Trends and Determinants of Energy Efficiency in Nigeria’s Manufacturing Sector: A Stochastic Frontier Analysis (1981–2023)

Abstract

Energy efficiency is a cornerstone of industrial competitiveness and sustainable development, yet its empirical measurement in sub-Saharan Africa’s manufacturing sectors remains limited. This study estimates energy efficiency levels and their determinants in Nigeria’s manufacturing sector using annual time-series data from 1981 to 2023. Employing an input-oriented Stochastic Frontier Analysis (SFA), we find that the sector operates at an average energy efficiency of 82.2%, indicating a moderate but improvable performance. The trend reveals three distinct phases: improvement from 1985–1995 (efficiency reaching 100% in several years), relative stability from 1996–2015, and a notable decline after 2017, falling to 54.7% by 2023. Manufacturing output and labour input have significant positive effects on energy intensity (coefficients: 2.284 and 2.134, respectively; p < 0.01), indicating that they increase energy use per unit of output. Capital investment and the 2013 power-sector restructuring dummy significantly reduce energy intensity (coefficients: -1.213 and -1.669, respectively; p < 0.01). The generalized likelihood ratio test (167.13, critical value 6.63) confirms the presence of inefficiency, justifying SFA over OLS. The lambda parameter (4.54 × 10⁷) indicates that inefficiency dominates random error. These findings suggest that sustained capital investment in energy-efficient technologies and consistent policy implementation are essential to reverse the post-2017 decline.