Are we richer after the GDP ‘rebasing’?

Imagine going to bed with the knowledge that your total wealth is about N250,000. You wake up the following morning to say “Wait a minute; everyone is calculating his wealth based on a different approach. Let me add this... and that.” After taking account of all other things, you recalculate and now conclude that you are really worth N500,000, or twice what you had previously estimated. Should you celebrate your ‘newfound’ wealth, or what?

Essentially, this is what our National Bureau of Statistics (NBS) has done for us. In 2012, the size of our economy is estimated at some US$262.6 billion. After recalculating (re-basing) it is now US$491 billion. Yet nothing much has changed in our lives, except our bragging rights. We are now the biggest economy in Continent Africa, ahead of our archrivals, South Africa. Still, we are presumably now better informed.

Let us, however, start by rehashing the basics. What exactly is Gross Domestic Product, GDP? What does it measure, and how? In basic economics, GDP is defined as “an estimate of the size of the nation’s economy”. It is calculated by adding together the value of all final goods and services produced AND TRADED FOR MONEY within a given period. Typically, we add together personal consumption expenditures (payments by households for goods and services), government expenditures (public spending on the provision of goods and services, infrastructure, debt repayments, etc.), net exports (the value of a country’s exports, minus the value of imports) as well as what economists call “net capital formation”, which estimates the increase in value of the nation’s total stock of capital goods. Defence and security spending, as well as value of health and other interventions by non-profit NGOs, are added but most nonmarket services (like chores performed by housewives) are excluded.

Unlike the related concept of Gross National Product, which measures all goods and services produced by domestic companies regardless of where in the world that production takes place, GDP measures only goods and services produce within a country whether by domestic or foreign companies.

How do we measure GDP? Basically, a nation’s statistical office estimates GDP from census and survey figures, and its understanding of the structure of the economy. What are the sizes and relative contributions of agriculture, manufacturing, extractive industries, trade and so on? This is the basis. On this BASE, it adds economic and financial data and findings from household and other surveys, conducted at regular intervals, which it maintains in a System of National Accounts. Other data would include sales statistics, housing data, manufactures, shipment, VAT and other taxes, customs and excise data, and so on. From this BASE, it estimates GDP. But because the economy is dynamic and changes over time, the relative contributions and significance of various sectors also change. So we occasionally change our basic assumptions about this BASE. We regularly need to Re-BASE to properly capture these changes in the structure. In our case, for over two decades

Our bragging right comes with built-in limits. What is there to brag about in any case: South Africa has 40,000 megawatts of electricity and a well-developed rail network; we can only produce 3,000 megawatts, and have no rails to talk about!! Modern industries do not grow on mere promises and false achievement figures. Fourthly, and more disturbing, is the obvious conclusion that our taxto-GDP ratio is much lower than we even dared to imagine.

(24 years), this structure has been changing but has not been captured in our GDP calculations. These changes have now been incorporated and have resulted in a more realistic estimate of the size of our economy. After rebasing, our economy is now estimated at US$49 1 billion (N80.3 trillion) and not the US$263 billion previously calculated. Are we any richer? Obviously not individually; just not as poor as previously assumed.

But there are serious implications. Your “take-home” pay remains the same, assuming you are employed that is, and it may still not take you home! The Nigeria Labour Congress (NLC) should note that the economy can afford to pay decent wages after all. We are now the 26th biggest economy in the world. When the size of the economy, the GDP, is divided by the total population, we get “GDP per capita”, in other words GDP per person. The Gross Domestic Product per capita in Nigeria was last recorded in 2012 as US$1,052, or equivalent to 8 per cent of the global average. The currently revised figures catapult us to US$2,688 for each citizen. But since this is just mere hypothetical division, with over 60 per cent of our people still living on under a dollar a day (US$365 per annum), what it means is that the rich are actually wealthier than previously assumed. Levels of inequality have clearly been underestimated.

Secondly, the “old” industries (such as agriculture and petroleum) are simply not as dominant as they used to be. The re-basing exercise has given us a more accurate picture of the structure of our economy. Telecoms, financial services, and trading now dominate. However, they do not create jobs in sufficient numbers. We may have to force our political overlords to directly create jobs. Additionally, it is becoming clearer that those not well educated cannot benefit from this new economy. Basic education, high level manpower and continuing education are critical, especially for states with little or no hydrocarbon deposits, or established infrastructure. Thirdly, our governments must resist the temptation to increase borrowing now that our debt-to-GDP ratio is lower, at 11 percent of GDP, down from 20 percent. Fourthly, we need to be more serious about power and transportation. Our bragging right comes with built-in limits. What is there to brag about in any case: South Africa has 40,000 megawatts of electricity and a well-developed rail network; we can only produce 3,000 megawatts, and have no rails to talk about!! Modern industries do not grow on mere promises and false achievement figures. Fourthly, and more disturbing, is the obvious conclusion that our tax-to-GDP ratio is much lower than we even dared to imagine.

Finally, we must be disturbed by the facts emerging; most companies in these now dominant sectors are private and closed. They are not quoted in the stock exchange. Even if you have the money, you cannot buy shares so you cannot share in the prosperity. Telecoms, oil and gas, electricity and rails must be opened up so that the new prosperity can be shared. Else we end up with less than ten Dangotes and Adenugas, and tens of millions unemployed, unemployable and totally frustrated youths waiting to explode.

GDP is important. We must, however, not equate GDP with welfare. GDP measures economic activity, not social or economic well-being of the citizenry. For that we need different measures. But that is another matter.