GDP Figure: Beyond Belief

• Apapa Port Will rebasing increase more economic activities

•Apapa Port

Ayorinde Oluokun/Abuja

Why Nigeria’s new GDP figure may not mean much for average Nigerians beyond being an indication of developments in the economy 

As days go, Sunday, 6 April 2014 certainly was a good one for Nigeria. It was the day on which, after presentations which lasted a couple of hours at the cosy Transcorp Hilton Hotel, Abuja, Nigeria was conferred with a new bragging right: the biggest economy in Africa. In the presentation witnessed by the crème de la crème of the public and private sectors as well as top representatives of multilateral agencies operating in the country, Yemi Kale, Statistician-General announced that the 2013 estimate of Nigeria’s nominal Gross Domestic Product, GDP, recalculated with year 2010 as the base year, now stands at $509.9 billion, up from $285.56 billion in 2010. Kale, who is also the head of National Bureau of Statistics, NBS, put the value of the nominal GDP in 2012 at N71.1 trillion (about $453.9 billion) as well as a projected figure of about N80.2 trillion (about $509.9 billion) in 2013. The rebased nominal GDP represented an increase of 59.9 per cent using the old base year and 69.10 per cent in 2011, as well as an increase of 75.58 per cent in 2012 and a projected 89.22 growth per cent in 2013. With the new GDP figure, Nigeria emerged Africa’s biggest economy, pushing South Africa, the previous holder of that title with a GDP of $384.3, to the second position.

• Kale, Statistician-General
• Kale, Statistician-General

Globally, the new nominal GDP figure also leapfrogged Nigeria to the 26th position in terms of size of economy, putting the country effectively ahead of countries like Austria, with $394.7 billion; Venezuela, with $381.26 billion, Columbia – $369.6 billion; Thailand – $365.96 billion; Denmark – $314.88 billion; Malaysia’s $274.7 billion and Singapore’s $269.87 billion. The International Monetary Fund, IMF, defines gross domestic product, GDP, as the value of goods and services produced in a country in a year. On the other hand, the United Nations Statistical Commission recommends a statistical rebasing or overhaul of the calculations of the GDP every five years to account for changes in the patterns of economic activity, i.e consumption and production, and to update base prices to a more recent year so as to account for inflation. But the Federal Government had not done the rebasing since 1990, though over the years there have been significant changes in the structure of the economy.

Last week’s event corrected this anomaly with change in the base year for calculating the nation’s GDP to 2010 from 1990. Also, new sectors of the economy, like the telecommunications industry, Nollywood, the music industry, retail and the services industry, which have witnessed a boom in the past decade but have been excluded, are now included in the calculation of GDP.

According to the Statistician-General, apart from the fact that Nigeria has emerged after the rebasing exercise as the biggest economy in Africa, results from the rebased estimates indicate that Nigeria’s nominal GDP had become larger than previously estimated. Kale put Nigeria’s rebased nominal GDP for 2010 at N54.20tn; while for 2011, 2012 and 2013, he put the figures at N63.25tn; N71.18tn and N80.22tn ($510bn), respectively.

The NBS boss also said the results indicated that the structure of the Nigerian economy has changed significantly, leading to a decline in the share of the agricultural sector and a rise in the share of services in nominal GDP. According to him, Nigeria’s economy is now more diversified than previously believed. Kale pointed out in his presentations the previously excluded sectors including telecommunications and information services, publishing, motion picture, sound recording, and music production and broadcasting , arts, entertainment and recreation, financial institutions and insurance, real estate, education, human health and social services, and other services, which increased the list of economic activities captured from 46 from 33.

Thus, the revised figure indicated that the services sector now contributes about 52 per cent of total GDP, with industry coming a distant second at 25.7 per cent. Agriculture contributed 22 per cent, telecommunications (8.69 per cent), manufacturing (6.83 per cent), and entertainment, which had not been previously captured, 1.42 per cent.

“Analysing the 1990 nominal series, agriculture contributed 30.3 per cent to the GDP, while industry contributed 46.1 per cent and services contributed 23.6 per cent. According to the rebased 2010 series, in nominal terms, the share of agriculture has declined to 24 per cent. The share of industry to the country’s GDP has also declined to 25.8 per cent, while the share of services to the country’s GDP has increased to 50.2 per cent,” said Kale.

He added that the number of economic activities accounting for 70 per cent of nominal GDP has risen from three to six after rebasing.

