Rebasing the Nigerian GDP – What it should mean to you
The recent rebasing of the Nigerian GDP has been met with many questions: What impact will this have on the Nigerian economy? What does this mean for Nigeria’s position within the global context? However, whatis most relevant about itfor me, is what this means for the common Nigerian man, the everyday man looking to feed his family, pay for health services and educate his children. Thus, the purpose of this article is to provide an overview of what it means to rebase an economy, analyze the pros and cons of this rebasing exercise and finally highlight how the common man can lose or benefit from the rebasing exercise.
What does it mean to rebase an economy?
In order to understand what it means to rebase the economy, it is necessary to understand how the GDP is calculated. There are three approaches to calculating the GDP of an economy. The income approach, expenditure approach and the output approach.
The recent rebasing of the economy involved changing various components needed to calculate the GDP; most relevant amongst these was the change of the base price used in calculating the value of production and consumption. Previously, the country had used the 1990 figures and increased these figures by an inflation rate across time, but this has been replaced by the 2010 prices inflated across time. Secondly, was the inclusion of sectors previously excluded and the reclassification of sectors as well- there was the introduction and reclassification of industries such as the entertainment and telecommunications industries.
What changes have we observed due to this rebasing?
These changes have had huge impacts on the GDP and the GDP per capita of the country, with the 2013 GDP increasing from the previously predicted $285 million to $509.9 million. The same trend of > 70% increase in GDP and GDP per capita was observed for 2010-2012 .
This increase in GDP makes Nigeria the 26th richest economy in the world and the richest country in Africa, with a GDP now higher than that of South Africa. Our new estimates for GPD per capita puts Nigeria at the 121st richest country in the world by GDP per capita, up from 135th.
What is the impact of the rebasing?
The major justification for the rebasing of Nigeria‘s GDP is the fact that it gives policy makers a more accurate view of the economy, enabling them make more informed policy decisions for the country. Additionally, this rebasing exercise has resulted in a >70% increase in the Nigerian GDP, thus making Nigeria an attractive destination for foreign direct investment as a result of the increased buying power of the country.
However, it is important to realize that this increased FDI will only occur if the risks (security risks, regulatory risks etc.) of investing are less than the potential financial benefits of this investment. The current Nigerian security situation acts as a huge deterrent to these investments. The rebasing also shows that Nigeria is a more diversified economy than earlier predicted.
For example, while the oil and gas industry under the old classification contributed to 32% of the GDP, in the current platform, it contributes only 14% of the GDP.
The contribution of the telecommunication industries however, rises from 0.6% to 8.69%.
I believe that it is important to highlight what the rebasing exercise does not mean and possible disadvantages of this exercise. First, growth does not equate to development. In Nigeria, despite the fact that the GDP is >70% higher than what was previously predicted, unemployment rates still remain high at >25% and with a Gini Coefficient of >50%, inequality remains a major concern for Nigeria. What this translates to is that a majority of the GDP gains are only felt by a few in the Nigerian society, further highlighting the stark inequality problems in the country. Second, as someone who currently works in the health care sector, this rebasing has probable negative effects for this sector. Whilst the Nigerian government has historically paid for routine health care costs including personnel costs, costs for the reconstruction of health facilities etc., we find that commodity costs in the health care sector are in some cases paid primarily by donor funding. In the routine immunization space for example, GAVI has historically funded about 70% of the procurement costs of vaccines and vaccine devices. These funds are however tied to a country’s GDP per capita such that the more than 70% increase in the GDP per capita will mean that Nigeria is no longer eligible for some of this funding.
What this should mean to you?
For you, the foreign direct investment increase and diversification will mean two things. Increased foreign direct investment will mean increased employment opportunities – thus a potential fall in unemployment. It is mandatory that policy makers regulate this FDI such that it is targeted at industries that create employment for the common man thus promoting inclusive growth. The diversification on the other hand highlights the fact that there are alternative job opportunities that people should be training for. Historically, the focus has been on areas like oil and gas, banking, health care etc., but there exists alternative opportunities in the movie industry, telecommunications and service sectors that Nigerians should capitalize on.
The reduction in donor funding for commodities will affect mostly poorer members of society who use public facilities which these commodities are used for. For this reason, the government will need to find ways of funding this shortfall to ensure that the common man does not suffer the repercussions.