Nigeria is said to be the largest economy in Africa and the 26th in the world, going by the statistics revealed by a recent rebasing of its gross domestic product
| By Maureen Chigbo | Apr. 21, 2014 @ 01:00 GMT
TO many Nigerians, the announcement that the country is now the largest economy in Africa was difficult to imagine. The question on the lips of many was: what magic has brought about this sudden turnaround? The answer was that the gross domestic product, GDP, of Nigeria was rebased and consequently, that exercise has placed the country as the 26 largest economy in the world ahead of South Africa which used to be the largest economy in Africa. The rebasing of the GDP, however, did not positively change the cost of living or standard of living in the country. What it does show is that the country’s economy is being increasingly diversified as it has witnessed a structural shift.
One of key changes identified is the noticeable shift in the share of key sectors to the country’s overall GDP. An example is the decline in the share of the agricultural sector to the overall GDP and a rise in the share of services. In the 1990 nominal series, agriculture contributed 30 percent to the GDP, while industry contributed 46.1 percent and services contributed 23.6 percent. According to the rebased 2010 series, the share of agriculture has declined to 24 percent while the share of services to the country’s GDP has risen to 50.2 percent.
The explanation for this is that even though agriculture is growing in terms of total value and jobs created, the rise in the contribution of service sectors such as telecommunications has led to a reduction of its contribution as a proportion of total GDP. The implication is that Nigeria is moving towards a more services-oriented economy. Under the new service industry structure, information and communication rank high, next to wholesale and retail trade.
One area of good news uncovered by the rebasing exercise is the 26.7 percent increase in the value-added on crop production, a 43.9 percent in value added of livestock, a 9.2 percent increase in the value added of fishery, and a 23.9 percent increase in the value of forestry.
The rebased estimates indicate the forecast for the nominal GDP for Nigeria in 2013 is N80,222,128.32 ($509.9 billion. Comparatively, nominal GDP for the previous three years were: 2010: N54,204, 795.12m ($360.6 billion), 2011: N63,258,579.01m ($408.8 billion), 2012: N71,186,534.89m ($449.9 billion). The changes between the old and new rates represent growth of 59.5 percent in 2010, 69.13 percent in 2011, 75.58 percent in 2012 and 89.22 percent in 2013 (forecast).
The rebased GDP numbers imply that the level of economic activity is much higher than previously reported. It indicates a clearer picture of Nigeria’s economic landscape, and the significant opportunity for growth and wealth creation in the Nigerian economy.
The results of the latest rebasing of Nigeria’s GDP, the first in almost a quarter of a century, confirm that the country’s economy has grown in total value and undergone significant changes, including substantial diversification in many sectors especially in the last decade. The rebasing exercise was more comprehensive than previous ones as the number of economic activities reported in the GDP computation framework increased to 46 compared to 33 in the previous series. Other activities which were included in the computation framework included entertainment, research, patents and copyrights.
Wholesale and retail trade was the economic activity with the most notable changes between the old and new GDP series. This is attributable to the efforts made by the NBS during the rebasing exercise to capture more of the informal sector. Telecommunications and information services; motion pictures and sound recording; cement production; food, beverage and tobacco; construction and real estate sectors also witnessed significant changes.
Although the new GDP rebasing has not changed the status of Nigeria as one of the countries of the world where extreme poverty exists going by the World Bank recent classification, it helps the government to know the sectors it should pay more attention to in order to address the problem. They include manufacturing, small and medium scale enterprises, agriculture, housing and movie industry. The GDP rebasing also helps the federal government and decision makers to have a better knowledge of the size and direction of the economy so as to be able to tackle the challenges of poverty, job creation and growing the economy.
As part of this focus, the federal ministry of finance said government would expand and deepen its current efforts to boost manufacturing, SMEs and entrepreneurship through relevant policies, skills training, grants and other incentives. This is likely to include scaling up of programmes like YOUWIN, Graduate Internship Scheme and similar programmes. Another sector that will receive more attention is the Nigerian movie industry whose growth was also highlighted by the rebasing. The industry accounts for N853.9 billion or 1.2 percent of the GDP.
