The impacts of electrification on labour market outcomes: the case of Nigeria

Since the late nineteenth century, industrialised countries have owed a large part of their development and growing prosperity to electricity. All industrial activities require it, and it is also essential for the provision of clean water, sanitation and healthcare; efficient lighting, heating, cooking, use of mechanical power, transport and telecommunication services.

Access to affordable and reliable electricity remains one of the fundamental obstacles to reach several of the United Nations Sustainable Development Goals (SDG). However, 840 million people across the world still lack access to electricity. Two thirds of them live in sub-Saharan Africa: 573 million people, or more than half sub-Saharan Africa’s inhabitants.

This blogpost, based on an scientific article originally published in Springer’s Economica Politica, in presents the main results of a rigorous econometric analysis assessing the effect of electricity access on labour market outcomes in Nigeria. Nigeria is the largest economy in Africa, home to the world’s second largest population without access to electricity after India.

As of 2018, about 60% of the Nigerian population had access to electricity: 80% in urban areas, and 40% in rural areas. Put differently: 77 million people still lacked access to electricity in the biggest economy in Africa. Electricity consumption per capita is also particularly low by African standards: 146 kWh per year in Nigeria between 2010 and 2014, versus a subcontinental average of 494 kWh. The unreliability of electricity supply in the country has historically been one of the main obstacles to the successful development of productive activities. In 2014, approximately 50% of firms in Nigeria identified electricity as a ‘major’ or ‘very severe’ obstacle to their operations, and more than 30% stated that it was the main obstacle to their operations. The problem is particularly acute in rural areas.

Our econometric analysis assessed the impact of electrification on male and female employment in the agricultural and non-agricultural sectors.

With access to electricity, the proportion of household members of working age who are employed increases by an average of around 8%. This change is brought about by a shift away from agricultural employment (7% fewer people working in this sector), in favour of non-agricultural employment, with a boost of about 15%.

While the effects are relatively similar for male and female employment in agricultural activities, the effects for male employment in non-agricultural activities appear to be three times as strong thanfor female employment. These results take into account other variables, including electricity connection at village level, former connection status of the household, and former employment level in different sectors.

In line with previous studies, our results show that in Nigeria this effect is stronger for wealthier households and in urban areas. Importantly, however, positive effects are also significant for poorer households and in rural areas. On average, for households from the lowest wealth quintile living in rural areas, 3.6% more people would be employed, including a significant reallocation of employment to non-agricultural activities (+9.6%).

These findings show that the expansion of electricity access to households which are not yet connected to the grid could play a significant role in increasing labour market participation, and helping the transformation of the Nigerian economy away from agricultural activities.

Recommended citation:
Tagliapietra S. (2020) ‘The impacts of electrification on labour market outcomes: the case of Nigeria’, Bruegel Blog, 08 July, available at www.bruegel.org/2020/07/the-impacts-of-electrification-on-labour-market-outcomes-the-case-of-nigeria/