc
VII.
Jos Electricity Distribution Company plc
VIII.
Kano Electricity Distribution Company plc
IX. Kaduna Electricity Distribution Company plc
X. Port Harcourt Electricity Distribution Company plc
XI. Yola Electricity Distribution Company plc
3. Transmission company of Nigeria: TCN is in charge of the country's energy transmission network.
It is one of the 18 businesses that emerged from the former Power Holding Company of Nigeria
(PHCN) in April 2004. It is the result of a merger of PHCN's transmission and system operations
divisions. It was founded in November 2005, and on July 1, 2006, it received a transition license.
TCN is now owned and run entirely by the government, and it will be reorganized and reformed in
order to increase its dependability and capacity.
It is in charge of evacuating and transporting electric power generated by energy producing
companies (GENCOs) to distribution businesses (DISCOs). Between the GenCos and the DisCos'
feeder substations, it supplies critical transmission infrastructure.
The TCN consists of three operational departments:
A. Transmission Service Provider (TSP): The TSP is in charge of the transmission infrastructure's
development and upkeep. It is in charge of the country's interconnected transmission networks of
substations and power lines, as well as open access transmission services. Its job is to keep the
transmission grid's physical infrastructure in good working order and to expand it to new regions.
B. System Operations (SO): the SO is in charge of managing the flow of energy from generators to
distribution firms across the power system. It manages the Nigerian Electricity Supply Industry's
Grid code (NESI). Through its operations of planning, dispatch, and control of the electricity
grid, the SO is responsible for assuring the reliability of transmission grid lines and preserving
the system's technical stability.
C. Market Operations (MO): The MO is in charge of enforcing the NESI's market rules. It is in
charge of overseeing the Electricity Market and encouraging efficiency in the market.
Nigeria is the continent's energy powerhouse. It is the continent's most productive oil-producing
country, accounting for two-thirds of Africa's crude oil reserves, together with Libya. In terms of
natural gas, it is second only to Algeria.
Over the previous 40 years, electricity energy production in Nigeria has ranged from gas-fired, oilfired, hydroelectric power stations, and coal-fired power stations, with the hydroelectric power system
and gas-fired system assuming priority.
Every nation's socioeconomic and technical growth is heavily reliant on electricity. The demand for
power in Nigeria vastly outnumbers the supply, which is epileptic. Despite the region's abundance of
natural resources, the country is plagued by severe electrical difficulties, which are impeding its
growth. There is a well-established link between socioeconomic growth and the availability of energy.
Thermal and hydroelectric power are used to create electricity in Nigeria. The major source of energy
generation in Nigeria is fossil fuels, particularly gas, which accounts for 86 percent of capacity, with
the rest coming from hydropower.
The causes for Nigeria's electrical sector's poor growth are obvious. The maintenance budget has been
drastically cut, and no additional capacity has been introduced. Another issue that has arisen as a
result of the formation of this sector is misuse of finances and poor policy execution.
The electricity sector has become one of those essential sectors as it has become a part of modern life
and one cannot think of a world without it. Electricity is part of our daily activities from lighting
rooms, working fans and domestic appliances to large machines in factories. The use of electricity is
no longer thing from electric trains to electric motors like the Tesla. All forms of entertainment from
amusement parks ride to cinemas and many more are fully powered by electricity. Electricity can also
be used in the health and care sector for examples tests like the x-rays, MRIs.
The use of electricity is increasing day to day and if not fully worked on would lead to poor production
in a nation. One of the best foundations of a developing company should be a stable electricity supply
which in turn promotes economic growth which leads to a better nation. It should also be noted that
the deficient supply of electricity in Nigeria has ridiculed the economic system.
Providing a reliable energy supply demands substantial investment as well as skilled network
management. Electricity supply and demand must be properly balanced at all times. Meanwhile,
regardless of the event, power usage varies during the day and night.
2.3 Theoretical Review
Theoretical reviews look at ideas that enlarge on the issue under investigation and therefore aid in a
better comprehension of the research in question while also providing justification for the present
investigation. There are four important general hypotheses of public expenditure. The first one is
known as the Wagner’s law, the second one is known as the ‘Displacement Effect’, introduced by
Alan T. Peacock and Jack Wiseman, the Musgrave theory of public expenditure by R.A Musgrave
and the fourth one the Keynesian theory by John Maynard Keynes. All of these hypotheses have been
tested in efforts to identify separately the determinants of government expenditure.
2.3.1 Wanger’s Law:
Wagner’s law of state, is known as the law of increasing state spending is a principle named after the
German economist Adolph Wagner of the latter half of the 19th century (1835-1917). He first
observed it from his own country Germany and then for other countries which reflected the growing
importance of government activities and expenditure as an inevitable feature of a “progressive” state.
The theory basically states that for any country, public expenditure rises constantly as income growth
expands. Thus, Wagner’s Law refers to the relationship between government expenditure and gross
national product in a long run.
