by Tunji Andrews

On April the 6^th, 2014, Nigeria, via it’s Bureau of statistics released the results of it’s GDP rebasing exercise, which saw it more than double in size, and surpass Africa as the Largest country in Africa. Nigeria has “rebased” its gross domestic product (GDP) data, which has pushed it above South Africa as the continent’s biggest economy.

Prior to this exercise, Nigeria had not done this in 24 years, which further explains this astronomic rise which propelled Nigeria to the position of 26th largest economy in the world. The new figures revised Nigeria’s gross domestic product for 2013 to 80.3 trillion Naira (£307.6bn: $509.9bn), an increase of 89% over calculations before the rebasing; a is significantly higher than the World Bank pre-rebasing GDP estimates of $262.6 billion.

The rebasing also revealed that Nigeria’s economy grew by 12.7% between 2012 and 2013, making it one of the fastest-growing in the world, another attractive statistic for investors looking to enter new markets.

Most countries rebase their economies every five years or so in order to ensure that they have an accurate picture. But Nigeria, like many other emerging-market nations, failed to follow that schedule for reasons that are not entirely clear. As such, the make up of the Nigerian economy has changed drastically since 1990, the last time its GDP was rebased. That year, the Nigerian oil sector counted at 32% of the country’s GDP, but it now weighs in at just 15%. Agriculture fell from 24% to 22%. Meanwhile, the services industry jumped from 29.4% of Nigeria’s GDP in 1990 to 51.9%, and manufacturing rose from 1.9% to 6.8%.

Even though, Nigeria is still 121st in the world in terms of income per capita, with average income of $2,688 per citizen, there are a lot of positives around the Nigerian economy, with the domestic consumption rate. As forecasts go, Nigeria should be among the world’s 15 largest economies by 2050, when its gross domestic product (GDP) is projected to exceed $4.5 trillion (R47 trillion) in purchasing power parity terms or, in other words, on the basis that in relative terms the naira can buy the same basket of goods as the dollar at that particular time. 

The reality though, remains that South Africa’s economy remains about three times larger on a per capita basis, its regulatory institutions remain the best on the continent, and its financial markets and banking institutions are deemed to be the strongest in Africa. Also being a member of the G20, South Africa, holds greater influence on the world stage. There are however indications that South Africa is pushing for Nigeria’s inclusion into multilateral institutions such as the Group of 20 (G20) in order to strengthen Africa’s voice in the global governance structures; especially with Nigeria emerging as the largest on the continent.

The Market

The rebased numbers and Nigeria’s booming population shows investors that this is a sizable economy with a large consumer base and opportunities for investment in durable goods, consumer goods and their manufacture. This, will undoubtedly draw investor attention, and make them take a closer look but it is expected that investment will ultimately be based on other crucial factors. The GDP is one thing that goes into factoring whether a country is an attractive place for foreign investment, but there are others that include the governance system, how big the middle class is, corruption and poor infrastructure.

The successful manoeuvrings of these factors are what has overtime given the South African and even much smaller Egyptian economies, an edge over Nigeria in terms of Foreign Direct Investment, despite the wide edge Nigeria has over her African neighbours in terms of human capital and natural resources. This however has not held Nigeria’s FDI market share back though, as Nigeria has grown to being the largest recipient of FDI on the continent; marginally shifting South Africa from the number 1 spot. One can only imagine the ‘gold rush’ that would occur if Nigeria could provide a more efficient, secure and less corrupt business environment.

Poverty and Inequality

Nigeria may be a giant, but still has a huge number of desperately poor people. Nigeria ranks 153rd out of 187 countries in the UN’s Human Development Index. Despite the rapid growth of recent years, unemployment remains high at 29% and with an abysmal employment rate of less than 3% YoY; sadly the number of people in poverty has actually increased. Even world bank country director, Marie-Francoise Marie-Nelly had also indicated that 100 Million Nigerians were living in destitution, with the National Bureau of Statistics, not to far off in it’s estimates, stating 60.9% of Nigerians in 2010 were living in “absolute poverty” and that this figure had risen from 54.7% in 2004.

Whereas large parts of South Africa have a rich country’s infrastructure, Nigeria suffers from clogged traffic and chronic power cuts. Lack of development is helping to breed an insurgency in the mainly Muslim north and stokes violence elsewhere that creates no-go areas for foreigners. And the numbers also show its growth rate is slipping, to perhaps 6.5% this year. To absorb the millions of young people pouring into the labour market, Nigeria requires the sustained double-digit growth that China has shown to be possible.

Way forward

The fact is that in many African, Asian, and Latin American economies, the GDP calculations take no account of phenomena such as globalization, or the mobile phone revolution in the developing world. There are fundamental weaknesses with the collection of basic statistics such as what businesses there are, what they are selling, or what goods and services households spend their incomes on. The surveys needed to collect this information are carried out only infrequently, if at all. One estimate, even suggests that for twenty years sub-Saharan African economies have been growing three times faster than suggested by the ‘official’ data.

Thus, the issue with growth and fulfilment of Africa’s potential is more predicated on creating sound institutions and infrastructure, rather than economic genius. For years, the focus has been more on monetary policy as a means to achieve stability and ensure growth continues, but, the real core of the mess around Africa is in the Fiscal policy area.

With politicians displaying a clear disregard for law and order, the appearance of having a law abiding society is missing in many African countries (Nigeria especially), and until this is reversed, the wide spread corrupt practices, which continue to cripple Africa will continue to weaken the fabric of the continent, and reduce it to a source of short term rent-taking by foreign investors.

Nigeria’s new status, remains only a promise of what can be, not necessarily, what must be. The mirage of a GDP rebase can easily be observed in Nigeria’s neighbour, Ghana. When Ghana rebased in 2010, its GDP increased by 60%, transforming it instantly from a “low-income” country into a “low-middle-income” country. Today however, Ghana’s annual producer price inflation (PPI) rose to a staggering 48.3% in August (with Producer price inflation at 15.9%), up from a revised figure of 47.2% year-on-year in July, with the cedi (Ghana’s currency) falling nearly 40% in 2014 alone; proving how important sound fiscal policies are key to a country’s development.