Nigerian GDP to rise by 50 percent on improved measurement

Brian Sturgess - April 2013


Speed Read
  • Economic statistics for many African countries are seriously deficient. In Ghana an improvement in evaluating economic activity, mainly in the Services sector, added 60% to the size of measured GDP in 2010.
  • Nigeria, Africa’s most populous, and second largest economy is in the process of carrying out a similar revaluation of its national economic activity which is expected to raise measured GDP by around 50%.
  • The revision will have a number of significant economic consequences for Nigeria including an improvement in the country’s debt ratio and a potential rise in the allocation of international investment into the Nigerian stock market.

The Nigerian economy is expected to be declared to be between 40-60% bigger as a result of improvements in the methods by which it is measured. This will occur as a result of a change in the base year from which future GDP estimates are made from 1990 to 2008. The new data was expected to be released last year then January of this year, but now the data pencilled in by Nigeria’s National Bureau of Statistics is September 2013. According to the IMF Nigerian GDP per capita at market exchanges was US$1,522 in 2011 so a revision upwards of GDP by a mid-range estimate of 50% would have raised GDP per capita at market exchange rates, to US$2,283.

 

The Problems with African Economic Data

The severe problems that exist with African economic statistics have been discussed in detail in an excellent new book Poor Numbers by Morten Jerven, an expert who has also produced a number of articles for World Economics.[1] The reasons for the poor data range from lack of training and resources to outright political manipulation, but when better methods are used to estimate GDP in line with international practices the results can be dramatic. For example, on November 5 2010, Ghana’s Statistical Service announced that the GDP estimate for that year was to be revised upwards from 25.6 billion cedi to 44.8 billion cedi[2], an increase in national income of around 60%. The main reasons for the upward revision was due to an analysis of the change in the structure of the Ghanaian economy over time, which produced new weights for the relative importance of individual sectors, and an investment in data collection to reflect an upgrade in the methodology of national income accounting employed.[3]   In particular, the base or benchmark year used to estimate the structure of Ghana’s economy and subsequent periodic changes in the volume of output was changed from 1993 to 2006. The importance of regular base year revision is that sectors whose importance in the economy has grown over time will be underrepresented by regular surveys of volume growth biasing GDP estimates downwards. The rebasing to 2006 from 1993 changed the estimated balance of the Ghanaian economy with the contribution of Agriculture, Industry and Services to total value added changing from 35.6%, 28.3% and 36.1% at basic prices in 2010 for the old services to 30.2%, 18.6% and 51.1% according to the new series.[4]

An extreme example of this change in the Services sector is telecommunications where neither a mobile telephony sector nor the internet existed in 1993 while the sector’s contribution to GDP in Ghana continued to be based on the revenues of the state telephone monopoly. To reflect this change in Ghana, a new category of the economy, Information and Communications, was added to the rebased new series which contributed an estimated 483 million cedis to value added in 2010, or 6% of total services sector GDP up from nothing in the old series.  Other examples where there were significant changes include financial services, health care and social work, restaurants and hotels and real estate. The entire exercise to rebase Ghana’s economy started in 2002 and involved the IMF, a number of international experts and sponsorship support from the Danish International Development Agency. In most developed countries GDP estimates are based on changing the benchmark year every three to five years, but in Africa the resources to do so are not available. Without the international technical assistance and financial aid the revision in Ghana may have taken many years longer to achieve. 

 

The Rebasing of the Nigerian Economy

The delays in releasing the new Nigerian GDP provide further evidence of the problems in producing reliable national income statistics in Africa. Nigeria is still using 1990 as a base year for the structure of its economy, but this benchmark will be adjusted to 2008. The current base year, like 1993 in Ghana, represents the structure of the economy before the existence of mobile telecommunications which were only authorised in 2001. Since then the number of connected mobile handsets has risen to 149.2 million by December 2012 compared to only 4.2 million fixed lines forming the current basis of sector GDP estimates.[5]  To illustrate the potential for an upward revision looking at only one sector, that of telecommunications, the table shows how dramatic the penetration of mobile phones has been in Nigeria compared with the sclerotic fixed line segment. It also shows the problems with data since the Nigerian Communications Commission, the state regulatory body, provides no statistics on telephone subscriptions for the three years 2007 to 2009.

A telecommunications report published on the impact of mobiles in Africa has estimated that the revenues of the mobile network operators in Nigeria accounted for 3.7% of GDP (not rebased) in 2011. [6] Telecommunications is only one of the industries that will be reassessed and the extent to which Nigerian GDP will rise as a result of the updating of the benchmark year for the entire economy remains uncertain. Some efforts have been made to improve estimates of GDP by investing in better and more extensive surveys. The Nigerian Bureau of Statistics (NBS) in collaboration with the Central Bank of Nigeria (CBN) has been conducting surveys to improve GDP estimates since 2005, but this allows only revisions of GDP which is far different from a complete rebasing of the economy.

