You're welcome to CHUMA's blog: Nigeria’s GDP Rebasing: Understanding the Basics

Nigeria’s GDP rebasing exercise started in the fourth quarter of 2011. It was officially launched in April 6, 2014. It is heartwarming that the brainchild has finally become a reality. Despite the challenges the exercise posed, the National Bureau of Statistics was able to pull it off. In the nick of time, Nigeria’s GDP rebasing has generated more speculations than applause in the media. Some media alarmists have expressed concern over whether Nigeria’s GDP rebasing poses a challenge to South Africa, as if the essence of rebasing Nigeria’s GDP is to make Nigeria the biggest economy in Africa. The media speculations are tell-all signs of serious lack of understanding of the concept of GDP and GDP rebasing. The speculations reveal a disconnection in knowledge, which tends to suggest that a lot of people need a primer on these concepts.

To start with the basics, GDP rebasing is broadly the process that replaces the old price structure (or the base year) to compile volume measures of GDP with a new price structure. Since 1990, Nigeria has not rebased its GDP. What this means, basically, is that for 24 years Nigeria has been using a base year that underestimates how Nigeria’s economy has grown over time. This suggests that Nigeria needs to update its statistics to reflect accurately the economic activities that have taken place over time. In this regard, GDP figures are compared to other GDP figures, using a base year that serves as a point of reference to which future GDP values are compared. This is the premise on which GDP figures make sense.

Speculators have begun to create credibility gaps in the minds of gullible Nigerians with unparalleled analogy of GDP rebasing with poverty reduction, job creation, inequality gap, and economic development in general. The analogy seems to be stimulated by the anxiety over whether the rebasing exercise will reduce poverty, create jobs, bridge inequality gap, and lead to economic development.

To put things in right contexts, the essence of GDP rebasing, inter alia, is to give the government a better sense of opportunities to improve economic activities; to see better policy options; and to reposition for appropriate policy interventions. It is not a must that GDP will increase or decrease each time it is rebased. Though Nigeria’s GDP rebasing tends to increase the nominal GDP to around $432bn, rising above South Africa’s $370.3bn, at the end of 2013; hence making Nigeria the biggest economy in Africa in terms of nominal GDP, it is misleading to speculate that GDP rebasing always leads to higher nominal GDP. The increased nominal GDP resulting from the rebasing exercise does not mean that poverty will be reduced over night; it does not mean that jobs will be created drastically to reduce unemployment; it does not mean that inequality gap will disappear overnight; it does not mean that Nigeria will automatically become a rich country; and it does not mean economic development. But it is needed as Nigeria’s economy has become more diversified than before.

GDP is measured differently from poverty and inequality. GDP growth is not identical to job creation, and is not the same as economic development. GDP (which is the total market value of all the final goods and services produced in Nigeria in a given year) is used to measure economic growth, and can exist in nominal and real terms- where nominal GDP (which is what makes Nigeria the number one economy in Africa) is concerned with current prices, and real GDP (which is more broadly used to account for economic growth as it tells us how much Nigeria’s economy changes in size and how standard of living changes over time) is concerned with constant prices (prices from the base year) with some sort of adjustments in prices.

However, poverty reduction and closing inequality gap require a more inclusive and sustainable growth than a mere GDP rebasing. Economic prosperity needs to be shared across the population for changes in poverty and inequality to be seen. Jobs are created when growth is diversified. Job creation is premised on addressing infrastructure and institutional constraints. It requires strengthening governance and public sector management.

GDP rebasing is not synonymous with economic development. Thinking otherwise is misleading. Though Nigeria’s GDP rises above South Africa’s GDP, it does not suggest that Nigeria will automatically become a more developed economy than South Africa as some wonky media alarmists have speculated. Also, GDP growth is not synonymous with economic development. While economic growth, as measured by GDP growth, is centered on economic progress, economic development is a broader measure of human progress and transcends what GDP growth measures to capture social, environmental and other aspects of the economy not captured by GDP growth. It is not impossible for an economy to grow in the absence of economic development. With this clear distinction, it is obvious that though Nigeria could become the biggest economy in Africa in terms of nominal GDP, South Africa is ahead of Nigeria in terms of economic development given its infrastructure base, functional institutions, impressive legal systems, and human development indicators.

Part of the media speculations is whether rebasing is necessary. In other words, to what benefit is the rebasing? For policy-making; a policy maker needs the best information available at a particular point in time to make the best policies. With the GDP rebasing, policy makers will have at their disposal accurate set of statistics that paint the latest picture of the economy; hence enhancing evidence-based policy-making. Policy-making yields better results when data are correctly collated, understood, and interpreted, and linked with the identified priority areas that need change. For the government; the global economy has become increasingly dynamic. This dynamism is reflected in the changes that take place in economies over time. Since 1990, new technologies have emerged in Nigeria; new sectors have emerged with new products and services; and consumer tastes and behaviour have changed. If Nigeria continues with the old wine in the old wine bottle- without rebasing to capture better statistics- the newly emerged economic activities would be lost in the wind; hence economic transformation might become a lost cause. In essence, GDP rebasing gives a better sense of opportunities to improve economic activities, and helps the government, policy-makers, analysts and citizens in general to see better policy options and reposition for appropriate policy interventions.

There is no gainsaying the fact that Nigeria is a holy grail for foreign investment, but Nigeria is beleaguered with many challenges, particularly the cancer of corruption. A mere GDP rebasing will not change overnight these challenges. I submit that GDP rebasing should be a continuous exercise to guide better policy decisions as the experience in the USA has shown. Also, government should address poverty measurement with the same vigor as the GDP measurement to give a better sense of the rebasing exercise.