Comparative Analysis of Commercial Energy Demand in Nigeria and cameroon (1971-2010)
A Thesis Submitted to the School of Postgraduate Studies, University of Lagos
Given energy security and climate change challenges occasioned by increased hydrocarbon consumption, and increased trade between Nigeria and Cameroon, a holistic study of commercial energy (petrol, diesel, kerosene) demand in both countries is undertaken. Our main objective is to find out which of the two economies has performed better, in terms of energy intensity (i.e. which is less energy intensive) between 1971 and 2010. For this, five specific objectives were addressed, namely to: (a ) compare the structure of commercial energy demand in Cameroon and Nigeria between 1971 and 2010; (b) compute the short-run price and income elasticities of demand for commercial energy in Cameroon and Nigeria during the period under investigation;(c) compare the mean energy intensity in Cameroon and Nigeria during the period under investigation; (d) identify the determinants of energy intensity in Cameroon and Nigeria, during the period under review, and (e) ascertain the direction of causality among commercial energy intensity, technology and energy price in Cameroon and Nigeria during the period under consideration. Most of the data used were obtained from the International Energy Agency (IEA) and the World Bank. Additional data were extracted from the Central Bank of Nigeria (CBN) Statistical Bulletins and website and the Petroleum Products Pricing and Regulatory Agency (PPPRA) for Nigeria and the Bureau National de la Statistique website for Cameroon. Simple descriptive statistics were used to determine the structure of commercial energy consumption in both countries. The transcendental logarithmic model was used to estimate long-run income and price elasticities while short-run elasticities were computed using the traditional, neoclassical, method; and the reduced demand model was used for the analysis of the energy intensity of both countries. Granger Causality tests were also carried out. Findings are that (i) Cameroon and Nigeria have similar pattern of energy consumption (ii) demand for commercial energy is price and income inelastic in the short run in Cameroon but price and income elastic in the short run in Nigeria; and price and income inelastic in the long run in Cameroon and Nigeria (iii) the ratio of commercial energy intensity of Cameroon relative to Nigeria is 1:1.57, (iv) whereas neither Cameroon nor Nigeria has critical energy intensity challenges yet, capital-labour ratio largely determines energy intensity in Cameroon while capital-labour ratio, investment-capital ratio and energy price largely determine energy intensity in Nigeria , and (v) a bi-directional Granger Causality relationship exists in Nigeria between energy consumption and economic growth (proxy GDP). However, only a unilateral Granger Causality relationship, GDP Granger causes total commercial fuel consumption, exists between these two variables in Cameroon within the same period. Moreover, commercial energy pricing policy and commercial energy consumption (demand) appear disconnected in both countries. However, energy consumption policy in Cameroon is independent of that of Nigeria and same goes for environmental policy. Moreover, whereas energy pricing policy takes into account environmental considerations in Nigeria, there seems to be a complete divorce between commercial energy pricing, commercial energy consumption and environmental policies in Cameroon. Finally the quantum of petroleum products smuggled from Nigeria into Cameroon is insignificant and Nigeria’s environmental challenges resulting from commercial energy consumption are not a threat to Cameroon’s environment. Total eradication of energy poverty, reduction in income inequality, investment in infrastructure, supply of qualitative and functional education for all, elimination of barriers to economic competitiveness, job creation, good governance, among others, are recommended to both countries.