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Can Nigeria Solve Its Energy Crisis?

Can Nigeria Solve Its Energy Crisis?

By Todd Moss and Judd Devermont

Why a Low-Power Future Will Be Dangerous for Everyone

Nigeria is home to one in every five Africans and it has the continent’s largest economy. More than half of Nigerians are under 20 years old. Whether all these bright young people will drive growth or generate instability depends largely on whether Nigeria’s economy can produce jobs for them. And Nigeria won’t be able to create jobs at the required pace until it solves its energy crisis.

By 2045, Nigeria will be more populous than the United States, but the entire country currently produces less than one percent as much electricity. A low-energy future—in which a youth bulge meets an underpowered economy that cannot create jobs—would be a security nightmare for both Nigeria and the United States. Many have proposed that Nigeria address this problem by circumventing the complex structural problems with the country’s electricity chain and going small. Some representatives from the United Nations, the international financial community, and philanthropy have advocated for countries like Nigeria to solve their energy shortfalls by investing in small-scale, renewable home systems. Although these systems are attractive, they won’t bring Nigeria’s economy—or its youth—into the future.

Nigeria needs a high-energy grid system to power its factories and cities and to sustain a growing economy. The United States should partner with Nigeria to build such a system, which would stabilize one of Washington’s most important allies by helping it meet the economic needs and aspirations of its ballooning population.

 

A CRITICAL ALLY

Nigeria is the United States’ most important ally in sub-Saharan Africa. Presidents Bush, Obama, and Trump all hosted the Nigerian head of state in the Oval Office—a distinction granted to no other African country. U.S. engagement with Nigeria has remained consistent and bipartisan in part because Nigeria is the linchpin to peace and prosperity in the broader region. The U.S. National Intelligence Council released a report in 2005 that warned that a failed Nigeria “would drag down a large part of the West African region.”

The threats to Nigerian stability are real. The country has already become a locus for international crime, drug trafficking, and piracy, as well as home to Boko Haram and other terrorist groups. And security is not Nigeria’s only vulnerability: the country is one of the last worldwide that has failed to eradicate polio, for example, and if it continues without a functioning health system it could easily become a vector for global disease transmission. A more dysfunctional Nigeria would be a source of complex threats far beyond its borders. That’s what makes Nigeria an indispensable U.S. ally, much like Pakistan or Egypt.

Nigeria has long been a stalwart ally of the United States. It is a member of the Global Coalition to Defeat ISIS, and has voted with the United States on key UN Security Council resolutions during its two most recent tours as a non-permanent member. And Nigerians themselves show a strong affinity toward the United States. Even as world opinion of the United States and its leadership has plummeted, the Pew Research Center found in early 2018 that 69 percent of Nigerians held a favorable view of Americans. That is the fourth-highest favorability rating globally and more than any other African country surveyed. Nigerian favorability toward the United States has even increased slightly since President Trump’s inauguration.

Nigeria has long been a stalwart ally of the United States.

Most Americans think of this large and populous American ally principally as a source of oil or Nigerian prince e-mail scams. While international fraud remains a problem, and oil exports continue to account for nearly half of government revenue, this simplistic picture of Nigeria’s economy misses its dynamism. The economy is booming in sectors such as information technology, banking, and the creative arts. Nigeria hosts one of the world’s largest film industries—known as Nollywood—which contributes more than $3 billion to the country’s economy and employs more than one million people. Similarly, a vibrant tech-startup scene has developed in the commercial capital of Lagos. Nigerian ingenuity and educational achievement directly benefit the United States, too: the U.S. Census Bureau reports that Nigerians who migrate to the United States are twice as likely as native-born U.S. citizens to have a bachelor’s degree or higher.

 

PROVIDING JOBS MEANS PROVIDING POWER

Whether Nigeria becomes a thriving country that helps to solve global problems or a struggling nation that incubates transnational threats will be determined by how the country meets the economic aspirations of its people. The Nigerian economy needs to create about four million jobs per year just to keep pace with current population growth.  Without these jobs, Nigeria’s population will be frustrated, angry, and impoverished. A government that cannot meet the basic needs of its population cannot be an effective partner for the United States.

Nigeria lacks sufficient electricity to power a modern economy, and this deficiency is a fundamental barrier to its prosperity. No economy can make the transition from poverty and low productivity to higher incomes and global competitiveness without high-energy systems. The lack of reliable and affordable power  significantly constrains economic growth across Africa. One recent World Bank study found that electricity shortages reduced a person’s chance of finding a job by 41 percent.

On paper, Nigeria has great potential to produce power from a mix of hydropower, solar, wind, and especially natural-gas-fuelled thermal power. In reality, the country currently generates less than four gigawatts. That means the entire country of 200 million people has about the same electricity as a medium-sized American city such as Columbus, Ohio or Jacksonville, Florida. In addition to the supply shortages, Nigeria’s transmission network is decrepit and its utilities are largely bankrupt.