Adolph Wagner contends that there is absolute and a relative expansion of the public sector, through
the expenditures of central and local government bodies and public enterprises, at the cost of the
growth in the economy (Wagner, 1911). Wagner, as cited by Bhatia (1967) postulated that there
existed a functional relationship between the growth of an economy and the growth of government
activities. Wagner’s law suggested that an increase in public sector because of the rising per capita
income would induce greater spending.
Wagner’s law states the growth of public sector is attributed to these three factors (i) Most countries
have registered increasing urbanisation. Urbanisation implies a much larger per capita expenditure
on civil amenities that are needed to deal with the increased population and urbanization, (ii) societies
are experiencing a growth population which leads to the increase in ‘cultural and welfare’
expenditures, particularly for education and the redistribution of income because of elastic nature of
income elasticity of demand for cultural and welfare expenditures, and (iii) rise in public investment
activity because of the monopolistic trends which require state intervention in the form of
nationalisation or monopoly control.
Though Wagners based his law on the historical evidence drawn from the economic growth of
Germany, this applies equally to other countries, both developed and developing ones. Prevailing
public expenditures reflects the underlying changes in the economic structure and development. He
justified public expenditure in terms of objective criteria, such as population or transportation needs
(Ramatu A.Y, 2020).
The law also predicts that the development of an industrial economy will be accompanied by an
increased share of public expenditure in gross national product. According to Wagner as an economy
develops overtime, the activities and functions of the state (government) increase. He said this based
on a comprehensive comparisons of different countries so in order to justify the law of increasing
state activities he divided public expenditure into two parts; External Expenditure and Internal
Expenditure and stated why each will increase with development of an economy.
Bird (1971) has pointed out that “the conditions under which one might expect the ‘Law’ to operate
would therefore, seem to be (i) rising per capita income; (ii) technological and institutional changes
of a particular sort and (iii) at least implicitly, democratization in the sense of wider political
participation of the polity (Bird, 1971).
Wagner’s model, while containing many insights, suffered from the drawback that it did not contain
a well-articulated theory of public choice. Indeed, Wagner assumed away the problems of public
choice by employing an organic theory of the state. According to him the state was assumed to behave
to behave as if it were an individual existing and making decisions independently of the members of
society (Bird, 1971). The Wagners law faced a lot of criticisms but it is still essential to the study of
public expenditure behaviours. Adolph Wagner also argued that the income elasticity for government
services is greater than unity in essence public expenditure will increase more rapidly than increase
in income of the public.
2.3.2 Wiseman-Peacock Hypothesis:
The second hypothesis about the growth of public expenditure has been put forward by Wiseman and
Peacock in their study of public expenditure of U.K. Their empirical study of the growth of public
expenditure in the United Kingdom from 1890 to 1955 is probably one of the best-known analyses
of the ‘time pattern’ of public expenditures.
Wiseman and Peacock (1961) postulates the theory of time pattern of public expenditures. They
premised their analyses on a political theory of public determination; that governments like to spend
more money and the citizens do not like to pay taxes and the government needs to pay attention to
the wishes of their citizens.
Wiseman and Peacock (1961) referred to the theory as a clearly inductive approach to explaining the
growth of government expenditure. Their hypothesis declares that government expenditure does not
rise in an even and incessant manner rather in jerky manner. Among all the theories of public
expenditure, the displacement hypothesis by Wiseman and Peacock received deepest attention.
Peacock and Wiseman observed that public expenditures during over time appeared to outline a series
of plateaus separated by peaks. There are three underlying basic propositions about the displacement
analysis are that (i) governments can always find profitable ways to expand available funds, (ii)
citizens, in general, are unwilling to accept higher taxes, and (iii) government must be responsible for
their citizens wishes. With this peacock and wiseman where able to derive the key concept of a
‘tolerable burden of taxation’ which acts as constraint on government behaviours.
During periods of social upheaval, such as war, can result in the weight of taxation being permanently
shifted upward. The end outcome is that the new expenditure plateau is reached at a higher level than
before the upheaval. According to Peacock and Wiseman, a battle brings to light issues that were
previously overlooked. This is referred to as the 'inspection effect.’
Although the displacement hypothesis was induced from a study of British data, peacock and
wiseman claims that it ‘give[s] us an approach for the subject that might equally be fruitful in studying
other countries or periods’ (p. 25). Rosenfeld (1973) points out, that is not what they do, since there
is no attempt the cyclical variations around expenditure trends in their study.
Peacock and Wiseman admit to the fact that their other more permanent factors may influence the
growth of government spendings. The effect of such factors were examined by Peacock and Wiseman
namely changes in population, prices and unemployment (business cycle).
There were several criticism of the theory which was based on the argument of reoccurrence of
abnormal situations which cause substantial jumps in public expenditures and revenues. Gupta (1967)
argued that the concept of tolerable burden of taxation would rather suggest a shift in the downward
direction depending on the prevailing situation. Peacock and Wiseman hypothesis of government
spending trend is more convincing than that of Wagner’s theory.
