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Published On: Mon, Apr 14th, 2014

On Nigeria’s rebased economy

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okonjo-iwealaBy Boniface Chizea

The announcement had earlier during the week filtered in that the Federal Executive Council has at its weekly Wednesday meeting approved that the details of the rebased Nigerian economy should be formally presented to the public on the following Sunday, April 6, 2014. Most informed compatriots waited with bated breath for this presentation and when it was made it lived up to its billing. The highlights of the details presented indicated that the Nigerian economy is the largest economy in Africa. Most people suspected this fact going by the mere size of the population of the country, its land mass, mineral endowment and other key indices that Nigeria should be the largest economy in Africa. An immediately discernible indicator in this regard is the way some particular businesses have blossomed including retail and telecommunications. Shoprite a South African owned supermarket has done such massive business that it was reported that the sale of Moat Champagne in Lagos alone exceeded the volume of sales in the whole of South Africa and despite insurrections ravaging most of the Northern parts of the Country, Shoprite was reported to have opened its latest outlet in Kano. Who then questions the existence of robust consumer demand in Nigeria?

The rebased figures produced other interesting revelations; Nigeria is now ranked 26th country in the world not too far from the Vision 20/2020 target that the country should aim to be the 20 most developed country in world by the year 2020 even if one must quickly admit that GDP size only will not tell the whole story. And the GDP per capita places Nigeria at the 121 position in the world indicating the extent of ground left to be covered before the size of the economy would begin to reflect at the level of the individual Nigerian. The Nigerian economy turned out to be a lot more diversified following this rebasing than was earlier thought contrary to the commonly held view that the economic base of the country remained mono-cultural mainly dependent on the oil and gas sector. It became apparent that there are some hidden unrecognized sectors such as Services which over the period had become dominant. The Service Sector doubled its contribution to GDP from 23.03 per cent to over 50 per cent currently while that of industry and agriculture dropped from around 46.08 to 25.8 per cent and from 31 to 24 per cent respectively.

When you determine the size of a country’s GDP, it is usually based on assumed complement sectors of the economy which are expected to capture the totality of activities in the economy. The output of these sectors if measured in current prices would give output inflated by the rate of price inflation and therefore to ensure that we measure like with like the effect of price increases in neutralized and therefore the output is measured in constant prices ( in real terms). And therefore what has happened in this particularly situation is that prices have been assumed constant over a long period of 24 years; which begins to indicate the level of seriousness that allowed this long period of inactivity in this matter. Also in order to ensure comparability between the GDP measures in one year to another the structure of the economy from the perspective of the complement component sectors are retained. This explains why it was not possible to factor in some obvious growth sectors of the economy such as Communications and Entertainment (NollyWood) in the intervening period until the rebasing exercise was undertaken.

The benefit of this exercise, as observed by the IMF representative in the country, is that the country has taken a major first step in its effort to make reliable data available to better inform policy decisions. There is the advantage of comparability with the rest of the world and also no doubt there will be some perception advantage which could be found on the part of foreign investors as they take decisions regarding the destination of investment dollar. Some critical indices no doubt have been altered as a result of this effort. For instance the debt/GDP ratio at 11 per cent would seem to suggest that there is slack in the borrowing capacity of the country which had made the Coordinating Minister of the economy to caution that this would not mean that the country will now embark on borrowing jamboree. We also would look good if we consider some other indices such as deficit/GDP ratio but not so good if we consider non- oil revenue/GDP ratio. It is also a fact that the rate of growth of the economy will be slowed down based on the fact of the increased GDP measure.

Dr. Boniface Chizea is Managing Consultant, BIC Consultancy Services and wrote in from Lagos.

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