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BLACK ECONOMY:Nigeria may be richer than our data say

Nigeria

SUNNIE OMEIZA-MICHAEL

The African Development Bank (AfDB), in its 2009 African Economic Outlook (AEO), predicted a gloomy future for the Nigerian economy, projecting the real Gross Domestic Product (GDP) growth to slide to 4 per cent this year down from 5.3 per cent the economy recorded in 2008. On the other hand, the International Monetary Fund (IMF), in its yearly economic projections for countries, forecasts Nigeria to experience a 2.9 per cent growth in 2009 and 2.6 per cent for 2010. These declining projections are not unconnected with the dwindling oil revenue as a result of the militancy in the Niger Delta region and reduction in investment arising from the prevalent global economic crisis. Companies are mopping up less revenue thereby affecting level of national output or GDP. On its own, the Nigerian government has projected a growth rate of 6 per cent for 2009. The Gross Domestic product somewhat measures the wealth of a nation during a particular year.
Nigeria is sub-Saharan Africa’s second-biggest economy after South Africa and the world’s eighth-largest oil exporter, yet the continent’s most populous country of over 140 million population is yet to fulfill its economic potentials. Management of the country’s resources suffers from poor data capture, anonymity crisis and lack of long-term plans. Nigeria’s GDP may not be an adequate measure of the wealth of this nation. The size of the black economy that exists in Nigeria is growing bigger by the day. Black economy, also known as informal or underground economy refers to activities in the economy that are not traceable and therefore unrecorded.
Nigeria’s unrecorded economy or underground economy refers to informal activities such as the large local film production and distribution market (called Nollywood in Nigeria), various road side business ventures that are not recorded anywhere in the books of government, the black forex market (officially called the parallel market in Nigeria), illegal oil trades and various transactions that take place in the corporate world without passing through the banking system. Many unregistered companies operate in the economy even participating in government contract bid processes at the different tiers. How would the various agencies of government capture these activities as part of the nation’s output while calculating the GDP? From all methods of calculating GDP (income, output and expenditure methods), the lack of data on existing economic units (persons and institutions) automatically creates a loophole in the estimation process.

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While GDP estimates from developed economies like the United States, United Kingdom, Germany, Australia, France to mention a few, can be relied on because of good data capture of activities in the economy, GDP data from most African and other developing economies may not be relied on because they do not have a good record of their population and activities in their economies. For instance, the Organisation for Economic Cooperation and Development (OECD) projected the Australian economy to experience 1.7 and 2.7 GDP growth rate for 2009 and 2010 respectively. Notice that well developed economies do not exhibit wide ranges of GDP growth because most of the sectors are already at very developed stages compared with developing economies that exhibit higher growth rate.
If you pay your cleaner or bricklayer in cash who does not pay tax, or for some reason neglect to tell the taxman that you were paid for a service rendered, you participate in the black or underground economy. Such transactions do not normally show up in the figures for GDP, so the black economy may mean that a country is much richer than the official data suggest. Estimates from the Economist magazine show that In the United States and the UK , the black economy adds an estimated 510% to GDP; in Italy , it may add 30%. As for Russia , in the late 1990s estimates of the black economy ranged as high as 50% of GDP. Nigeria’s black economy may not be less than 40 percent from observations and CBN figures of Nigeria’s GDP.
For instance, Lagos state, reputed to be the commercial hub of Nigeria , has grown into a megalopolis of about 10m-15m people (according to recent official census figures). Its boundaries and frontiers have extended into the lush jungles and marshy outskirts that seem to be unknown to government authorities. Various economic activities that take place in these places are never captured in government books (government does not also provide any amenity for these areas). It is common phenomenon to have different GDP figures from different government agencies collating them. Most times the figures are far apart capable of causing large disparities and confusion in the planning process. We always have different figures from the Central Bank of Nigeria , National Planning Commission, National Bureau of Statistics and the ministry of finance.Though the annual African Economic Outlook (AEO) is published jointly by reputable institutions like African Development Bank (AfDB), the OECD Development Centre and the United Nations Economic Commission for Africa , with support from the European Commission, there are reservations as to the completeness of the data that formed the basis of these projections. The dearth of data on economic activities in Nigeria makes one think Nigeria may actually be richer than what our incomplete data say. The unavailability of data hampers planning and by extension governance. Nigeria experiences a great challenge in estimating a comprehensive GDP in the face of the existence of a large and growing black economy.

An IMF working paper on Comprehensive Measures of GDP and the unrecorded economy written by Andriaan M. Bloem and Manik L. Shrestha defined hidden economic activities as legal production deliberately concealed from the public authorities to avoid payment of taxes, payment of social contributions or compliance with administrative procedures and standards. Illegal activities are defined as productive activities which are usually forbidden by law or legal productive activities carried out by unauthorized persons. Authorities at different tiers must begin to capture more productive economic activities in the economy into their respective databases to make our GDP figures more realistic and better for forecasts. The efficiency of the data collection agencies must improve to accommodate more data and process data faster.
Data on agricultural and agro-processing industry in Nigeria is crucial to having a more realistic GDP figures for any economic planning for the country. Unrecorded activities in agriculture and food processing form a large part of the black economy in Nigeria . Many subsistence farmers in our rural areas and the many food joints pasting along our major and minor roads are never captured for measurement of key economic and social indicators. Commercial vehicles are not registered, employees in various organizations are faceless (The outgoing Head of Service in Nigeria, Ama Pepple, recently unveiled more than 1000 ghost workers on federal government payroll).Government must start capturing needed data of activities in the economy alongside showing a commitment to make business environment conducive. Government must make registered businesses and entrepreneurs enjoy some privileges which unregistered ones do not partake in. Our tax system needs strengthening to capture more activities on the expenditure side. So much money is still outside the banking system. ATM frauds have increased obstructing the progress made so far towards a cashless society. The National Identity Management Commission (NIMC) should be empowered to capture biometric data from the grassroots. Government should have the geographical information of the shores of Nigeria to know what exists in which part of the country and who exploits or mine them for commercial purposes.
The large black economy that exists in Nigeria would not allow the Nigerian government to undertake a good planning process to resolve most economic challenges. Data availability is crucial to success in governance. We should have demographic and geographic data. For government to broaden its tax revenue, data of taxable economic units is all important. Presently, the government only simply persuade the public to pay their tax without really having figures of whom they seek to tax. Black economy exists in almost all countries but concerning the size, developed economies only have small-sized black economy with almost everybody in the country well captured alongside their activities in a database. Incomplete data frustrates both users and producers of the government figures.
Gross Domestic Product (at 1990 constant basic prices) 2006 2007 2008(Q1)
Growth rate 5.575 6.4 6.5Oil Sector 22.125 19.775 21.5Non-Oil Sector 77.825 80.225 78.5Source: Central Bank of Nigeria