2.3.3 Musgrave Theory of Public Expenditure Growth
Musgrave proposed this idea after seeing fluctuations in the income elasticity of demand for public
services across three income levels. Musgrave (1969) opposes the notion that public-sector spending
can be explained by a shared set of generalisations. He categorizes government spending into three
categories: public capital development, public consumption, and transfers. He believes that early
phases of growth need a high public-to-GNP ratio, especially in transportation, irrigation, and
training. As the world continues to expand, these impacts will fade, and public capital formation will
be required to supplement and preserve private investment in sectors such as highways, defence,
sanitation, and education.
According to Musgrave, demand for public services is low at low levels of per capita income because
such income is devoted to satisfying primary needs; however, as per capita income rises above these
low levels, demand for public sector services such as health, education, and transportation rises,
thereby forcing the government to respond. He observes that when per capita income is large, as it is
in industrialized economies, the rate of public sector expansion tends to slow as more fundamental
needs are met.
R.A Musgrave's theory of public expenditures, as stated in his book The Theory of Public Finance.
Musgrave's empirical tests concentrated on one aspect of public spending current spending, reflecting
this concentration on the composition of government spending and data restrictions.
Musgrave and Rostow's theory of public spending growth is based on the necessity to provide social
amenities for growth and development. They further averred that at the development stage of an
economy, some capital projects are needed to accelerate the growth and development of the country
such as establishment of hospital, good road network, schools inter alia. Thus, government
expenditure is a function of the developmental stage of an economy.
GE = Where: GE = Pop =
Rev = GDP = Pp = BA = Xn =
f (Pop, Rev, Gov, GDP, Pp, BA -------------- Xn) ------------- (2.3).
Government Expenditure; Population;
Revenue;
Gross Domestic product; Price of Crude Oil; Budget Allocation;
other indices such as health services delivery, transportation, road network, education,
etc.
The central thesis of the prescribed theory is on the time pattern of government expenditure. (Edame,
G.E, W.M. Fonta, 2014). According to Rostow (1961), in the early stages of economic growth and
development, public sector investment as a proportion of total investment of the economy is found to
be high. He affirmed that the public sector provides social over heads such as roads, transportation
system, sanitation system, law and order. Others include; health, education and housing. This
expenditure is essential to propel the economy into the take-off stage.
Others have agreed with Musgrave on the need of changing the content of government spending
without emphasizing the tangential relationship to GDP. Wages and wages are a critical component
of public sector growth in many nations.
When public goods spending is taken into account, productivity growth in this sector is often lower
than in commodity production. Musgrave's theory of public spending growth tries to link the demand
for government services to a country's economic development stage.
2.3.4 The Keynesian Theory
John Maynard Keynes, a British economist, proposed this idea. During the Great Depression of the
1930s, the hypothesis gained popularity. The Great Depression had resisted all previous attempts to
put a stop to it. According to this notion, the government should promote demand in order to improve
growth. According to Keynes, government spending is an exogenous element that may be used as a
policy tool to enhance economic growth.
The idea that government spending can be managed to influence national income levels, with an
increase in government spending resulting to a rise in national production. Consumer demand,
according to Keynesians, is the major driving factor in an economy. The notion is in favor of a fiscal
policy that is more expansive. The government's key instruments are infrastructure expenditure,
unemployment compensation, and education. Overdoing Keynesian policy has the disadvantage of
increasing inflation.
In February 1936, he published “The General Theory of Employment, Interest, and Money,” which
outlined his premise. It maintained, first and foremost, that government expenditure was a key driver
of aggregate demand. As a result, an increase in spending will boost demand.
He also said that government expenditure was required to keep the economy afloat. During the
contractionary phase of the business cycle, Keynes argued for deficit spending. Even during the
expansionary period, politicians have utilized it in recent years.
Classical Economics is a school of thought that advocates for a laissez-faire approach. In contrast to
Keynesian Economics, which talks about and promotes government spending on infrastructure,
unemployment benefits, and education to increase consumer demand, it focuses on increasing
business growth will boost the economy and that the government should play a limited role and target
companies, not consumers. This theory unlike the Classical Theory is necessary to maintain full
employment.
The critiques are the same as they are for many other theories. Keynesianism is criticized by socialists
for not going far enough. They believe the government should play a more active role in safeguarding
the public good. This function entails controlling some manufacturing parameters. The majority of
socialist administrations control the country's energy, health-care, and educational systems.
The primary driver of the business cycle, according to monetarists, is monetary policy. High-interest
rates, according to monetarists like Milton Friedman, are to blame for the Great Depression. They
think that increasing the money supply will help to stop recessions and increase economic growth.
As a result, government spending boosts aggregate demand, resulting in higher production based on
multipliers.
