War of GDP size
The Nigerian government has announced its plan to rebase the country’s Consumer Price Index (CPI) and Gross Domestic Product (GDP) by 2025. The move is expected to change the methodology currently used in computing the figures to reflect the informal sector (60% of the country’s economic activities) in a bid to enhance policy accuracy and boost investor confidence. As Nigeria continues to explore diverse strategies to achieve its $1 trillion GDP target, it is believed that the new rebasing exercise will once again lead to an exponential increase in the nation’s GDP numbers and will serve as an easy path to regaining its lost position as the largest economy in Africa.
It will be recalled that Nigeria emerged as the largest economy in Africa after a rebasing exercise that nearly doubled its GDP in April 2014. Prior to this, South Africa had held the baton for a long time as having the largest economy in Africa, including all of the recognitions that come with it. However, through a rebasing exercise, Nigeria’s economy was put at about 30 percent larger than South Africa’s, with the 2013 Nigerian GDP valued at $509.9 billion while that of South Africa was valued at $370 billion.
Read also: Here are 10 highest contributing sectors to Nigeria’s GDP in Q3
According to Richard Dowden of the Royal African Society, “Nigeria had always had immense ambition to be the leader of Africa in economic size.” Whilst this is a noble ambition, stakeholders and investors across the globe will be thrilled to see it materialise through organic growth of real activities rather than realising the bold aspiration through “clever paperwork.”
Dislocated numbers
In 2023, the Nigerian Bureau of Statistics (NBS) updated its unemployment data methodology to include casual and self-employed workers. This change led to a significant drop in the unemployment rate from 33.3 percent to about 5 percent and erroneously painted a positive picture of the country’s worsening unemployment crisis. While the new methodology shows Nigeria’s unemployment numbers below that of many developed nations at 5 percent, the reality on the ground suggests a threshold of about 45-50 percent unemployment rate in the country.
Having reviewed the structure of the Nigerian economy, the NBS GDP computation metrics, and GDP reports, it is apparent that Nigeria already applies the global methodology for computing real economic activity, the United Nations International Standard Industrial Classification of All Economic Activities (ISIC). Under this framework, the aggregate economic activity (formal, informal, sectors, sub-sectors, etc.) is already well captured. Tellingly, Nigeria’s GDP size contracted by approximately 31 percent between the years of 2014 and 2023. Sadly, the aura and lure of the last rebasing exercise have completely disappeared with the IMF’s projection that the economy will slide to the position of 4th largest in Africa at the end of 2024. Evidently, without broad-based, credible, consistent, transparent, and well-coordinated economic and institutional reforms in Nigeria, GDP rebasing is largely a cosmetic exercise.
“The size of a country’s GDP seems to somewhat influence the economic perception of international investors, potential investment flows, regional economic supremacy, and sometimes can weigh into political emotion.”
Do investors really care about GDP size?
Although higher-ranked economies arguably enjoy initial attention by foreign investors, these rankings do not mean much and are not really useful for final investment decisions. This is because the rankings are heavily dependent on exchange rate fluctuations, which can be very volatile and uncertain as well. Thus, international investors pay less attention to the relative size of economies than they do to growth prospects and ease of doing business. For instance, investors want to know if there will be economic growth propelled by reforms towards incentivising private investment. They want to see policy regulations that open up opportunities in critical sectors, increase the yield on their investment in an economy, and guarantee ease of profit repatriation.
The current administration commenced on May 29, 2023, on a note of bold economic reforms—removing a decades-old petrol subsidy that kept prices artificially low, freeing the foreign exchange market to merge all windows, and partially removing electricity subsidies, amongst other steps targeted at stabilising the economy and initiating sustainable growth. The bold reforms notwithstanding, its implementation dynamics seem to have spared the vested/connected interests and hurt the economy & the masses so badly. The country is facing skyrocketing inflation at 33.88 percent in October 2024, up from 22.14 in May 2023; a record loss of value of national currency by over 70 percent within a 12-month period; over 30 million people are hit by severe hunger due to a record explosion of food prices; and performance of businesses is largely flat due to depressed consumer and investor confidence. Between 2020 and 2024, about 77 multinationals/notable brands exited from Nigeria, scaled down their operations, or divested from the country. The mass exodus of companies in Nigeria is firmly believed to be rooted in the heightened spate of business environment challenges such as the foreign exchange crisis, poor power supply/high energy costs, insecurity of lives and properties, and multiple taxation. The above highlights in part explain some of the remote factors driving down Nigeria’s output growth and regional ranking.
Read also: Nigeria 3.46% GDP growth, sign of economic recovery Tinubu
Time to go to work.
The fact remains that the Nigerian government received unearned glory for posting huge GDP numbers after it rebased the country’s GDP in 2014 and the years that followed. Unfortunately, the country was not prepared for the responsibilities and implications that came with the automatic bloating of its GDP size. Nigeria may take a clue from the Chinese model by refusing the “quick fix” syndrome (aspirin) and embarking on a hard, long-term, permanent solution (vitamin). Apparently, there remains the absence of a well-structured, broad-based, and synergised economic blueprint with clearly stated goals, plans, policies, strategic initiatives, targets, and measurable outcomes inclusive of timelines to drive the economy. Thus, there is an urgent and compelling need for a detailed, well-designed policy direction, centrally coordinated with an effective tracking, monitoring, and feedback framework. The quick wins will be addressing the elephant in the room, such as security issues, macroeconomic challenges (forex and cost of living crisis), transport infrastructure/logistic challenges, electricity/energy supply shortcoming, and regulatory infraction.
Dr Vincent Nwani is a leading macroeconomic, business and policy analyst. He holds Doctor of Philosophy (Ph.D) in Economics and currently the Strategy Leader, West Africa @ Safrik Investments Group
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