Nigeria's leading finance and market intelligence news report.

How ‘intrinsic’ is GDP as an economic metric in Nigeria?

Since the concept of Gross Domestic Product (GDP) – the measurement of the final value of the goods and services produced within a geographic boundary of a country during a specified period of time (say a quarter or year) – was fine tuned in 1934 by Simon Kuznets to modernize it, as it were, the concept has assumed larger than life in very significant dimensions. It has come to be regarded as the world’s most powerful statistical indicator of national development and progress and used as a metric for international comparisons in the hands of the Bretton woods institutions.

The concept is so overwhelming that many economic managers are so fixated on it that they would do everything within their power to ensure that it turns positive for their economies within any measuring period as any negative growth for two consecutive quarters will automatically translate to the dreaded word: “RECESSION”. Does this sound familiar?

Of late, there is frantic effort by Nigerian economic managers to see that the country escapes recession very fast as it is almost certain the next quarterly report by the National Bureau of Statistics (NBS) for the period ended September 2020 will follow the pattern of the preceding one, in which case the country would have officially entered recession. That explains the rationale behind the current, albeit controversial mooting of the idea to sell some of the country’s assets.

But does GDP tell the whole story? Does it give an indication of the actual standard of living in an economy like Nigeria? Nigeria may be posting impressive GDP growths year on year but how impactful are those to the ordinary citizens? Even the per capita GDP (which is the ratio of GDP to the total population of the country) assumed to be the mean standard of living may be large relative to other countries’, how evenly distributed is that, especially in a country like Nigeria where inequality in terms of wealth is highly pronounced?

As per the International Monetary Fund (IMF) ranking of countries by GDP, Nigeria was ranked 26th in 2019 with estimated GDP of $446.54 billion ahead of countries like United Arab Emirate (UAE), Norway, Israel, Ireland, Singapore, Hong Kong, Malaysia and Denmark, to mention just few. However, in terms of quality of life, can any unbiased umpire rank Nigeria ahead of these countries? In other words, is Nigeria a more “liveable” country than those?

The scenario above has led many economists and development planners to caution on the excessive fixation on GDP as an economic indicator. In fact, Simon Kuznets, widely regarded as the originator of the modern concept of GDP, did warn against using the concept as a measure of welfare. And therein lies the snag!

In Nigeria, GDP whether positive or negative at any given period will always remain a statistical number if the qualitative aspect of the people’s welfare is not factored in to measure any progress.

What use is the GDP figure if the health sector of the economy is in a deplorable situation and citizens are daily dying of preventable diseases and the managers of the economy (who do not have faith in the sector) are going abroad on medical tourism for even minor ailments? What is hospital per capita in the country? What is the ratio of doctors to patients?

The same foregoing measurement can be extended to the education sector. Why is the sector perennially in a comatose situation that no top-ranking public servant has his child in a public school? Why are private educational institutions thriving compared to their public counterparts? Why are lecturers in public institutions perennially on strikes? What is school per capita in Nigeria? What is the ratio of lecturer to student population in a typical public tertiary institution in Nigeria?

What is the level of development in terms of transportation in Nigeria? How are the rails, roads, airports and seaports developed? How many avoidable deaths have been recorded on the roads? How many man hours are daily lost on the roads? What is rail per capita in Nigeria? The list is indeed endless!

Electricity that has been associated with modern civilization, where is Nigeria in the scheme of things in the sector? A country with about 200 million citizens is always in a celebratory mood whenever 7,000 megawatts of electricity are generated. Don’t ask about the distribution side of it! Yet industries are expected to blossom under that situation and generate employment.

Housing sector is yet another one up for interrogation. Many figures have been bandied about the housing deficit in Nigeria. One thing is however, certain: it runs into millions. Even those that have accommodation: how decent? What is room per capita?

Employment is another important index. Where the rate of unemployment is daily soaring, what use is a positive GDP to the economy? Those that are employed: how gainfully employed are they? What job satisfaction do they derive? Are they actually employed or under employed?

What is the level of security enjoyed by the citizenry? No day passes without one report or another of killings either by insurgents or armed militias. What use is positive GDP if Nigerians cannot feel secure as to move around in the country, not to talk of having their two eyes closed while asleep?

If political liberties of Nigerians are abridged or the authorities lack civic engagement with the citizens as per government policies, what will a robust GDP figure do to assuage life satisfaction of the citizens?

Based on the foregoing, it is therefore hardly surprising that a lot of countries have treated the concept of GDP as an economic metric with caution and have gone beyond it via other dimensions. For example, New Zealand has a “wellbeing” metric. It has developed a budget based on it rather than on GDP to align public spending with broader objectives. In 2013, the Organisation of Economic Cooperation and Development (OECD) better life index was published. In 1990, Mahbub Ul Haq, a Pakistani economist at the United Nations introduced the Human Development Index (HDI). The HDI is a composite index of life expectancy at birth, adult literacy rate and standard of living measured as a logarithmic function of GDP, adjusted to purchasing power parity.

Nigeria based on its intrinsic idiosyncrasies needs to develop its own metric of measuring real development beyond GDP which as a quantitative index is concerned primarily with economic growth whereas development encompasses growth plus.

Dr. Okolo is a Chartered Stockbroker and Management Consultant based in Lagos.

Get real time updates directly on you device, subscribe now.