2.4 Theoretical Framework (Wagner’s Law and Peacock -Wiseman Hypothesis-Musgrave
Theory of Public Expenditure-The Keynesian Theory):
In Nigeria, it won’t be farfetched to assume that public expenditure and electricity sector are
dependent on each other. The growth of the electricity sector matters as it leads to economic
development and thus the growth of public expenditure is compulsion. Ramatu A. (2020) stated that
in the developing countries like India, Wagner’s law is not capable of being applied, but is often felt
indirectly in the estimation of income elasticity of public expenditure, which is central to Wagner’s
scheme of thoughts.
The purpose of this research is to use time-series analysis to prove Wagner's law in the context of
Nigeria. This will aid in a better understanding of the relationship between government spending and
the Nigerian electricity sector.
Along with the Wagners law is that of Peacock and Wiseman hypothesis, Musgrave Theory of Public
Expenditure and The Keynesian Theory which this basic question as to what extent can this theory
be tested in Nigeria. Peacock and Wiseman theory was based on the study of public expenditure in
England and the Keynesian Theory was based on the Great Depression of the 1930s. The answer to
this question is what our study is set out find. In this study, we set out out to find if the growth of
public expenditure in a developing country is likely to follow the same path as that of a developed
economy.
2.5 Empirical Review
An empirical review, also known as a systematic literature review, reviews previous empirical studies
in order to address a specific research issue. The relationship between public expenditure and the
electricity sector in Nigeria has always been that of a controversial issue. Some studies show the link
between public expenditure and the electricity if positive leads to a better economic activity which
promotes economy growth. Toman and Jemelkovan (2003) outline some ways in which increased
energy availability could disproportionally affect development outcomes. Several are particularly
applicable to applicable to electricity: relocation of household time, especially for women, away from
energy provision towards improved education and income generation; enhanced productivity of
education investment due to children being able to study at night; the ability to use new technologies
including communication technologies; and health benefits resulting from outcomes such as reduced
indoor air pollution and the ability to refrigerate. Although the provision of a reliable supply of
electricity is costly and requires a lot of skilled personnels, in fact, Joskow and Tirole (2007,83) states
efficient allocation of in resources in electricity infrastructure is a “very challenging task”. Power
supply in developing countries is frequently less reliable than in industrialised ones due to the
complexity and expenses of electrical sector administration and investment. This does not appear to
be the situation in Nigeria, where the issue is not one of money but rather one of implementation.
Adenikinju (2012) notes that energy wealth of the country has not been efficiently managed,
especially, with respect to the electricity sub-sector. For example, Nigeria’s per capita electricity
consumption is among the lowest in the world as it is one-twentieth of South Africa and one-sixth of
Egypt. Adenikinju (2012) added that Nigeria has one of the highest electricity losses in the world in
the world at around 50% and electricity generation per electricity worker is also one of the lowest in
the world. Electricity access is about 40 per cent and there is a sharp inequality in access to electricity
across location, income and wealth. Nigerian electricity generation capacity is in excess of 7500MW,
while operational and available capacities are substantially below this. Significant proportion of
businesses and residential consumers generate their own electricity wholly or supplement the supply
from the national grid. With the help of tables and graphs, Adenikinju (2012) concludes that for
energy sector reforms to be successful, certain factors are important, these include credible
commitments by the government to a well-defined and properly phased timetable, policy and political
stability and right incentive structure. Adenikinju (2012) recommends that critical to the emergence
of a competitive electricity market is the presence of competition law and a commission to administer
such law; and that there is the need to provide more incentives for the operation of Independent Power
Projects (IPP) in the rural electrification sector.
According to Jumbe (2004), he employed the Johansen cointegration and the ECM in examining
whether a long run relationship exists between the GDP and the electricity variables in the Malawian
economy between 1970 and 1999. The result from this study revealed that there is a casual and direct
relationship between electricity consumption and economic growth. He concluded that when the
consumption of electricity increases, there will a boost in the level of economic growth in Malawi in
the long run. This study also proves the importance of a reliable and stable electricity sector helps in
the improvement of an economy. This point can also be similarly seen in a study carried out by
Odhiambo (2009); Adeola and Aziakpono (2017) investigates the usage of electricity power will
translate to the growth of the South African economy. The method of the trivariate causality was
employed, and findings from the study revealed that there is a two way causality between the usage
of electricity power and South Africa’s economic growth.
Electricity does not only improve the economic growth but also enhances the GDP. This also leads
to a study carried out by Akinlo (2009) examined the relationship between electricity power usage
and the real productivity in real GDP in Nigeria. The result of the study found out there is a long-run
relationship existing between the two afore-mentioned variable, this means electricity consumption
brings about economic growth.
Muritala and Taiwo (2011) set out to find out the main objectives of carrying empirical examination
on the trends as well as of government spending on the growth rates of the real GDP in Nigeria over
the last 38 decades (1970-2008), using econometrics model with Ordinary Least Square (OLS)
Technique. Their findings reveals the result with the coefficient are in line with a prior (predictions)
expectations.
