End of the long wait
After months of faltering owing to the complexity of the task, the National Bureau of Statistics (NBS) has released the revised Gross Domestic Product (GDP) numbers for Nigeria. Nigeria‘s GDP has not been rebased since 1990, contrary to global best practise of re-benchmarking every five years. This implies that the country has had to rely on out-dated figures for the last 24 years. The year 2010 was adopted as the base year for the revision and more recent economic activities have been captured in sectors such as telecommunications and the entertainment industry.
As a result of the GDP rebasing, the size of the Nigerian economy has grown by 89 percent to N80.3 trillion ($509.9bn). This ranks Nigeria as the world’s 26 largest economy, the largest economy in Africa, bigger than Angola, Egypt and Vietnam put together, and 12 times the Ghanaian economy. The 89 percent jump thumps the expectations and forecasts of analysts who projected an increase of between 40 percent 60 percent from the rebasing. The rebasing also throws up some pertinent issues which Agusto & Co hereby examines.
Nigeria vs. South Africa
Despite the chest thumping rhetoric that has emerged on Nigeria surpassing South Africa as the continent’s largest economy, Nigeria’s well touted economic potentials still remain capped by weak institutions, security challenges and a huge infrastructural deficit. On the other hand, South Africa’s more sophisticated economy, better infrastructural base and higher living standards, implies that the country could remain Africa’s premier business destination, especially for companies seeking a hub on the continent.
Nigeria will need to work hard on its governance standards both in business and politics if the country is to achieve its true economic potential. In our view, building strong institutions and safeguarding their independence will be germane to achieving the long-term economic growth potentials for Nigeria.
Vanity project or planning tool
At $509.9 billion, the sheer size of Nigeria’s economy brings to the fore the need for a more inclusive growth approach similar to the Chinese-styled double-digit growth model, which incorporates job creation with economic growth.
Nigeria’s gini-coefficient of 0.49 even amid other flattering economic indicators such as double-digit inflation rates and impressive economic growth should be at the forefront of the country’s economic debate. In a country where an estimated 60 percent of the population live under the poverty line, this will require replicating the successful macro story at the micro level.
Economic and political reforms that will focus on improving the education and health care sectors, job creation and ensuring better living standards would be required to increase the nexus between the country’s macro-economic aggregates and the realities at the micro level. The ability to translate these revised GDP numbers into a proper planning tool would help defray criticisms that it is just another vanity project.
Some interesting numbers
The new GDP numbers vividly explain why trucks clog Nigeria’s highways while weeds and tares congest the rail tracks. Road transport accounts for 1.10 percent of total GDP and approximately 90 percent of the Transportation and Storage’s 1.24 percent overall contribution to GDP. Rail transport and pipelines have an economic size of N151.2 million, which is quite minute to Nigeria’s N80 trillion economy. Trains and tracks have been described as the engines of the US economy carrying over 40 percent of intercity cargo. Nigeria’s economy will be better off adopting such a model.
The GDP rebasing does produce some interesting numbers such as the contrast between cement manufacturing and the Textile, Apparel and Footwear segment. Cement manufacturing has become the champion and poster card of Nigeria’s relatively successful backward integration model, which has forced many trading companies into manufacturing. The backward integration model creates protectionist guarantees and fiscal sweeteners for manufacturers of selected commodities.
On the other hand, textile manufacturing, which was once the second largest employer of labour, only after agriculture, has become the crucible of the failings of the liberal import regime. Yet, the NBS estimates the size of the Textile, Apparel and Footwear segment at N380.8 billion (0.47% of aggregate GDP), while cement manufacturing is estimated N350.7 billion (0.44% of aggregate GDP). This clearly suggests the significant underlying potentials of the textile industry even amid current challenges.
Jimi Ogbobine is an analyst at Agusto & Co
