Nigeria’s power sector loses 10.6% as economic growth outpaces

Nigeria’s electricity economy is moving in the opposite direction of the wider recovery, with the electricity, gas, steam and air-conditioning sector contracting by 10.63 per cent in real terms in Q2 2026, marking its second consecutive quarterly decline even as the overall economy expanded by 4.43 per cent.

The latest figures from the National Bureau of Statistics (NBS) show that the sector’s contraction, although less severe than the 15.30 per cent decline recorded in Q1, underscores the persistent weakness of the power system and its potential drag on industrial productivity.

The Q2 performance represents a particularly sharp divergence from the broader economy, which grew 4.43 per cent year-on-year, up from 4.23 per cent in Q2 2025.

In nominal terms, the electricity, gas, steam and air-conditioning sector recorded 0.87 per cent year-on-year growth in Q2, down from 4.98 per cent in Q1.

Its nominal value, however, jumped from N324.83 billion in Q1 to N1.26 trillion in Q2, highlighting the difference between the naira value of economic activity and actual real-sector output after adjusting for price effects.

The persistent real contraction suggests that higher nominal values have not translated into stronger underlying activity across the sector.

The figures come as electricity remains one of the biggest constraints on Nigeria’s productive economy.

Manufacturers, businesses and households continue to supplement grid electricity with diesel- and petrol-powered generators, increasing operating expenses and weakening the competitiveness of businesses.

The sector’s poor performance reflects persistent structural challenges across the electricity value chain, including inadequate generation and transmission capacity, gas-supply constraints, ageing infrastructure and liquidity pressures affecting market participants.

These weaknesses create a wider economic cost because unreliable electricity raises production expenses, limits factory utilisation and reduces the productivity of businesses that would otherwise contribute more strongly to economic growth.

The latest contraction also represents a reversal of some of the improvements recorded in 2025.

Earlier Nairametrics reports showed that electricity generation increased by 10.92 per cent in Q1 2025, supported by improved availability and operating performance from thermal and hydropower plants.

Thermal generation drove much of that increase, with 16 of 23 grid-connected thermal power plants recording higher average hourly output than in the preceding quarter.

The more recent GDP data indicate that those gains have not translated into sustained real growth across the electricity and gas sector.

Despite the contraction, the sector remains economically significant. It generated N62.12 billion in Company Income Tax in 2025, demonstrating its substantial fiscal and commercial footprint.

For policymakers, the latest figures reinforce the argument that Nigeria’s growth challenge is not simply about expanding sectors such as agriculture and services, but also about ensuring that the infrastructure supporting production expands at the same pace.

The Q2 contrast is particularly telling: while the Nigerian economy grew 4.43 per cent, the electricity and gas sector shrank by 10.63 per cent.

That gap means economic activity is expanding despite the power constraint rather than because of improvements in the formal electricity system.

The risk is that prolonged weakness in electricity supply could increasingly cap manufacturing output, discourage investment and force businesses to devote more capital to self-generation rather than productive expansion.

Nigeria’s broader growth outlook remains relatively positive, with the World Bank maintaining its 4.4 per cent 2027 growth forecast, while S&P Global Ratings has upgraded the country’s long-term foreign and local currency ratings to B from B-.

But the power sector’s numbers expose a critical vulnerability beneath the improving macroeconomic picture.

Unless generation, transmission, gas availability, infrastructure maintenance and market liquidity improve, Nigeria may struggle to turn stronger headline GDP growth into the deeper industrial expansion and productivity gains required for sustained economic development.

The 10.63 per cent real contraction in Q2 is therefore more than a sector statistic. It is a warning that Nigeria’s economy is growing faster than the electricity infrastructure needed to power its next phase of expansion.