The rebasing of the Nigerian economy is set to benefit everyone but the ordinary Nigerian citizen.
After months of delays, and mounting anticipation, Nigeria’s economy has been officially “rebased”. It is now worth $510 billion (2013 figures) – an eighty-nine percent rise, far in excess of analysts’ predictions. Nigeria is now Africa’s largest economy, pushing South Africa to a distant second place.
But what it does it really mean for the country’s citizens?
First, a simple explanation of the concept of rebasing. Rebasing has a number of different meanings in economics. Rebasing a currency means adjusting currency denominations, as Zambia did to the Kwacha in 2013 when it sliced off three zeroes. A GDP rebasing (as with Nigeria this year, or Ghana in 2010) on the other hand refers to an adjustment in the “base year” or “benchmark year” from which GDP – roughly the value of all goods and services produced in a country in a given year – is calculated.
What is the base year and why does it matter?
Let’s go hypothetical. I’m a bookseller. In 2012 I sold one thousand books, at 100 naira per book, earning revenues of N100,000. In 2013 book prices rose to 110 naira. Even though I sold the same 1,000 books as 2012, my revenues will be N110,000. Ignoring inflation, it will appear as though I have been more productive in 2013. But account for inflation and you immediately realize that nothing has changed.
Now let’s apply this to GDP. Let’s assume Nigeria’s 1990 GDP was $100 billion, and in 2000 $110 billion. One would immediately seek to conclude that there was a 10% increase in GDP, over the ten years. But the real picture could simply be that the 10% increase is wholly explained by inflation, and not increased productivity, and that if one adjusted that surface-level 2000 value (known as “nominal GDP”) for all the inflation that has happened since 1990, a different – typically smaller, believably more accurate – picture of 2000 economic productivity would emerge (“real GDP”).
This is where the Base Year or Benchmark Year concept comes in. The Base Year is the statistical tool employed to achieve that all-important adjustment-for-inflation. It works thus: Economists select a particular year as “base” (it is recommended that the base year be one for which significant amounts of data can be found), and then recast every succeeding year’s nominal GDP in terms of the prices of goods and services in that base year. Applying the prices of the base year to nominal GDP in a subsequent year is what produces the real GDP value for that subsequent year.
The United Nations Statistical Commission recommends a rebasing every 5 years, to a) account for changes in the patterns of economic activity (consumption and production), e.g. a country discovering new mineral wealth, or getting an infusion of broadband, or launching a local car manufacturing industry, or seeing an industry lapse into obsolescence; and b) update base prices to a more recent year (“Price structure less representative of base year structure as time progresses,” explains one UN Statistics Division presentation)
In Nigeria’s case, we have not rebased since 1990 – a whole quarter of a century ago. By updating the base year from 1990 to 2010, apart from the necessary 20-year updating of prices, we have also had to take into account all the changes that have taken place in the economy in the intervening time – the impact of the internet and the telecommunications industry, Nollywood, the music industry, the sizable expansion of the services industry, etc.
The implication of all this complicated re-calculating that has just taken place is that what we thought was a $270 billion economy is actually worth $510 billion. It’s the equivalent of suddenly discovering the existence of six Ghanas within Nigeria.
The change is noteworthy for, in the words of Finance Minister Ngozi Okonjo-Iweala), the “psychological impact” it will have on foreign investors. They will pay greater attention to Nigeria, now that its economy casts a larger shadow than South Africa’s, and display new confidence that will potentially be rewarded with lucrative gains in a market that is Africa’s largest, especially at a time when value-laden sectors like power are opening up in unprecedented ways.
Business will also boom for hotel owners, travel agents, airlines, and events planners, as the number of Nigeria-focused trips and investment conferences (already a booming industry since 2013) swell. Scammers might even be expected to cash in as well. (“Good Day dear friend, I am Lamido Sanusi, Governor of the Central Bank of the newly rebased West African nation of Nigeria…”)
And you just wait to see what will happen as the rebasing placebo begins to take effect in the government’s bloodstream. The President’s 2015 re-election campaign has just been swelled by a stand-alone chapter. Even though the story worth celebrating here is really the one about the boldness demonstrated by the National Bureau of Statistics in finally facing up to the long-overdue challenge of revising the country’s near-useless economic data, in the weeks ahead traditional Nigerian praise-singing will predictably morph it into an economic miracle for which the credit belongs to the President’s “Transformation Agenda” (pdf).
The one class of people who have nothing to gain will be ordinary Nigerians: the market woman in Ibadan, the itinerant shoe cleaner in Lagos, the motorcycle taxi rider in Makurdi, the cattle merchant in Potiskum, the shoe maker in Aba, the newspaper vendor in Abuja; the sprawling class of ‘bottom millions’ condemned by their country to extreme poverty).
The $1,200 by which Nigeria’s per-capita income has suddenly risen will not somehow magically appear in their pockets. For this crowd the news is the sort of sleight-of-mouth that they’ve since grown to expect from the government. In the aftermath of protests against the removal of fuel subsidies in 2012, President Jonathan announced, in a public broadcast, the creation of 370,000 jobs. Just like that, because everyone knows jobs are created when well-meaning presidential words mix with faith in the hearts of job-hungry citizens.
As one person tweeted at me: “Our rebasing story is like the story of a woman that decided to give her husband four pieces of meat by dividing the tiny one into four.”
Even the positive implications of better quality statistical information, which should support, in the words of one analyst, “better decision-making” by the government means little when one considers the track record of the Nigerian government.
In March, more than 700,000 applicants registered online for a recruitment exercise into the Immigration service. Knowing that they were expecting 700,000 candidates did nothing to influence the preparation levels of the test’s organisers. Stampedes ensued. By the end of that day, at least 18 people lay dead. Interior Minister Abba Moro, brain behind the recruitment, somehow still managed to blame the dead.
Which is why no one should be surprised when, weeks from now, a Moro-type (Nigeria’s bureaucracy is laden with them) is quoted as quipping, again predictably – and not tongue-in-cheek: “Nigerians don’t have money? Let them spend the GDP!”
Tolu Ogunlesi (c) 2014