Alby, et al (2012 and 2010), who applied a combination of tabular, graphical and econometric
approach in their analysis, and after reviewing a numbers of authors, note that in developing countries,
enterprises typically have difficulty connecting to the public grid or, when they are connected, face
frequent scheduled and unscheduled power cuts. Fluctuations in voltage and the frequency of power
cuts cause material losses and adversely affect manufacturing costs and output. To offset these
negative impacts, industrial firms in developing countries often opt for self-generation of electricity,
even though it is widely considered a second-best solution. Of the 25 sub-Saharan countries reviewed
by Foster and Steinbucks (2009), in-house generation accounts for more than 25% of the installed
generating capacity in three countries and for more than 10% in nine others.
Although both the income and expenditure constitute a critical component of a nation’s budget,
however, there are more concerns by the stakeholders on the size of expenditures devoted to each
sector. This is because the expenditure size, to a large extent, defines the scope of operations, growth
and performance of each sector of the economy (Joshua, 2019; Amusa & Oyinlola, 2019; Gurdal,
Aydin & Inal, 2020).
The Nigerian government role in economic activities has grown enormously just like the challenges
confronting public policymakers also increase daily. Public expenditures have been growing
continuously over the years and more especially in the last two decades (Olayiwola, Bakare-Aremu
& Abiodun, 2021). The total of both capital and recurrent expenditure of the government grew
sporadically from about ₦60.25 billion in 1990 to ₦701.1 billion IN 2000, ₦3.99 trillion in 2010 and
₦10.33 trillion (Azolibe, 2021).
To the author's knowledge, no study has concentrated on the effects of public sector budget
(expenditure) on the power sector in Nigeria, which is what this study attempts to do. As a result, the
goal will be to look at the relationship between government spending and the electrical industry in
order to boost economic growth.
2.5 Critique of Empirical Review
The debate between the government expenditure and the electricity sector is apparently far from over
in view of empirical study reviewed above. Odhiambo (2009); Adeola and Aziakpono (2017) findings
from the study revealed that there is a two way causality between the usage of electricity power and
South Africa’s economic growth. Muritala and Taiwo (2011) their findings reveals the result with
the coefficient are in line with a prior (predictions) expectations. Akinlo (2009) result of the study
found out there is a long-run relationship existing between the two afore-mentioned variable, this
means electricity consumption brings about economic growth. Jumbe (2004) this study revealed that
there is a casual and direct relationship between electricity consumption and economic growth. From
the following published articles and studies it is observed that public expenditure and electricity sector
have a relationship. Although in these studies it is not discussed the in-depth of this relationship and
how it affects each other. This study therefore is poised at widening the current level of existing
knowledge to investigate the relation between the government expenditure and the electricity sector
in Nigeria.
2.6 Summary
This chapter was dedicated to the conceptual, theoretical and empirical reviews of related literatures.
Conceptual evidences suggest the evidence of relationship between the public sector budget and the
electricity sector in Nigeria through the government budget. Theoretical evidences using the
Wagner’s Law, the displacement hypothesis, Musgrave theory of public expenditure and the
Keynesian theory shows the interrelationship between the budget and the electricity sector through
the public expenditure. Empirical evidences shows the need of a more in-depth study to increase the
elimination of confusing findings.
CHAPTER THREE
METHODOLOGY
3.1 Introduction
This chapter discusses the methods used to address the study's research questions. In other words, it
exposes the approach used in this investigation. The section captures the research design, the sources
of data used in the study, and the study sample. Finally, it explains the paradigm used in analysing
and interpreting the study's findings.
3.2 Research Design
This study is designed to structurally ascertain the Public Sector Budget (Expenditure) Impact on the
Electricity Sector in Nigeria, thus a quantitative research technique based on ex-post facto research
design is adopted. Ex-post facto research design is a type of design that utilises existing data on past
events (Onwemere, 2005); such data are already in existence. Also known as ‘after the fact’ research,
an ex post facto design is considered quasi-experimental because the subjects (public expenditure and
the electricity sector) are not randomly assigned - they are grouped based on a particular
characteristics or trait. The justification for using this design in this is due to the fact that is a type of
design that utilises existing qualitative data on past events which cannot be manipulated. This type of
research design also gives the privileges of observing the figures over a long period of time during
the period from 1886 to 2020.
3.3 Sources and Method of Data Collection
Documentary evidences constitutes from the instrument of data collection as the study is based on
secondary data collected from the NERC, Published articles and annual reports. It is our intention to
cover the period 2011 to 2020, however, the non-availability of data is a barrier. The period chosen
for this study encompasses the major reforms happened in the electricity sector form the formation
of the first where two generating sets were installed to serve the colony of Lagos. Also, the
privatisation of the electricity sector. The historical time-series data set obtained from the secondary
sources from the NERC. And for the public sector budget expenditures indicators and proxies are
used.
