Is­sues in the GDP re­bas­ing

Daily Trust - - VIEWS - By Ris­lanudeen Muham­mad

On Sun­day April 6, 2014, the much awaited re­bas­ing of Nigeria’s nom­i­nal GDP was an­nounced by the Statis­ti­cian Gen­eral of the Fed­er­a­tion, Dr Yemi Kale. Ma­jor high­lights put the re­based GDP fig­ure us­ing 2010 as base year at US$510 bil­lion. This is sig­nif­i­cant in sev­eral re­spects.

The new re­based GDP fig­ure has made Nigeria the largest econ­omy in Africa by nom­i­nal GDP ahead of South Africa and 26th in the world ahead of Aus­tria. This also in­vari­ably leads to a Re-clas­si­fi­ca­tion of Nigeria as medium in­come econ­omy from its pre­vi­ous clas­si­fi­ca­tion as a low-in­come econ­omy as de­fined by the World Bank.

In ad­di­tion, this also brings to the fore, the size of the Nige­rian econ­omy and which, with a huge pop­u­la­tion of about 174 mil­lion people, serves as an in­cen­tive for more For­eign Di­rect In­vest­ments be­yond the so-called hot money (tem­po­rary in­vest­ment). Ini­tial re­ac­tion from the World Bank Chief Econ­o­mist in charge of Africa down­played the im­pact of GDP size as a ma­jor pa­ram­e­ter for FDI, cit­ing other ex­oge­nous fac­tors as liv­ing stan­dards as well as prof­itabil­ity of in­vest­ments among oth­ers. How­ever, Fitch rat­ings be­lieve the re­based GDP will have a pos­i­tive im­pact on Nigeria’s sov­er­eign credit pro­file in the long term.

With in­fla­tion av­er­ag­ing 7.7%, an eco­nomic growth rate of 7%, fairly strong re­serve (though threat­ened of re­cent by de­ple­tion to sup­port naira) at around USD$38 Bil­lion, as well as power and agri­cul­tural sec­tors re­forms, things be­ing equal, the econ­omy is des­tined for its promised des­ti­na­tion.

Given the depth as well as in­tegrity of data to fa­cil­i­tate ef­fec­tive eco­nomic plan­ning, the job done by NBS de­serves com­men­da­tion and I do com­mend them. More so, de­vel­op­ment part­ners like IMF, World Bank and AfDB all sup­ported and fi­nally en­dorsed the new re­based fig­ure.

How­ever, the downside ef­fects - though by no means ex­haus­tive - are as fol­lows:

To an aver­age Nige­rian, the new re­based fig­ure does not change any­thing. Price of goods and ser­vices re­main the same. Poverty level re­mains the same if not fur­ther wors­ened. There is also no im­prove­ment in the Hu­man De­vel­op­ment in­dex (largely in­cor­po­rated in look­ing at real GDP). For ex­am­ple, the num­ber of people liv­ing on less than a dol­lar a day rose to 61% in 2010 from 52% in 2004 ac­cord­ing to NBS. Nigeria still re­mains num­ber 153 out of 186 coun­tries clas­si­fied in term of hu­man de­vel­op­ment. We are still clas­si­fied as ex­tremely poor by the World Bank given the fact that the num­ber of people liv­ing be­low poverty line (USD$1.25 a day) is in­creas­ing …now about 110 mil­lion out of a pop­u­la­tion of 174 mil­lion. Other coun­tries un­der sim­i­lar clas­si­fi­ca­tion have suc­ceeded in get­ting more people out of poverty. China for ex­am­ple, suc­ceeded in bring­ing the poverty level down to 13% from 85% be­tween 2004 and 2010. That is to say that out of a pop­u­la­tion of 1.2 bil­lion people, only 172 mil­lion are still poor. In­deed with the on-go­ing dev­as­ta­tion of North­ern Nige­rian econ­omy aris­ing from in­se­cu­rity chal­lenges, sub­op­ti­mal lead­er­ship etc, the poverty level might worsen with neg­a­tive ef­fects on the con­sol­i­dated na­tional fig­ure.