 

SCALING UP

The need for a modern power system in Nigeria is clear, as are the benefits such a system would bring to both Nigeria and the United States. The U.S. government recognizes this need, such that in 2013 it launched Power Africa, a multi-agency initiative to promote electrification in Africa. The project has helpedNigeria to close deals to soon generate three gigawatts of additional power, with another 12 gigawatts in the pipeline, and it has supported about half a million new electricity connections, both on- and off-grid.

Power Africa’s approach is pragmatic, but it isn’t yet at a scale big enough to help Nigeria meet its true electricity needs. Nigeria is currently consuming 80 percent less electricity than other countries at a similar income level. As the country grows in population and wealth, energy demand will only rise. By comparison, for Nigeria to rise to the average consumption level of today’s Tunisia or Egypt by 2045 would require the country to generate at least 60 gigawatts. That’s a 20-fold increase over Nigeria’s current capacity. Clearly, incremental changes won’t do it.

Solving Nigeria’s structural energy problem is complicated, and it involves a long chain from production to generation to transmission and distribution. At each step is a tangle of government agencies, regulators, and private companies, often working at cross-purposes. A popular response to the complexity of this process is to circumvent it. New off-grid solar systems, when matched with mobile phone payments, can be an attractive alternative to waiting for the whole system to be fixed. Consumers who want lights at home can just buy a lantern or a small rooftop system rather than wait for the grid to arrive. Small businesses that need power can buy from local minigrid entrepreneurs.

But off-grid solutions are deceptive in both scale and price. To be sure, off-grid solar energy can provide rural homes with light and power for basic appliances, and urban ones with backup. It will also help Nigeria make progress toward its goal of universal access to electricity by 2030 since the definition of access is just a tiny amount of energy. But these small off-grid systems are no replacement for the large-scale power needed to run factories, office buildings, and major cities. Mini-grid power holds promise but it is now many times more expensive per kilowatt-hour than traditional grid power.

Scale and competitiveness are only going to become more pressing concerns for Nigerian businesses. As the country grows wealthier and millions of people join the middle class, demand for concrete and steel is exploding. Both of these industries are extremely energy-intensive. Service industries, which depend on data centers and telecommunications, require affordable power around the clock. The rising demand for clean water, irrigated farming, fertilizer, cold storage, and especially air conditioning will only accelerate Nigeria’s need for abundant, reliable, and inexpensive electricity. And as climate change produces extreme weather, expands deserts, and raises temperatures, Nigeria will need even more concrete, steel, pumped water, and air conditioning.

These needs mean that the country cannot simply leapfrog a modern energy system, bypassing the grid for innovative solutions on a smaller scale. Instead, Nigeria will require a sensible mix of energy drawing on all of its potential for large-scale solar, wind farms, hydroelectric dams, and natural gas.

 

A PARTNERSHIP FOR A HIGH-ENERGY FUTURE

The United States should establish a partnership with Nigeria to build a robust modern power sector. Such an effort will serve U.S. interests and promote U.S. technology while helping Nigeria to reach its economic potential. Fortunately, Power Africa has already laid a solid foundation. Now is the time to scale up.

The United States and Nigeria should negotiate an energy compact defining the project’s priorities and establishing performance metrics. For instance, the compact could set a goal of 30 gigawatts of installed capacity by 2030, sketch a road map for how to get there, and a supply a specific set of benchmarks that both partners must meet.

 

A successful partnership would start by giving the Power Africa team at USAID the resources and mandate it needs to organize all the different U.S. agencies and to leverage American energy and technology companies. An energy partnership would also put the United States and Nigeria on the fast track for a bilateral investment treaty, which would promote Nigeria’s development by mitigating risk to investors and unleashing private capital. Nigeria already has such treaties with Germany, China, France, and Great Britain, but not with the United States. Finally, an energy partnership would diversify the funding for Nigeria’s power sector by combining U.S. resources with capital from institutional investors and development finance institutions.

Nigeria and the United States need to think bigger about energy.

If Nigeria still lacks a modern power system several decades from now, its people will be poor and intensely frustrated. Such a future would not only be a tragic waste of human capital and a missed opportunity but it would also make Nigeria a dangerous source of global threats. Many Nigerians would become more susceptible to recruitment into criminal gangs and extremist groups. While poverty alone is not a sufficient explanation for violent extremism, a UN study of extremism in Africa found that unemployed Africans are more likely to join extremist groups than students or those with jobs.

But if the United States works with Nigeria to help it build a reliable, modern power system, the country could become an economic engine for Africa. Instead of being a perennial trouble spot, Nigeria could become a stable and economically prosperous ally that works closely with the United States on a range of shared global threats. Although a successful energy sector is not a panacea for all of Nigeria’s problems, it would go a long way toward ensuring that millions of young Nigerians have the chance to contribute to an expanding economy in a country at peace with its neighbors and itself.

Nigeria and the United States need to think bigger about energy. It is tempting to envision the future as a solar panel on every roof. But the promise of small-scale energy solutions for Nigerian households does not replace the need for a modern grid system that can deliver reliable, affordable power at scale, supporting businesses, industry, and job creation. If Africa’s largest country is going to become a capable U.S. ally and a growth pole of the global economy rather than a source of global problems, it needs a high-energy future.

Published by Foreign Affairs
Edited by NIAS