3.4 Method of Data Analysis
This study adopts regression analysis to test the data. Regression analysis is a set of statistical methods
used in for the estimation of relationships between dependent variable and one or more independent
variable. It can be used to assess the strength of the relationship between variables and for modelling
the future relationship between them. Multiple linear regression is a technique in which more than
one independent or explanatory variable is used to predict the value of the dependent variable. More
so, OLS multiple linear regression is the most widely used type of regression for predicting the value
of one or more than one dependent variables from the values of two or more independent variables
because, it gives equal importance to all the items in the time series, the older and the more recent.
This helps to study the relationship between the public sector budget expenditure and the electricity
sector and to know the extent of strength of relationship between the variables and helps in explaining
the relationship among the variables.
3.5 Techniques of Data Analysis
The regression analysis adopted in this study. Inferential and descriptive statistic tools are employed
for analysing the underlying statistical tests like the regression tests and the test of correlation is
multiple linear regression analysis which is estimated with the Ordinary Least Square (OLS) to
explain the government expenditure on electricity sector in Nigeria. This model is also referred due
to the fact its best to use for the time series data. The multiple linear regression is a technique which
is used to check in-depth the relationship between the independent and dependent variables with this
it will show the changes throughout the time series.
3.5.1 Estimation Techniques
Augmented Dickey-Fuller (ADF) and Philips-Perron (PP) test was conducted for all the time series
analysis in this study. The null hypothesis of the DF test is that an AR model has a unit root, implying
that the data series is not stable. Philips-Perron (PP) test builds on the Dickey-Fuller test. The issue
with this expression is that it is built on the assumption of stationarity, which is why it has been
approximated at different levels. Nonetheless, according to the hypothesis, starting points should be
doubts which we aim to clear. The Phillips-Perron test is a probabilistic correction to the t - statistics
that delivers more robust results in the disturbing process of the test equation due to undefined
autocorrelation and heteroscedasticity. When the variables of concern are found to be non-stationery
at some level then a cointegration test will be employed. A cointegration test is often used to see if
there is a long-term correlation between several time series. Cointegration tests detect situations in
which two or more non-stationary time series are incorporated in such a way that they cannot diverge
from equilibrium over time. The experiments are designed to determine how sensitive two variables
are to the same average price over a given time period. The Johansen test will be recommended as it
makes use of large sample size. If the results are cointegrated there is said a long term equilibrium
between the variables. An Error Correction Model (ECM) will used to test the behavioural assumption
between the two variables to determine whether they are long term or not.ECMs are a theoretically
based method for assessing short- and long-term impacts of one time series on another. As a result,
ECMs explicitly predict the time it takes for a dependent variable to return to equilibrium after other
variables have changed.
3.5.2 Robustness Tests
Assumptions lie at the heart of robustness tests. That's because any empirical analysis you might ever
conduct relies on assumptions to make sense of its findings. Furthermore, in statistics, classical
estimation methods rely heavily on assumptions which are often met in practice (Koller, 2007) .It
difficult to resist making assumptions, even if they're self-evidently correct. The correct use of the
multiple regression models require that several critical assumption should be satisfied in order to
apply the model and establish validity (Poole & O`Farrell, 1971). Robustness testing is any quality
assurance process that focuses on assessing the robustness of software. Robustness testing has also
been used to define the process of confirming the robustness (i.e. correctness) of test cases in a test
process.
3.6 Model Specification
Model specification refers to the description of the process by which the dependent variable is
generated by the independent variables. Model specification refers to the determination of which
independent variables should be included in or excluded from a regression equation. According to
Koutsoyiannis (2003) model specification involves the determination of the dependent and
explanatory variables which will be included in the model, the theoretical expectations about the sign
and the size of the parameters of the function. The regression model specifications is as much a
science as it is an art. Statistical methods can help, but ultimately you’ll need to place a high weight
on theory and other considerations.
Muritala and Taiwo (2011:) set out to satisfy the main objective of carrying out empirical examination
on the trends as well as effects of government spending on the growth rates of real GDP in Nigeria
(1970-2008). Bagdigen and Çentintas (undated) examine Wagner’s Law of long-run relationship
between public expenditure and the GDP for Turkey (1965 to 2000). Thus, on the basis of the
foregoing analysis, the modified structural model relevant will be specified in this study.
A visual inspection of the time series plots of the variables revealed that all the variables trending
overtime. This is due to the fact that these variables will be recorded as Naira not as a rate or ratio
which lead to the fact that the natural logs of these variables are taken in order to secure normality or
homoskedasticity.
3.7 A Priori Expectations
At the end of this study, it is intended to examine if the disaggregated government expenditure proxies
impacting the electrical sector have a positive or negative connection.
3.8 Summary
This chapter outlines the research methods used in this study to attain its goals. It explicitly justifies
the use of ex-facto design, data sources, and analysis.