The re­based fig­ure also shows Nigeria hav­ing a low debt to GDP ra­tio (be­fore re­bas­ing as against af­ter re­bas­ing). Nigeria’s budget deficit/GDP and pub­lic debt/ GDP ra­tios for 2013 fell to 1% as against 1.8% and 11% as against 20% re­spec­tively ac­cord­ing to Re­nais­sance Cap­i­tal. And given a thresh­old of fis­cal deficit as a per­cent­age of GDP at 3%, the re­based GDP fig­ure will widen such thresh­old (3% of USD283 bil­lion as against 3% of USD510 bil­lion). If pol­icy plan­ners do not be­come ex­tra care­ful, this has po­ten­tial il­lu­sory ef­fect of push­ing the coun­try into more bor­row­ing.

Gov­ern­ments at all lev­els need to do more in plan­ning to im­prove the rev­enue for sub­se­quent in­vest­ment in in­fra­struc­ture given the tax rev­enue to GDP ra­tio drop­ping to 12% from 20% af­ter re­bas­ing. In­deed non oil tax has also gone down to 4% of re­based GDP from 7% be­fore re­bas­ing. This is wor­ri­some to fis­cal au­thor­i­ties and the Hon­ourable Min­is­ter of Fi­nance has al­ready made that a ma­jor is­sue with of­fi­cials of Federal In­land Rev­enue ser­vice.

The new re­based fig­ure also means that GDP growth rate will come down to an aver­age of 6%,

Nigeria will hence­forth tech­ni­cally lose out on aids and growth typ­i­cally granted by donor agencies to coun­tries clas­si­fied as lower and lower mid­dle in­come. This is in light of the re­based nom­i­nal GDP and per capita in­come of USD1,624 pre­re­bas­ing with USD2,688 post-re­bas­ing among oth­ers. This is in con­trast to other oil ex­port­ing African coun­tries like An­gola (USD5,703) and Gabon (USD10,688) ac­cord­ing to Fitch rat­ings.

Even with the size of the re­based GDP, Nigeria re­mains im­port de­pen­dent with min­i­mal non-oil ex­port and low GDP per capita com­pared to other coun­tries with lower nom­i­nal GDP like Tu­nisia, Egypt and South Africa.

One of the BRICS (Brazil, Rus­sia, In­dia, China and South Africa) coun­tries is Brazil. They are now on the same level with us as medium in­come coun­try by the GDP re­bas­ing. Prac­ti­cally, Brazil does all that we have not done and need to do to achieve real GDP be­yond nom­i­nal GDP. For ex­am­ple, to­day Brazil gen­er­ates 20 times as much elec­tric­ity for its pop­u­la­tion which is slightly more than ours. They pro­duce steel, cars and air­crafts. They are one of the largest pro­duc­ers of hy­dro­elec­tric power and ethanol fuel.

GDP re­bas­ing from time to time is sig­nif­i­cant as it pro­vides an up­dated data for ef­fec­tive plan­ning. It is also im­por­tant as it ex­poses ma­jor strengths and weak­nesses of an econ­omy like debt to GDP and rev­enue to GDP ra­tios etc. When cap­tured with real GDP by look­ing at Hu­man De­vel­op­ment In­dex like level of skew­ness in in­come dis­tri­bu­tion (us­ing gini co­ef­fi­cient), un­em­ploy­ment and un­der em­ploy­ment, health, ed­u­ca­tion etc, it tells us where we ought to be and where we ac­tu­ally are.

Be­yond GDP re­bas­ing and all the cel­e­bra­tion as the largest econ­omy in Africa, we need to ask our­selves prac­ti­cal ques­tions. Are we re­ally fair­ing evenly com­pared to our peers? How do we com­pare against coun­tries that have his­tor­i­cal sim­i­lar­i­ties with us such as Bri­tish Colo­nial­ism, mil­i­tary dic­ta­tor­ship, cor­rup­tion as well as eth­nic/re­li­gious chal­lenges like In­done­sia and In­dia?

Muham­mad, a for­mer man­ag­ing di­rec­tor of Unity Bank Plc, wrote from Abuja<ris­lanudeen@ya­hoo. com>

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