War of GDP size: Nigeria returns to the battlefield

“The size of a country’s GDP seems to somewhat influence the economic perception of international investors, potential investment flows, regional economic supremacy and sometimes can weigh into political emotion” … Dr Vincent Nwani

The Nigerian Government has announced its plan to rebase the country’s Consumer Price Index (CPI) and Gross Domestic Product (GDP) by 2025. The move is expected to change the methodology currently used in computing the figures to reflect the informal sector (60 per cent of the country’s economic activities) in a bid to enhance policy accuracy and boost investor confidence.

As Nigeria continues to explore diverse strategy to achieve its $1 trillion GDP target, it is believed that the new rebasing exercise will once again lead to an exponential increase in the nation’s GDP numbers and will serve as an easy path to regaining its lost position as the largest economy in Africa.

It will be recalled that Nigeria emerged as the largest economy in Africa after a rebasing exercise that nearly doubled its GDP in April 2014. Prior to this, South Africa had held the baton for a long time as having the largest economy in Africa including all of the recognitions that come with it.

However, through a rebasing exercise Nigeria’s economy was put at about 30 per cent larger than South Africa’s with the 2013 Nigerian GDP valued at $509.9 billion while that of South Africa was valued at $370 billion.

According to Richard Dowden of Royal African Society, “Nigeria had always had immense ambition to be the leader of Africa in economic size”. Whilst this is a noble ambition, stakeholders and investors across the globe will be thrilled to see it materialise through organic growth of real activities rather than realising the bold aspiration through a “clever paper work”.

… Dislocated numbers
In 2023, the Nigerian Bureau of Statistics (NBS) updated its unemployment data methodology to include casual and self-employed workers. This change led to a significant drop in the unemployment rate from 33.3 per cent to about five per cent and erroneously painting a positive picture of the country’s worsening unemployment crises. Whilst the new methodology shines Nigeria’s unemployment numbers below that of many developed nations at five per cent, the reality on the ground suggests a threshold of about 45-50 per cent unemployment rate in the county.

Having reviewed the structure of the Nigerian economy, the NBS GDP computation metrics and GDP reports, it is apparent that Nigeria already applies the global methodology for computing real economic activity, The United Nation’s International Standard Industrial Classification of All Economic Activities (ISIC). Under this framework, the aggregate economic activity (formal, informal, sectors, sub-sectors, etc.) are already well captured.

Tellingly, Nigeria’s GDP size contracted by approximately 31 per cent between the years of 2014 and 2023. Sadly, the aura and lure of the last rebasing exercise has completely disappeared with the IMF’s projection that the economy will slide to the position of 4th largest in Africa at the end of 2024.

Evidently, without a broad-based, credible, consistent, transparent, and well-coordinated economic and institutional reforms in Nigeria, GDP rebasing is largely a cosmetic exercise.

Do investors really care about GDP Size?
Although higher-ranked economies arguably enjoy initial attention by foreign investors, these rankings do not mean much and are not really useful for final investment decisions. This is because the rankings are heavily dependent on exchange rate fluctuations, which can be very volatile and uncertain as well. Thus, international investors pay less attention to the relative size of economies than they do to growth prospects and Ease of Doing Business.

For instance, investors want to know if there will be economic growth propelled by reforms towards incentivising private investment. They want to see policy regulations that open up opportunities in critical sectors, increase in yield on their investment in an economy and guaranteed ease of profit repatriation.

“The size of a country’s GDP seems to somewhat influence the economic perception of international investors, potential investment flows, regional economic supremacy, and sometimes can weigh into political emotion.”

The current administration commenced on May 29, 2023 on a note of bold economic reforms – removing decades-old petrol subsidy that kept prices artificially low, freeing the foreign exchange market to merge all windows, partially removing electricity subsidies amongst other steps targeted at stabilising the economy and initiating sustainable growth. The bold reforms notwithstanding its implementation dynamics seem to have spared the vested /connected interests and hurt the economy and the masses so badly.

The country is facing skyrocketing inflation at 33.88 per cent in October 2024 up from 22.14 in May 2023; a record loss of value of national currency by over 70 per cent within a 12 months period; over 30 million people are hit by severe hunger due to record explosion of food prices; and performance of businesses are largely flat due to depressed consumer and investor confidence. Between 2020 and 2024, about 77 multinationals/notable brands exited from Nigeria, scaled down their operations, or divested from the country.

The mass exodus of companies in Nigeria is firmly believed to be rooted on the heightened spate of business environment challenges such as Foreign Exchange Crisis, Poor Power Supply/ High Energy Costs, Insecurity of lives and properties, and Multiple Taxation. The above highlights in part explain some of the remote factors driving down Nigeria’s output growth and regional ranking.

Time to go to work
Fact remains that the Nigerian government received unearned glory for posting huge GDP numbers after it rebased the country’s GDP in 2014 and the years that followed. Unfortunately, the country was not prepared for the responsibilities and implications that came with automatic bloating of its GDP size.

Nigeria may take a clue from the Chinese model by refusing the “quick fix” syndrome (aspirin) and embark on hard long term permanent solution (vitamin). Apparently, there remains the absence of a well structured, broad-based and synergised economic blueprint with clearly stated goals, plans, policies, strategic initiatives, targets and measurable outcomes inclusive of timelines to drive the economy. Thus, there is urgent and compelling need for a detailed, well-designed policy direction, centrally coordinated with effective tracking, monitoring, and feedback framework.

The quick wins will be addressing the elephant in the room such as security issues, macroeconomic challenges (forex and cost of living crises), transport infrastructure /logistic challenges, electricity/energy supply shortcoming, and regulatory infraction.
Dr Nwani is a leading Macroeconomic, business and Policy Analyst, and currently the Strategy Leader, West Africa @ Safrik Investments Group.