Another Rebasing?

What does this mean?

Gross Domestic Product (GDP) measures the total monetary value of all goods and services produced within a country's borders during a specific period. It is the broadest financial measurement of a nation's total economic activity. Calculating GDP involves adding up the Value of different components of economic activity. It considers the contribution of various industries in creating the final goods and services consumed by households, businesses, and the government. Using the Value-Added approach,

GDP = VA1 + VA2 + VA3 + ... + Van

To understand the relationship between the Value-added and the base year, let's break it down into two main steps: calculating value-added and incorporating the base year.

Calculating Value Added: Here, the Value added at each stage of production is measured. Value added represents the difference between the Value of a firm's output and the cost of the intermediate inputs (such as raw materials and components) used in production. It reflects the additional Value created by a particular industry.

For example, consider a simple supply chain: a farmer grows wheat, a baker uses the wheat to make bread, and a grocery store sells the bread. The Value added at each stage is calculated by subtracting the cost of the wheat from the Value of the bread for the baker and subtracting the bread's cost from the Value at which it is sold for the grocery store.

Incorporating the Base Year: The base year plays a significant role in the production approach as it provides a benchmark for comparing the value-added across different years. It serves as a reference point against which subsequent years are measured. The base year is typically chosen based on its representation of the economy's structure and dynamics during that period.

When the base year is changed, the value-added calculations for subsequent years are adjusted accordingly. This adjustment considers price changes, technology, and industry composition since the base year. It ensures that the GDP figures reflect the current economic reality more accurately.

Why?

The Nigerian economy is one of the largest in Africa, but its GDP is not as accurate as it should be. Nigeria last rebased its GDP in 2014, and the economy has changed significantly since then. The changes could be attributed to new sectors of the economy, such as telecommunications, movies, and retail, which were previously not captured or underreported. As a result of the rebasing, Nigeria is now the largest country in Africa and the 26th largest in the world. In 2014 as well, some African countries undertook the process of rebasing their economies to reflect the changing structure of the economy. The results of this rebasing were significant, revealing essential discoveries about the state of African economies.

One of the most important discoveries was that African economies were much larger than previously thought. For example, Nigeria's GDP nearly doubled, documenting an 89% growth rate and a value of US$510 billion, becoming the top economy in Africa after rebasing. In comparison, Tanzania's grew by a third to $41.33 billion. This suggests that African economies are growing more rapidly than previously thought and are playing a more important role in the global economy.

The rebasing also revealed the rate of diversification and significant variation in the performance of African economies. Countries like Nigeria and Tanzania have experienced substantial growth in recent years. However, other countries, such as Zambia and Uganda, have experienced slower growth, suggesting that there is a need for more targeted policies to promote growth in underperforming economies.

The NBS revealed that they had commenced National Business Sample Survey (NBSS) to "rebase the GDP from 2010 to 2018/2019; to provide sectorial data at national and state levels and to determine the structure of the Nigerian economy". The survey will be done in collaboration with the World Bank, covering 17 sectors across the 36 states of the federation, including the Federal Capital Territory (FCT).

The NBS claimed that the rebasing aims to determine the sectors that drive the Nigerian economy and those that require government intervention to improve. It would also serve as a benchmark for subsequent commercial and industrial sector statistics surveys.

What does this mean to you?

So, what does the rebasing of GDP Mean?

Ideally, the impact of rebasing could be positive because it allows everyone in the economy to plan better and make better business decisions. However, the full impact of the rebasing will not be known for some time, especially since it is a rigorous process that takes some time to finish.

The impact on individuals can be mixed depending on the outcome. After the rebasing, an increase in GDP can lead to increased job opportunities and higher wages for individuals, as businesses will have more money to spend on wages due to increased sales of goods and services.

On the other hand, rebasing can also lead to an increased cost of living due to an increase in prices of food, transportation, and other essential goods and services. This can put a strain on some households, especially if the new government fails to tackle the issue of uneven distribution of resources.

It is important to note that the impact of rebasing on individuals will vary depending on several factors, such as the individual's skills, education, and location. However, overall, the rebasing of the economy is a positive development that could have several benefits.