CHAPTER FOUR
DATA PRESENTATION, ANALYSES AND DISCUSSION OF FINDINGS
4.1 Introduction
This chapter's purpose is to give the time-series data on the variables that have been sought; it is then
submitted to regression analysis (pre-diagnostic, regression tests and post-estimation tests). The
research hypotheses are validated using the findings of the analysis. The regression model is used to
try to figure out how the dependent and independent variables are related. This chapter concludes
with a discussion of findings to examine how previous research support or dispute our conclusions.
4.2 Data Presentation and Analyses
The data presented above is subjected series of statistical tests; disaggregated into three namely; preestimation tests, standard econometric tests and post- estimation tests. These tests are presented in
turn below:
4.2.1 Pre-Estimation Tests
This covers the descriptive tests, time-series normality tests using the Augmented Dickey Fuller and
Philip-Peron tests.
4.2.1.1 Descriptive Statistics
These statistics are summaries of descriptive coefficients for a certain data collection. The mean,
median, mode, standard deviation, variance, kurtosis, and skewness are divided into measures of
central tendency and measures of variability.
Table 3: Summary of Time-Series Descriptive Statistics Results
RGDP
CAPEX
RECEX
INTR
EXR
Mean
15273720.217
18
1,020,091,813,41
6.3
1579002113508.2
8
11.9318
101.6783
Maximum
127736827.81
3,850,000,000,00 5,650,000,000,000
0
14
413.0
Minimum
40014.483
2425049.90
9.95
153.15
Std.
deviation
39136901.057
7
1,477,795,676,47 2,212,334,695,781
9.9
.88
1.3009
257.1809
Skewness
2.154
0.971178
1.264
-0.0740
0.161
Kurtosis
0.0765
-0.388
0.0857
-0.188
1.827
11
11
11
11
11
Observatio
ns
701,415.40
The table above shows that the capital expenditure has a mean and standard deviation of
1,020,091.813 and 1,477,795.676 while implies the notable increase in public sector capital
expenditure over the years with the max value of 3,850,000,000,000 and minimum value of
701,415.4. Capital expenditure has skew value of 0.971178 and kurtosis of -0.388
The recurrent expenditure shows the mean value of 1579002113508.28 alongside the standard
deviation of 2,212,334,695,781.88. This indicates how the recurrent expenditure has significantly
increased which is further proven with the max. Value of 5,650,000,000,000 and minimum value of
2425049.9. Recurrent expenditure is skew value of 1.264 and kurtosis of 0.0857.
The real GDP indicates the value of mean has 15273720.21718 and standard deviation of
39136901.0577 which implies the increasing growth of the GDP. The minimum and max. Value of
40014.483 and 127736827.81 with a skewness of 2.154 and kurtosis of 0.0765 . The interest rate
shows a mean of 11.9318 and standard deviation of 1.3009 which suggests a relative increase of
growth with the minimum value of 9.95 and the max.value of 14. Skewness of -0.0740 and kurtosis
of -0.188. Lastly, the exchange rate has also showed an increase with a mean of 101.6783 and standard
deviation of 257.1809 with the minimum of 153.15 and maximum of 413.0. The Skewness of 0.161
and Kurtosis of 1.827.
4.2.2 Estimation Tests
Estimation Tests are used to determine the value of a population's attribute based on observations
from a sample chosen from that population.
4.2.2.1 Stationarity (Unit-Root) Test
This is a crucial test. It's a time series test that determines if a time series exhibits stationarity, or
whether a change in time does not affect the form of the distribution.
4.2.2.2 Johansen Co-integration Test
This test determines if three or more time series are co-integrated. It evaluates the legitimacy of a cointegrated connection in particular. The essential principle underlying co-integration is that if two or
more series move closer together in the long run, even though the series themselves are trending, the
distinctions between them remain constant.
4.2.2.3 Error Correction Model
This is a different approach of displaying long-term equilibrium relationships between variables. It
depicts the co-integrated variables' dynamic error analysis. The ECM is a time series regression model
based on the behavioural assumption that two or more time series have an equilibrium connection
that influences both short- and long-term behavior.
4.3 Test of Hypothesis
Hypothesis One
Ho: The public sector budget has no significant impact on electricity in Nigeria.
Table 4
Regression Statistics
Multiple R
0.650981336
R Square
0.423776699
Adjusted R
Square
0.363121615
Standard Error
16.96600893
Observations
22
ANOVA
Regression
Residual
Total
Intercept
TEXP
EXR
df
2
19
21
Coefficients
124.1567392
1.11382E-05
0.205981203
SS
MS
F
4022.159063 2011.08 6.986664
5469.063719 287.8455
9491.222783
Significance
F
0.00531634
Standard
Error
t Stat
P-value
Lower 95%
Upper 95%
8.518753457 14.57452 9.12E-12 106.3267833 141.9866951
3.11964E-06 3.570347 0.002042 4.60871E-06 1.76677E-05
0.079482139 -2.59154 0.017905 0.372339233 0.039623174
As can be seen from Table 4, the P-value of the TEXP is 0.002042 which is less than 0.05 level of
significance and a coefficient of 1.11382. It implies that the null hypothesis is rejected. Therefore,
total expenditure has a significant positive impact on electricity in Nigeria.