The most notable changes, according to him, are in the wholesale and retail trade sector of the economy as the NBS, during the rebasing exercise, made efforts to capture more of the informal sector than was attempted before. The Statistician-General added that following the rebasing exercise, Nigeria GDP growth was estimated at 5.09 per cent in 2011; 6.66 per cent in 2012 and a projected 7.41 per cent in 2013. “Over the period, the economy is expected to grow by an average of 6.39 per cent. The services sector is expected to grow the fastest during this period, increasing by an average of 7.72 per cent. This is followed by industry that is expected to by 7.19 per cent. Agricultural sector is expected to grow by an average of 2.61 per cent during the period,” said the Statistician General.

The multilateral agencies present at the occasion endorsed the efforts at updating the GDP. “The relevant question today is: Have the huge efforts been valuable? From a decision making perspective, the answer is unquestionably yes. The data and sources have been expanded. The methodology has been improved and the knowledge of the structure of the economy has been significantly enhanced,” Dr. Gene Leon, IMF Resident Representative in Nigeria, who spoke at the event on behalf of multilateral institutions, said. He affirmed that the multilateral agencies are in support of Nigeria’s efforts to gather quality statistics and use them as basis for sound decision making.

Dr. Ngozi Okonjo-Iweala, the Coordinating Minister for the Economy and Minister of Finance, who was a key figure behind the rebasing exercise said the new GDP will at least give Nigerians the “psychological edge” of having the biggest economy in Africa. In terms of per capita income, which measures the income per individual, Nigeria is now ranked 121st, from 135, with an average GDP per capita income of $2,688. The higher GDP means more consumption per capita, and a boost to Nigeria as an investment destination.

•Ngozi Okonjo-Iweala, Finance Minister
•Ngozi Okonjo-Iweala, Finance Minister

Ayodeji Ebo, Head, Investment Research, Afrinvest, a research and advisory firm, said the increase in Nigeria’s per capita income from the previous $1,555 will be a source of attraction to investors. “This translates to an increase in Nigeria’s ranking as a preferred investment destination based on its perceived purchasing power,” said Ebo.

“The impact of a rebasing would likely have a positive impact on perceptions… This would come at a time when most investors are fairly downbeat on South Africa [because of its high combined fiscal and current account deficit],” London-based economist for CSL Stockbrokers, Alan Cameron, was quoted by Reuters as saying.

Femi Ademola, of the Research Intelligence Unit of BGL plc, said with the increase in the new GDP figure and subsequent increase in Nigeria’s per capita income from $1,500 in 2012 to $2,999.41, the country is now a lower middle class income country: “There is no direct impact on Nigerian individually, especially the man on the street. On the long run, however, the economic benefits of improved national statistics would be felt by everybody through increase in job creation, wages and working conditions, and in tax revenue from increased economic activities.”

While analysing the benefits of the rebasing, the Minister of Finance said the result would help government to properly understand the structure and activities taking place in the Nigerian economy, adding that this would significantly influence its policy decisions. “The policy direction will reflect even more of the fact, like similar emerging market economies, that small and medium scale firms will increasingly play a more prominent role in the economy,” said the Minister. Part of the shift in focus, Okonjo-Iweala said, will include expansion and deepening of government efforts to boost manufacturing, SMEs and entrepreneurship through relevant policies, skills training, grants and other incentives. “This is likely to include scaling up of programmes like YOUWIN, the Graduate Internship Scheme and similar programmes,” she said. Another sector that will receive more attention is the Nigerian movie industry whose growth was also highlighted by the rebasing exercise. The industry accounts for N853.9 billion or 1.42 per cent of GDP,” the Minister added.

Analysts also said the increased new GDP figure will allow the government to achieve its medium-term objective of narrowing the federal budget deficit to 1.1 per cent of GDP in 2015, and has led to a drop in the country’s debt to the GDP ratio. The favourable debt to GDP ratio has increased government’s capacity to borrow, as acknowledged by the Minister of Finance during the presentation. According to her, the rebased GDP data which has improved the country’s debt-to-GDP ratio would give Nigeria more elbow room for borrowing. She however said though some people believe that Nigerians should borrow more, especially to finance infrastructure, the country will not go on the binge of foreign loans given her experience of struggling to pay debts in the past: “So we must err on the side of being prudent and tread carefully. What we can do is to vigorously look for investors willing to enter into public private partnerships with government. I will suggest we go with that direct investment route and create special purpose vehicles that can take on some debts for particular projects, projects that can pay for themselves.”

The Minister was humble enough to agree that the new figures also revealed some uncomfortable truth about the country: “Not all our ratios look good. Our revenue to GDP ratio doesn’t look that good. We have a tax to GDP ratio of about 20 per cent, which is in the range of emerging market economy, but our non-oil tax to GDP ratio is quite low at seven per cent. With this new GDP numbers, we are not going to look so good. Our tax revenue to GDP ratio will fall to about 12 per cent and four per cent for non-oil tax to revenue.”