Likely Impact on Some Sectors of the Economy

The proposed rebasing of Nigeria's economy is anticipated to yield positive outcomes across various sectors. We have outlined some of these sectors below:

Services: Currently the largest contributor to Nigeria's GDP, moving from less than 30% in the 1990s to 53% in 2019. The top contributory services are trade (16%), information and communication (12%), real estate (6%), professional, scientific and technical services (4%), and Financial and Insurance (3%). The expansion in this sector can be attributed to several factors, including the growing middle class, increasing rural-to-urban migration in the country, and rising demand for essential services like education, entertainment, healthcare, and transportation. Recent diversification efforts by the Nigerian government have also significantly contributed to the growth of this sector, and rebasing of the GDP will most likely reveal further growth.

Information and Communication sector: Nigeria's ICT sector is experiencing rapid growth and is projected to maintain this upward trajectory. Data from the NBS revealed that activities from this sector contributed 16.22% to Nigeria's GDP in Q4 2022 and 17.47% in Q12023. This indicates the growth potential in the sector and the increased importance of ICT-related activities to the country's economic development due to the increasing accessibility of mobile phones and the surging demand for internet services are key drivers behind this expansion. Rebasing the GDP will enable the government to understand the sector better and make policies that can further enhance it.

Agriculture: With its significant employment potential, the agriculture sector is expected to play a vital role in Nigeria's economic diversification. The government has implemented various initiatives, such as the Anchor Borrowers Programme and the Presidential Fertilizer Initiative, to support this sector.

Manufacturing: As a crucial catalyst for economic development, the manufacturing sector is forecasted to expand further. The government's emphasis on industrialization, coupled with the escalating demand for domestically produced goods, is driving this growth.

Rebasing the economy will enhance the accuracy of Nigeria's GDP figures and provide a more comprehensive understanding of the country's economic landscape. Consequently, this will facilitate better risk assessment and identification of investment opportunities for interested stakeholders. Furthermore, the rebasing exercise is expected to attract increased investment inflows into Nigeria.

The proposed rebasing of Nigeria's economy is poised to generate positive impacts. Improving the precision of GDP figures, providing a comprehensive economic overview, and enticing greater investment will contribute to the country's overall economic growth and development.

Implications for Policy and Investment

The rebased GDP figures hold significant implications for both policymakers and investors. The updated data is expected to attract increased interest from domestic and international investors, who will now have a clearer picture of the size and potential of Nigeria's economy. With the revised figures, policymakers can craft more effective economic policies and strategies that align with the evolving needs of the nation, promoting sustainable growth and development.

International Comparisons and Regional Integration

Rebasing Nigeria's GDP will also affect the country's international standing. The updated figures could potentially impact Nigeria's position in global rankings, highlighting its economic significance on a global scale. Additionally, the rebased data aligns Nigeria's economic statistics with regional integration initiatives, promoting harmonization and cooperation within West Africa.

This exercise holds immense potential for policymakers, investors, and analysts. The revised GDP data will serve as a valuable tool in making informed decisions and pursuing opportunities aligned with Nigeria's evolving economic landscape. With a more up-to-date understanding of the country's economic performance, policymakers can devise targeted policies to address critical challenges and drive sustainable development.

Moreover, the rebased GDP figures will undoubtedly attract increased interest from investors. By showcasing the actual size and potential of Nigeria's economy, the revised data may foster confidence and encourage domestic and international investments. It can open doors to new investment opportunities, particularly in emerging sectors that have gained prominence since 2010. This influx of investment can stimulate economic growth, create jobs, and contribute to the country's overall development.

Internationally, the rebased GDP figures will impact Nigeria's standing and perception. The updated data could potentially enhance the country's position in global rankings, highlighting its economic significance among nations. This, in turn, can strengthen Nigeria's international partnerships and collaborations, creating opportunities for trade, investment, and regional integration.

Conclusion

Nigeria's decision to rebase its GDP marks a significant step towards capturing the actual economic realities of the nation. The shift from 2010 to 2018/2019 as the base year will provide a more accurate reflection of Nigeria's economic performance and the evolving dynamics of its economy. The revised GDP figures will empower policymakers, attract investors, and position Nigeria favourably on the global economic stage. As Nigeria moves forward with rebased GDP figures, it will set the stage for informed decision-making, sustainable growth, and increased prosperity for its people.