Infrastructure bottlenecks undermine Nigeria’s economy on GDP rebasing

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igeria’s rebased Gross Domestic Products (GDP) of $510 billion; the largest on the continent would have been higher if energy and infrastructure bottlenecks, weak institutions, among others were taken care of before the exercise, analysts say.

Also governance issues as well as the slow pace of structural reforms in the country, were identified as constraints against full utilisation of the country’s potentials for the improvement of  the lives of her citizens.

Ayodeji Ebo, head, investment research, Afrinvest said, “The on-going reform, which is designed to increase electric power generating capacity to approximately 10,000mw will significantly boost the operating capacity of the economy and reduce operating cost across all sectors. The success of the reforms, prior to the rebasing of the GDP would have further boosted the size of the economy.”

Samir Gadio,emerging markets strategist at Standard Bank, London, said, that the new GDP figures would make it increasingly harder for companies looking at Africa to overlook Nigeria, especially considering the size of the domestic market and its potential, but the main constraints on a sizeable turnaround in FDI would still persist.

This includes the persistent energy and infrastructure bottlenecks, weak institutions and governance issues, as well as the slow pace of structural reforms in the country.

Addressing these shortcomings would probably have much more impact on investment than the perception that Nigeria is now a bigger economy. If anything, the implication for now is that the ratio of FDI to GDP has deteriorated to new lows (even by regional standards) of around two percent, said Kenneth Iwelumo, managing partner, CKX Partners limited, who observed that the valuation of an economy has nothing to do with the fairness, equity or wellbeing of members or sectors in an economy, but that necessary things must have to be put in place for fair valuation.

Iwelumo, who recently retired from Merrylinch Bank of America, as senior vice president, said that China gained a lot of new investments when it revalued its GDP and became the second largest economy in the world about eight years ago, adding, “if this new Nigerian GDP valuation attracts more foreign direct investments, which I believe it will, then it would have benefitted the poor in terms of jobs and a higher tax base. It will be very difficult for foreign investors to ignore the largest economy in Africa.”

But while acknowledging that Nigeria is now officially the largest economy on the continent, overtaking South Africa (GDP of around USD360bn in 2013), Gadio insisted that the outcome of the rebasing exercise “must be nuanced, since Nigeria will continue to trail South Africa over the next decades in terms of GDP per capita (USD2860 in 2013 [new time series] vs USD6950 in South Africa), basic infrastructure and electricity generation (MW4,000 at best vs MW40,000), institutional capacity and financial market sophistication.”

Ebo was optmisitic that “the on-going reform in the power sector is poised to deliver an all-inclusive growth to the entire economy. Power, which constitutes an average 50.0% of the cost of goods and services produced, is currently insufficient as the 4,500mw produced, serves a population of 170 million compared to 42,700mw produced in South Africa with a population of 51.9 million.”

John Omachonu