Are we richer af­ter the GDP ‘re­bas­ing’?

Daily Trust - - SPORT - with Sanusi Abubakar sanu­si­abubakar@dai­lytrust.com

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.

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