Despite the rebasing of its Gross Domestic Product (GDP), which made it Africa’s largest economy, Nigeria’s economic potential is still troubled by weak institutions, security challenges and infrastructural deficit. The rebasing, analysts say, made Nigeria’s economy bigger but not better than South Africa’s, writes COLLINS NWEZE.
It took months for the National Bureau of Statistics (NBS) to complete the exercise because of its enormity. A few days ago, it completed the exercise and released the result. To the government, it was a good result because the rebased Gross Domestic Product (GDP) places Nigeria’s economy ahead that of South Africa on the continent. Does that paint a picture of a rosy economy?
No, say economic experts, who argue that the reverse is the case.
Nigeria‘s GDP has not been rebased since 1990 contrary to global best practice of re-benchmarking every five years. This implies that the country has had to rely on out-dated figures over the last 24 years.
According to NBS, because the GDP rebasing, the economy’s size has grown by 89 per cent to N80.3 trillion ($509.9 billion). This makes Nigeria the world’s 26th largest economy and the largest in Africa.
It is bigger than Angola, Egypt and Vietnam put together and 12 times the Ghanaian economy.
But analysts say South Africa’s economy is more sophisticated with better infrastructural base and higher living standards, which means the country could remain Africa’s business destination, especially for companies seeking a hub on the continent.
Following the rebasing, Nigeria’s GDP was put at $509.9billion in 2013 compared with South Africa’s GDP of $370.3 billion.
A South African economic analyst, Zeenat Patel, explained in BusinessDay, South Africa report that, following the rebasing, investors interest will gradually shift away from South Africa to Nigeria. He averred that though Nigeria may now be regarded as the biggest economy in Africa in terms of GDP, the country still has a long way to go to catch up with South Africa.
He said South Africa is a leader on the continent in terms of financial market development, wealth levels, the quality of infrastructure and governance. He cited the World Economic Forum’s 2013-14 global competitiveness report, which ranked Nigeria at 120 whereas South Africa stood at 53 out of 148 countries.
This ranking is based on key pillars such as the quality of institutions, infrastructural development, macro-economic environment, education, training, health, labour market efficiency, financial market development and business sophistication.
Agusto & Co said Nigeria would need to work hard on its governance standards both in business and politics if the country is to achieve its true economic potentials. It said: “In our view, building strong institutions and safeguarding their independence will be germane to achieving the long term economic growth potentials for Nigeria. The ability to translate the revised GDP numbers into a proper planning tool would help defray criticisms that the rebasing exercise is just another vanity project.”
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 per cent of the population lives 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 effort in futility.
Managing Director, CRC Credit Bureau, Tunde Popoola, said the rebasing has finally laid to rest, the controversy over the actual size and ranking of our economy.
He explained that from the rebased GDP, it makes sense to set out the fundamental implications of the new reality. “Nigeria is the biggest economy in Africa with a GDP of $510 billion. Our per capita income has moved up to $2,688, which still places us on 121st position. The per capita income position is an indication of an economy with low productivity. The components of our national output and production, which had always put agriculture at over 30 per cent, showed that agric is now 24 per cent, oil and gas at 14 per cent, telecommunications at eight per cent, services at 50 per cent and manufacturing at seven per cent. This new statistics depicted us as an economy moving away from a factor-driven to knowledge or service-driven economy,” he said.
He said the rebasing has also provided Nigeria with the impetus and the stimulant to see itself as a big economy. “Hopefully, it also should be able to further improve the attraction of foreign directive investment provided it is able to put together the other important factors especially appropriate policy and conducive investment climate,” he said.
According to him, this is an affirmation that Nigeria is the place to be, adding that the favourable, positive factors are there to achieve far much more than has recorded-huge population, youthful demographics, and large market. “With an estimated population of about 174.5 million and growing at an average of 2.379 per cent per annum, Nigeria population, which makes it the most populous country in Africa and 47 per cent of West Africa population, would exceed 300 million by 2050 and placing it as the fourth most populous nation on earth,” he said.