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Okonjo-Iweala however said government has already started moves to improve the non-oil revenue component of its income by working with the FIRS to improve tax administration, blocking the loopholes and strengthening tax collections. Other economists also believe that the rebasing exercise will have a positive impact on Nigeria, especially as related to the perception of the country by investors.

Most Nigerians are confused what the rebasing exercise means for them. Their confusion is further exacerbated by the fact that the rebased GDP figure was released few days after the World Bank classified Nigeria as one of the “extreme poor nations” in the world alongside countries like India, China, Bangladesh, Democratic Republic of Congo, Indonesia, Pakistan, Tanzania, Ethiopia and Kenya.

“The fact is that two-thirds of the world’s extreme poor are concentrated in just five countries: India, China, Nigeria, Bangladesh and the Democratic Republic of Congo,” Jim Kim, President, World Bank, said in Washington. “If you add another five countries, Indonesia, Pakistan, Tanzania, Ethiopia and Kenya, the total grows to 80 per cent of the extreme poor,” he added. Okonjo-Iweala had been engaged in defending and explaining why Nigeria was classified among the countries with biggest number of poor people days before the GDP event.

Thus, reactions of Nigerians to the release of the GDP have varied. On one extreme are those who believe federal government is involved in manipulation of figures to make itself look good. For one, such cynics query the indices on which the rating of Nigeria as the biggest economy in Africa was based, when the country has always occupied the lower rung of the ladder in terms of human development index, with an average citizen lacking access to basic things of life like potable water, decent accommodation, good health care delivery system, electricity, and other basic necessities. In addition the average life expectancy is below 50 years, with Nigeria also having the seventh highest infant mortality rate in the world and high unemployment rate.

Yet, there are others who argue that the new GDP figure is a reflection of the fact that the wealth of the country is concentrated in the hands of a miniscule section of Nigerians. “How was this growth possible in the face of near absence of basic infrastructure like electricity, water, transport etc? What is the size of sectors that have closed down in the last 10 years as against the emerging sectors like Nollywood and communication? If over 130 million Nigerians are unemployed and the country has no automated production capacity, who is producing and from where?,” Emeka J. Ononamadu, executive director of Imo State-based Citizens Centre for Integrated Development & Social Rights, said while querying the new GDP figure at a press conference he addressed in Owerri last week. “The quality of life of Nigerians does not support this new GDP in any way. It makes it more or less a political statement. To adjust GDPs to its real value, the Human Development Index as calculated by UNDP must be put into consideration,” he added.

•Apapa Port Will rebasing increase more economic activities
•Apapa Port Will rebasing increase more economic activities

Rotimi Abiru, Deputy Whip of the Lagos State House of Assembly, who described the claim Nigeria is now the biggest economy in Africa as the biggest illusion of the century, said what the new GDP showed is that the economy is under the control of less than one per cent of the population. “Basically, the new GDP does not translate to good living condition for the mass of Nigerians when about 80 per cent are living below poverty line. As a matter of fact, out of that, more than 60 per cent are actually living below $1 per day, which means the country harbours the poorest of the poor,” said the lawmaker.

The Nigeria Labour Congress said as cheery as the news may be, it is not completely swayed by the GDP figure. “A GDP could not be said to have significantly improved if our industries are virtually shut and operating environment increasingly hostile,” NLC said in a statement signed by Promise Adewusi, its vice-president. While analysing the statistics, the labour organisation pointed out that government should be worried that the performance index of industries dropped from 46.08 per cent to 25.81 per cent while the service industry more than doubled to 50 per cent from 23.03 per cent in the rebasing exercise. “This certainly represents a significant change in the economy, a negative change that points to consumption to the exclusion of production, ” said the NLC.

Analysts however said Nigerians may be reading much more than intended to the GDP figures because of the heavy weather the government has made out of its presentation. In its comments on the issue, The Economist magazine affirmed that “GDP revision is not mere trickery.” The international magazine said the new GDP “provides a truer picture of Nigeria’s size by giving due weight to the bits of the economy, such as telecoms, banking and the Nollywood film industry, that have been growing fast in recent years”, a “statistical magic” that has been done by other countries like Ghana, which added 60 per cent to its economy in 2010 as a result of similar rebasing exercise. The magazine identified the consistent growth of Nigeria’s economy at an average rate of around seven per cent annually in the past decade, the country’s oil resources, its pool of ambitious entrepreneurs, vibrant stock exchange, and high population among others as contributory factors to expansion of the economy.