In terms of the structure of the Nigerian economy NBS figures show that Agriculture accounted for 40.1% of value added in 2011, Manufacturing’s share was 7.1% and Services took 37.7%. The remainder of GDP was generated by activities in Oil, Gas and Minerals which accounted for 15.2% of value added. It is most probable that the bulk of the upgrade, like Ghana will occur in a reassessment of activities in the services sector. However, the size of the upgrade is still uncertain, although Nigeria’s Statistician-General, Dr. Yemi Kale, has  teased that the rebasing may raise the country's GDP to US$247 billion closer to South Africa, the continent's top economy, with a GDP of US$422 billion.[7]

 

Benefits of Rebasing

A revision of Nigeria’s national income arising from a change in the method of measuring GDP will have significant effects on the country’s stakeholders. For equity and FDI investors the rise in GDP will produce revised estimates of the size of Nigeria’s consumer markets and median real income levels. The revision in GDP will also raise the weightings of international investors portfolios allocated to Nigeria raising investment in the companies listed on the Nigerian Stock Exchange whose market capitalisation is only around 30% of GDP compared with around 360% of GDP on the Johannesburg exchange. [8] For bond investors holding some of the Nigerian government’s Naira 7.55 trillion (US$48.5 billion) of debt), the ratio of government debt to GDP would fall from its level of 15.1% in December 2012 to around 10.0%. [9]This ratio is one of the factors taken account by rating agencies and lenders and the revised level should provide a bit of extra comfort with an unchanged probability of default. For the Nigerian government, currently borrowing at a rate of around 12% plus on three to ten year bonds, lower rates could reduce future debt service charges. A higher level of GDP would also mask the impact of a higher budget oil price on the budget deficit/GDP ratio. The upward adjustment to GDP will allow the government to easily achieve its medium-term objective of narrowing the federal budget deficit to 1.1% of GDP in 2015.[10] Finally, rebalancing the estimated structure of the Nigerian economy and a reappraisal of estimates of sector growth rates will aid policy makers to assess where value-added is being generated in the country and where supportive resources are best targeted. This will aid the design of structural reform and regulation and policies to improve the enormous infrastructure deficit in areas such as electricity generation and transport networks which is damaging future investment and growth prospects.

 

Jerven, M. (2011), Counting the Bottom Billion, World Economics, December: http://www.worldeconomics.com/Papers/Counting%20the%20Bottom%20Billion_f4168a63-84c1-4bb8-b22b-a2291d757e7a.paper

Jerven, M. (2013), Agricultural Statistics: Who benefits from distortions? World Economics, January: http://www.worldeconomics.com/Papers/Agricultural%20Statistics%20Who%20benefits%20from%20distortions_96b727d6-fdf0-468e-b937-13680d2f7d6d.paper

Jerven, M. and Duncan, M.E. Revising GDP estimates in Sub-Saharan Africa: Lessons from Ghana, The African Statistical Journal, 15, August, pp13-22.

Sturgess B.T., (2012), Wealth and Population Data in Africa, World Economics, May: http://www.worldeconomics.com/Papers/Wealth%20and%20Population%20Data%20in%20Africa_2885bf8b-6410-467c-90a9-41b2d2001b37.paper

 



[1] See Jerven (2011) and Jerven (2013).

[2] From US$17.9 billion to US$ 30.9 billion at 2010 average rate of 1 Cedi = US$0.69

[3] The Ghanaian Statistical Service upgraded from using the 1968 version of the System of National Accounts to the 1993 version.

[4] See Jerven and Duncan (2012).

[5] See Nigerian Communications Commission: http://www.ncc.gov.ng/

[6] See http://www.gsma.com/publicpolicy/wp-content/uploads/2012/04/africamobileobservatory2011-1.pdf

[7] See http://www.thisdaylive.com/articles/between-gdp-rebasing-and-economic-growth/138561/

[8] See Economists in Cautious wait for Nigeria’s GDP Rebasing, Business Day online: http://www.businessdayonline.com/NG/index.php/news/76-hot-topic/49879-economists-in-cautious-wait-for-nigerias-gdp-rebasing-

[9] Nigeran Government debt data is available from the Debt Management Office: http://www.dmo.gov.ng/

[10] See FG Misses 2012 Target on GDP Adjustment, Leadership, http://www.leadership.ng/nga/articles/42211/2012/12/11/fg_misses_2012_target_gdp_adjustment.html