Energy use and productivity performance in the Nigerian manufacturing sector (1970‐90)

Abstract

This paper investigates the relationship between productivity performance and energy consumption in the Nigerian manufacturing sector at both aggregated and disaggregated levels.It adopts a non‐parametric approach to the measurement of total factor productivity (TFP). It then specifies a regression model linking the estimated TFP growth with changes in energy use. The objective is to examine the impact of energy‐pricing policy on efficiency in the manufacturing sector.The paper establishes that energy consumption still plays a critical role in productivity growth in the Nigerian manufacturing sector. However, the recent price reforms in the energy sector can only achieve meaningful results if accompanied by technological reforms in the manufacturing sector. The industrial sector is still dominated by old energy‐inefficient technology.However, there are prospects for enhancing energy efficiency in the long run. When prices are allowed to signal the real cost of an input, producers would not only become efficient in energy use, but would also be able to select appropriate input combinationsthat minimised their costs of production. Long‐term investment would also be committed to energy‐saving equipment.Furthermore, the development of the gas sub‐sector may also provide an alternative source of energy to many firms.