Hypotheses Two and Three
Ho2: Budgetary capital expenditure have no significant effect on electricity consumption in Nigeria
Ho3: Budgetary recurrent expenditure has no significant effect on electricity consumption in Nigeria
Table 5
Regression Statistics
Multiple R
0.654307977
R Square
0.428118929
Adjusted R Square 0.332805417
Standard Error
17.36511614
Observations
22
ANOVA
df
Regression
Residual
Total
Intercept
CAPEX
RECEX
EXR
3
18
21
SS
4063.372128
5427.850654
9491.222783
MS
F
Significance F
1354.457376 4.491691891 0.016040204
301.5472586
Coefficients Standard Error
t Stat
P-value
123.4607575
8.920074258 13.84077688 4.91249E-11
7.86122E-06
9.42161E-06
0.83438172 0.415002725
1.21937E-05
4.28333E-06 2.846780109 0.010705647
-0.192699803
0.0889313 -2.166838916
0.043909
Lower 95%
Upper
104.7203769 142.20
-1.19328E-05 2.7655
3.19475E-06 2.1192
-0.379537532 -0.0058
As can be seen from the regression analysis in Table 5, the P-value of the CAPEX is 0.41500 which
is higher than 0.05 level of significance and a coefficient of 7.86122. It implies that the null hypothesis
cannot be rejected. Consequently, the budgetary capital expenditure have no significant effect on
electricity consumption in Nigeria.
Looking at the regression analysis in Table 2, the P-value of the RECEX is 0.10706 which is lower
than 0.05 level of significance and a coefficient of 1.21937. The implication is that the null hypothesis
is rejected. Consequently, the budgetary recurrent expenditure has no significant effect on electricity
consumption in Nigeria.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This is the final chapter contains four sections including the introduction section. 5.2 represents the
summary, section 5.3 presents a conclusion of the study and 5.4 represents the recommendation given
for the study.
5.2 Summary
From 2011 to 2020, the study looked at the influence of the public sector budget (Expenditure) on
electricity in Nigeria. Interestingly, there is no consensus in the theoretical literature on whether an
increase in the public sector budget will enhance or decrease power sector efficiency. It is also clear
from the data gathered in this study on time-series economics that from the CBN statistical bulletin
and from various statistical. Publication of the National Bureau of Statistics as well as reports from
the Nigerian Electricity Regulatory Commission (NERC). Before completing long and short runs
regression analysis, a series of tests were carried out. A handful of post diagnostic tests, as well as
Heteroscedasticity tests, are also performed to ensure that the proposed framework and data for
analysis are adequate.The study's findings revealed that the public sector budget has a positive
association with the electricity sector, implying that increasing capital expenditures will boost the
electricity industry's efficiency in Nigeria. Also, the present value of recurrent spending has a
favourable correlation with the power sector's efficiency and development. This study's findings have
significant economic consequences. In order to obtain the maximum amount of electricity.
5.3 Conclusion
Based on empirical data, the paper concludes that public spending has an impact on power sector
efficiency and growth. Only the Wagner school of thinking appears to be viable in Nigeria, according
to this study including causality tests. Despite the Keynesian notion that increased government
spending leads to economic development.While the quality of government spending can stifle growth,
the mix and efficiency of government spending are the primary drivers of growth, according to the
study. In addition, both theoretical and empirical research suggest that appropriate administration and
distribution of finances are critical for the electrical business to be efficient. However, it is clear that
there is no direct relationship between public spending and the energy sector; rather, it is a question
of how to obtain the desired objectives while avoiding additional distortions in the industry. As a
result, not only is high effectiveness of government expenditure important for maximising the
potential of government spending, but it also helps to enhance the credibility of the electricity industry
in Nigeria.
5.4 Recommendations
Based on the results obtained in this study, it is recommended that;
I.
The Nigerian Government should ensure that the capital and recurrent expenditure are properly
managed to accelerate the growth and efficiency of the electricity sector.
II. The study also recommends that there should be high degree of transparency when handling funds
in the government.
III. When preparing financial statements, proper accounting should be a top concern, and material
facts should be recorded.
IV. Additional power generating companies should be established throughout Nigeria's states.
5.4.1 Contributions to Knowledge
Although there was a standard amount of research done on prior work, what set this study apart from
others was the utilisation of both recurring and capital spending and how they influence the electrical
industry. Despite the stated planned sum for this area, the absence of infrastructure is also highlighted.
5.4.2 Recommendation for Further Studies
Even though the capital and recurrent expenditure was the main focus in this study, further studies
are charged to gain further insight in government expenditure to obtain the comprehensive results.
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