To encourage sustainable entrepreneurship in the industry which is popularly known as Nollywood, tax breaks in specific areas are being considered as well as the building of a strong distribution network that will ensure that practitioners are not denied their just rewards due to the activities of pirates. Housing and construction, a sector which has the capacity to generate jobs and grow the economy will also be the centre piece of future efforts.
With the new GDP figure, many Nigerians are wondering how it will benefit the country. According to the finance ministry, rebasing will give government the tools to better tackle the challenges of growing the economy and fighting poverty. It is only when we are able to collate, understand and interpret data correctly as well as identify key areas in our economy that require changes that our policy prescriptions and direction are more likely to respond to the real needs of the Nigerian economy.
Rebasing the GDP provides more accurate data on the economy to enable policy makers make informed decisions and policy choices to tackle social problems like poverty and unemployment.
Nigeria’s rebased GDP is expected to be a more accurate reflection of the structure and size of current economic activities in the country, presenting a clearer sectoral distribution and performance. As a result, better investment choices are expected to be made resulting in higher profitability and even higher investments. This will help create jobs and also reduce poverty in Nigeria in the medium to long term.
The exercise will provide significant support for the growing pool of investors. The rebasing of the GDP is expected to boost Nigeria’s financial market ratings as investors will now show greater interest in the economy. The rebased series provide broader classifications of economic activities, revealing opportunities for expanding the revenue tax base. The rebased estimates also allow for better computation of state debt sustainability analysis. With the rebased estimates providing more accurate economic statistics, economic planners are better able to formulate appropriate economic policies and sectoral strategies to achieve desired development objectives.
The National Bureau of Statistics carried out the exercise with assistance from respected Nigerian economists including Olu Ajakaiye, professor of economics and president of the Nigerian Economic Society, professors Akpan Ekpo, Ayo Teriba and others; the International Monetary Fund, the World Bank, the African Development Bank, AfDB and other partners.
Yemi Kale, statistician-general of the Federation and head of the National Bureau of Statistics, who was lauded by Ngozi Okonjo-Iweala, coordinating minister for the economy and minister of finance and officials of the World Bank and AfDB, for undertaking such a comprehensive study, said: “The results reveal better diversification of the Nigerian economy than earlier reported… the structure of the Nigerian economy has changed significantly.”
According to statement from the federal ministry of finance, a key finding in the rebasing is that the economy, like that of many other middle-income countries like Thailand, Malaysia and Egypt, is becoming more service-driven as the services sector has expanded significantly. “In response to the findings, the federal government is already restrategising to take advantage of the opportunities provided by better knowledge of the changing structure of the economy. The policy direction will reflect even more the fact, like similar emerging market economies, that small and medium scale firms will increasing play a more prominent role in the economy”, it said.
At the presentation of the GDP rebased figures in Abuja, April 5, Okonjo-Iweala, who was enthused by the new GDP figure, said: “We did not set out to become the biggest economy in Africa. We set out to measure how much the economy has changed. And that is the outcome. Becoming the largest economy on the continent is a positive development, but it is not the destination. The knowledge derived will help us make better policies to grow the economy and create jobs for young Nigerians.” According to her, “Nigerians have worked hard to make our economy the largest in Africa and they should be proud of the feat. But it is also a challenge and an opportunity. The results of the rebasing will not make the challenges of poverty and unemployment disappear overnight but the better understanding of the structure and changes of the economy will give us better tools to grow the economy and tackle poverty and unemployment.”
Bashir Yuguda, supervising minister of the ministry of National Planning, underscored the credibility of the exercise which he stressed was rigorously and professionally executed by a team of local and international experts. “It is a thorough job and we are pleased with the results. The results will empower government to do more for the Nigerian people.”
The Gross Domestic Product is the market value of all final goods and services produced within a country in a given period.Itis an internationally recognized indicator for measuring the size of an economy in a given period of time. There are three ways of computing the GDP: The Expenditure Approach, The Income Approach, and the Value Added Approach. The rationale for rebasing the GDP estimates to replace an old base year with a new and more recent base year. The base year provides the reference point to which future values of the GDP are compared. GDP Rebasing is a normal statistical procedure undertaken by the national statistical offices of countries to ensure that national accounts statistics present the most accurate reflection of the economy as possible.