Explainer: What GDP, CPI rebasing means for economy

The National Bureau of Statistics (NBS) is planning to rebase Nigeria’s Gross Domestic Product (GDP) and the Consumer Price Index (CPI).

There are expectations that the economy will be bigger while inflation will be lower.

This was the situation in 2014 when Nigeria became Africa’s largest economy, with its GDP surging by 89 percent to $510 billion and inflation averaging 8.05 percent compared to 8.50 percent in the previous year.

But the NBS at the rebasing sensitisation workshop it organised in collaboration with the Nigerian Economic Summit Group in Lagos, last Thursday, emphasised that the exercise does not necessarily mean that the GDP will become more robust or shrink, rather it would give an accurate assessment of the economy.

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“Rebasing is a very vital exercise that ensures our economic indicators are accurate, reflecting the updated structure of our economy,” Adeyemi Adeniran, the statistician general and CEO of the NBS, said.

“It’s done to absorb the new ministries that the new government just created, upgrade the CPI basket and change the methodology of CPI and GDP,” he added.

Why does rebasing the economy matter?

Most governments overhaul GDP calculations every three to five years to reflect changes in output and consumption. Prior to 2014, Nigeria had not done so since 1990.

According to the NBS, rebasing is a process of updating an old base year with a recent one to reflect changes in the prices of goods and services produced within the economy. The agency explained that constant price estimates are recalculated using the new base year’s prices.

It stated that the rebasing will cover new areas of the economy, including digital economy, modular refineries, pension fund administration, national health insurance scheme, mining, among others.

Beyond potentially increasing the size of the economy, tax-to-GDP and debt-to-GDP ratios are expected to decline, allowing for more fiscal balance. Similarly, per capita income, which is about $877, will rise.

Will Nigeria become the largest economy once again?

Nigeria became Africa’s biggest economy following the 2014’s rebasing, but analysts point that while the country’s GDP would rise in dollar terms, the results might not be as impressive as what was obtainable over 10 years ago.

Amaka Anku, Africa director at Eurasia Group, said the rebasing will likely increase the size of Nigeria’s economy in dollar terms despite its entry to a second recession in five years and a weakened naira.

“They will be adding new components to the GDP, so it would likely result in a larger economy but, definitely, not as big a bump as in 2010,” Anku said.

Similarly, CardinalStone analysts said that the proposed rebasing will drive improved capturing of economic activities and support planning initiatives. However, it is likely to shrink the size of the informal economy.

It further explained that the rebasing is also likely to result in a significant increase in the reported size of the economy.

How does it affect rising prices?

The NBS said the rebasing exercise may not directly lead to a reduction or upward trajectory of consumer prices, rather it aims to capture price changes over time

However, Ayo Andrew, head of price statistics at the NBS, revealed that four ‘special indexes’ will be added to the CPI computation as part of the rebasing exercise.

“Services index, both national and states; energy index, both national and states; farm produce index, both national and states; and goods index, both national and states, will be added,” Andrew said.

This update will, no doubt, result in more accurate inflation data, potentially altering Nigeria’s inflation outlook compared to previous measures. It is expected to provide better information on business strategies, moving forward.

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Structural changes between old, new numbers

The NBS revealed that the base year adopted for the GDP was 2019 while 2024 was used for the CPI.

For the CPI, the year was proposed to capture the structural changes that have taken place over time. It is driven by the removal of subsidies on foreign exchange and petrol.

For the GDP, 2019 was chosen as a preferred base year because economic activities were relatively stable within the period, compared to subsequent years disrupted by the impact of COVID-19 and policy shifts.

The constituents of the inflation basket are expected to expand from 740 to 960.

The contributions of items on the divisional level to the headline index has been increased to 13 from 12, with the addition of insurance and financial services.

Likewise, there will be adjustments to weightings of the previous 12 division level weights.

However, analysts at CardinalStone, in a report last week, said that the re-weighting of the CPI basket may result in a reduction in the impact of food and non-alcoholic beverage price changes on the overall headline inflation reading.

It said that housing, water, electricity, gas and other fuels are likely to have a lesser impact on future core inflation readings due to the re-weightings.

“The likes of transport and restaurants & accommodation services are likely to have a more pronounced impact on future inflation readings due to the re-weightings,” it said.

While the rebasing exercise will no doubt raise Nigeria’s economic profile, with over 129 million Nigerians living below the national poverty line, analysts hold the view that the effects would be felt more in statistics than in everyday life.