Popoola said Nigeria demographic characteristics are as interesting as it is scary due to its dominantly youthful population. About 43.8 per cent or 76 million people of the 174.5 million Nigerians are below 15 years while about 19.3 per cent are between ages 15 and 24. He said: The implication is that over 63 per cent or 110 million Nigerians are under 25 years. To confirm the youthfulness nature of the population, Nigeria’s median age is 17.9 years. This feature of our population would likely continue for a long time.”
Modest debt-to-GDP
The Agusto report said the rebasing of the GDP clearly demonstrates the weakness of the country’s tax framework. Prior to the rebasing, Nigeria had a tax revenue-to-GDP of approximately 20 per cent, which is within the range of other emerging economies. However, with the rebasing, this ratio dropped to 12 per cent – and even could even drop further to four per cent if taxes and royalties from the oil and gas sector are excluded.
At four per cent (ex-oil and gas sector), Nigeria’s tax revenue to GDP is abysmally low even in comparison to other African economies like Ghana (14.9 per cent), Kenya (19.9 per cent) and South Africa (26.1 per cent). On the other hand, Nigeria’s debt to GDP of 11 per cent (19 per cent pre-GDP rebasing) seems quite conservative in contrast to other emerging market peers.
However, reveling in the benign debt to GDP numbers without the underlying institutional framework to adequately generate tax revenues would compare to a company on a borrowing binge (because of its low debt to sales) without sufficient cash flows to repay its debts.
The Coordinating Minister of Economy (CME), Dr Ngozi Okonjo-Iweala, said Nigeria would not change its debt policy and borrow more.
South African Finance Minister Pravin Gordhan told iafrica, a South African publication, that he is optimistic about South Africa’s economic outlook for this year despite disappointing economic data pointing to slower growth in the first quarter.
He said there have also been a string of downward revisions to economic growth forecasts for the country by several institutions, the latest being the International Monetary Fund (IMF).
Gordhan said the Treasury maintained its forecast for the economy to grow 2.7 per cent this year despite the IMF last week significantly lowering the country’s economic growth outlook to 2.3per cent from an earlier 2.8 per cent projection.
Some interesting numbers
For Nigeria, 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, 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 & Footwear segment at N380.8 billion (0.47 per cent of aggregate GDP), while cement manufacturing is estimated N350.7 billion (0.44 per cent of aggregate GDP). This clearly suggests the significant underlying potentials of the textile industry even amid current challenges.
At the heart of the government’s quest to diversify the economy and increase investments in sectors with potential for significant job creation are some major reforms like the new National Automotive Policy and the establishment of the Nigeria Mortgage Refinance Company.
The new automotive policy is expected to lead to a spurt in the local assembly and manufacturing of automobiles, with big announcements by global auto giants Nissan and Peugeot to set up manufacturing plants in Nigeria. The mortgage refinancing scheme should put an end to the exploitative double digit interest rates of mortgages and possibly unlock pent up demand for residential homes.
Motor vehicles and assembly is a meagre 0.04 per cent of the revised GDP while real estate is the fifth biggest economic activity, representing 8.02 per cent of GDP. The success of these reforms could lead to a new wave of reforms reminiscent of the 2004 – 2007 era and possibly strengthen economic growth.
Unemployment figures
An economist with Rockview Services, Daniel Obinna, noted the revised GDP figures and overall data output would greatly help analysts and investors in their Nigeria macroeconomic studies. The NBS has provided greater depth and detail by highlighting the size of 19 sectors and other sub sectors.
The NBS has also announced that the bureau will rebalance the consumer price index (CPI) by the end of the year to reflect current realities, especially with the growing middle class that is believed to have a lower expenditure budget on food. But more importantly, policy making in Nigeria is in dire need of more up-to-date unemployment numbers.
He said the 2011 unemployment numbers of 23.9 per cent needed to be urgently revised. “In my view, this will help reduce the unhealthy spread between the robust economic growth and the jobless rate and possibly help concentrate planning on job creating initiatives. Nigeria is in dire need of more up to date unemployment numbers,” he said.
Analysts said Nigeria remains a paradox. The critical issues relating to quality of life is at variance with the optimistic statistics of an N80 trillion economy and the impressive annual growth of GDP. They say there seems to be a serious disconnect between growth, poverty reduction and human development.
