Issues in the GDP rebasing

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>