How then have we arrived at the situation where Nigeria’s GDP rebasing has been trailed for more than a year now and is generating quite a bit of excitement? There are 2 simple answers to this.
Firstly, perhaps in typical fashion, Nigeria hasn’t rebased its GDP since 1990. No country serious about accurately measuring its economic activity should leave things for 24 years before updating its data. In other words, where there have been quite dramatic changes in the nature of our economy, there’s a strong case to be made that building on a 1990 data foundation is bound to misrepresent the reality of the economic situation.
The second reason is a bit more untoward. The routine and mundane nature of GDP rebasing has been incentivized by the bragging rights that will come with replacing South Africa as Africa’s largest economy. It is very unusual for economic league tables to be rearranged in this way. In 2012, according to various reports, Brazil overtook the UK as the world’s 6th largest economy. But this came about by a combination of dire economic growth in the UK and years of steady Brazilian growth – indeed it was predicted for years before it happened and the gap between both countries remains small. Nothing was achieved by the stroke of a pen.
Not so in this case. Based on informed speculation, Nigeria’s GDP will ‘grow’ by 65% literally overnight once the rebasing is announced sometime in February – the equivalent of ‘discovering’ almost 5 Kenyas in the Nigerian economy. Is there really $170bn of economic activity going on in Nigeria that is currently undiscovered? Some might say this is plausible given the fact that a lot of things are not properly measured anyway – the plural of anecdote is data as they say and everyone has one story or the other as to why it is possible.
Beyond the bragging rights over South Africa, perhaps it is useful to see how this new GDP will stack up in the world at large. We will now have a bigger economy than Denmark the home of global giants like Maersk and Carlsberg and an agricultural superpower which exported €16bn of agricultural products in 2011. It is hard to see how Nigeria has managed such economic growth with barely 4,000MW of electricity compared to Denmark’s 30,000MW. Economies like Singapore, Switzerland and United Arab Emirates will suddenly be left in Nigeria’s wake in terms of size.
All of this is coming on the back of Professor Morten Jerven’s controversial 2013 book ‘Poor Numbers’ which highlighted the poor quality of data gathering in African economies and how this is then replicated in published GDP figures. A cynic might argue that some countries like Nigeria and Ghana have an incentive to exaggerate their GDP figures for reasons stated above while poorer countries that are heavily dependent on foreign aid want to keep their GDP numbers low to keep the aid coming in. This was the case in Malawi where maize harvests were overstated in 2006 to ‘prove’ that fertilizer subsidies (paid for with foreign aid) introduced the previous year were working. But in 2010, new figures released suggested that the touted harvest was nothing of the sort.
The biggest problem in all of this is that it might give African governments desperate to report good news, a way to do this without actually putting in the hard work. And there is plenty of work to be done. Renowned Princeton economist, Dani Rodrik, has written about how African economies have been de-industrializing at a worrying pace in spite of all the economic growth being reported. The kind of economic transformation that should come with dramatic changes in GDP numbers such as we are about to see with Nigeria has been happening very slowly. Perhaps the current GDP figures are an accurate reflection of reality then. Nigerians will of course become richer on paper – the equivalent of $1,000 per annum increase in GDP per capita – but the effect of this might be that an already cynical population takes it as reasons to trust the government even less. How does one become richer according to statistics without any actual money in the bank?
So given all these concerns, perhaps what needs to happen from here is to ensure that the Nigerian government is by no means allowed to take this is as some kind of unqualified validation of its economic policies. The publicity will be good for Nigeria coming soon after pundits have placed Nigeria in the “MINT” group of countries as the countries to watch. If nothing, it will make investors take notice as a larger economy means that it can absorb and deliver returns on larger investments.
Undoubtedly, Nigeria’s economy has been growing at impressive rates in recent times, much of it due to high commodity prices and a growing middle class demanding new goods and services. What the government cannot however do is simply wish away all the difficulties associated with doing business in Nigeria overnight. Hard work and a lot of long-term thinking will be required. Staying at the top of the African economic league table might be easy but then Africa will cease to be the competition in a couple of years – Nigeria will be catapulted to the global stage – a much bigger pond. Real reforms will need to be launched – the country’s poor and deteriorating showing in the World Bank Doing Business Report will have to be improved upon; non-passage of the Petroleum Industry Bill will look more ridiculous under the harsher spotlight. There are also implications for foreign financial support – the situation where the bulk of the current government’s agriculture programmes are supported by foreign donors and agencies might become untenable or curtailed when we become a larger economy. At the very least, foreign aid priorities might switch to more deserving poorer countries. With growing up comes more responsibility and it will become increasingly untenable for a country like Nigeria to continue spending the bulk of its oil earnings on salaries and other recurrent expenditure. Changing the status quo will by no means be easy given the long history of how the current state of affairs came to be but there will be no easier options available.
There is also the worry that the government might take this as a licence to borrow more. Based on the current budget, the government will be able to borrow almost $3bn extra this year given that borrowing figures are tied to GDP. The larger the GDP, the more the country can borrow but this will not take away the fact that a sizeable chunk of the annual budget ($4bn) is currently dedicated to debt servicing. The government will thus need to find new sources of revenues beyond just oil to ensure that debt servicing does not return us to the days when roads and hospitals could not be built because we had to pay down debt first.
On the plus side, rebasing Nigeria’s GDP will reorder the economy in some not so subtle and useful ways. New sectors like technology startups that are increasingly raising funding from foreign investors might find it easier to raise even larger amounts given the size of the addressable market. Large pension funds already invested in Nigeria might find it worthwhile to increase their exposure to the country. And as stated above, if the government is able to stem corruption and channel funds to infrastructure projects, then the people might see visible changes quicker given the extra borrowing powers available to the government from a bigger GDP.
Most of all, rebasing GDP in this manner is a statistical sleight of hand that will be very difficult to repeat. With people like Bill Gates investing in GDP data gathering across the continent it will be very difficult for anyone to get away with waiting 24 years and then discovering previously unseen economies in the country.