“In Nigeria’s case, the new numbers confirm that it really is the colossus of the continent,” said the magazine. “What is important is that your economy has 2.5 per cent of the world population but you are producing 0.81 per cent of the world output, your potential GDP is growing at 11 per cent while your real GDP is growing at seven per cent. One thing needs to be clear, GDP is an output measure not revenue measure, what we have measured is an output in a year and brought it back to the value of rebasing. Rebasing is what we should do for five years but we don’t do it for 20 years, basically what we are doing now is catch-up,” Bismark Riwane, CEO of Financial Derivative Limited, said. “Nigerians will still buy petrol at the same price, they will still have the same amount in their pockets, electricity is not going to improve on Monday morning. So, the exercise is a journey from reality to vanity,” Rewane said in another interview.

An industrialist, public commentator and economist, Henry Boyo, said the rebasing exercise is “good for the ego”, as the standard of living of an average Nigerian is lower than that of a South African.

•Boyo: Rebasing exercise is good for the ego
•Boyo: Rebasing exercise is good for the ego

South Africans, dethroned from the top of Africa’s economic pecking order are in a haste to point out many things that are still wrong with Nigeria in reaction to the new GDP. This is true based on the fact that Nigeria’s new GDP per capita of $2,688 is still well below the GDP per capita in South Africa, which is $7,508. Also, South Africa – the continent’s only G20 member – has fewer people and is streets ahead in areas such as infrastructure and governance.

Also, some economists in the former apartheid enclave raised eyebrows over the fact that Nigeria’s new GDP was $110 billion greater than was forecasted by analysts. “If you look at South African trade with the rest of the world relative to Nigeria’s, it doesn’t quite suggest the differences are as great as GDP now suggests, especially if you look at import bills,” said Razia Khan, chief economist for Africa at Standard Chartered.

Even Nigeria’s finance minister confessed that she was “shocked” when she first saw the numbers in an interview published in Wall Street Journal last week: “You see all about you the dynamism and you know things are happening in your economy and we suspected that the diversification was happening, but when the numbers came in we were just like, Wow!”

Indeed, South Africans, while congratulating the country on its new status, pointed out tongue in cheek, Nigeria’s decrepit state of infrastructure. Also, while congratulating country on its new status, the South African Ministry of Finance pointed out that the feat is partly due to the presence and participation of South African firms in Nigeria’s wholesale and retail and the telecommunications sectors, which are also the two largest components of the services sector.

But analysts said the concern of South Africa is that while for most Nigerians who still live on less than $2 a day the rebasing is likely to have little effect, the expectation is that it will improve the country’s balance sheet, credit rating and promote the country out of the class of a low-income economy, conditions favourable for attraction of foreign investments. Financial Times reported Clayson Monyela, South Africa foreign ministry spokesman, tweeting: “OK, let’s explain some numbers here. After all the lights are on in SA, the banking sector and infrastructure is world class,” a not so disguised dig at the state of Nigeria infrastructure some hours after the new GDP figure was released. Yet, with Nigeria struggling to maintain 4000 megawatts of electricity for its over 170 million citizens while South Africa is already generating 40,000 megawatts for a population less than one third of that figure, Monyela is not totally off the mark. South Africans believe that Nigeria infrastructure deficits will continue to make their country a preferred destination for investments coming to Africa.

“Given the relatively more developed state of our infrastructure and financial systems, South Africa will remain one of the important economies of the continent, though this rebasing will be a significant step in establishing Nigeria as a true African powerhouse,” said Roelof Horne, portfolio manager, Investec Asset Management, which has investment in Nigeria.

The challenge therefore is for Nigeria to develop its infrastructure. How soon the country will be able to do that remains a matter of conjecture. But Okonjo-Iweala, who was also quick to affirm that the new GDP figure is not an indication that all the problems confronting Nigeria have become history, promised that government will continue to tackle problems that have continued to serve as impediments to doing business in Nigeria. The challenge for government, as pointed out by the NLC, is to translate the figure into improved living conditions, jobs, revival of industries and improvement of internal and national security, indices which the organisation described as the “measurable indices and indicators of an enlarging and progressive economy”.

Also, President Jonathan said in a facebook post last week that he cannot celebrate the new GDP figures until the growth becomes more inclusive, which is not a surprise given the fact that Nigeria ranks 153rd out of 187 countries in the UN’s Human Development Index; with high rate of unemployment and increasing poverty rate. Even then, the President, like many other praise singers, as the 2015 re-election campaign enters high gear, will attribute the growth in GDP to his Transformation Agenda.

…Published in TheNEWS magazine

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