GDP rebasing to expose economy’s structural defects

 The results of the long delayed exercise to rebase Nigeria’s gross domestic product (GDP) which are set to be released on March 31^st, may help to elicit some bragging rights for the nation as it is expected to show it leapfrogging South Africa, to become Africa’s largest economy.

Post the initial euphoria however; a scrutiny of the new data-set will likely reveal the structural shortcomings of the Nigerian economy as it severely under performs when compared to peer countries in the same economic size range, analysis of available economic data shows.

The National Bureau of Statistics (NBS) which is seeking to change the calculations of Nigeria’s GDP using a new base year of 2010, will probably report a 65 percent increase in Nigeria’s nominal economic output, to $432 billion putting it among economies such as Austria ($394 bn), Thailand ($401 bn), Iran  ($389 bn), UAE ($395 bn) and Argentina ($474 billion).

However this is where the comparison mostly ends as most of the countries in this GDP range are better diversified than Nigeria,

“The reality of the GDP rebasing is that the ease of doing business remains unchanged, while new nominal GDP figures will widen the inequality gap,” said Bismarck Rewane, CEO of research firm Financial Derivatives Company (FDC), in a recent presentation.

“Structural changes still need to be put in place as the infrastructure gap persists and technology needs to be improved.”

A 60 – 65 percent upward adjustment to (GDP) would lower Nigeria’s consolidated government revenue to17-22 percent of GDP, which is lower than the average for the peer countries listed above.

Nigeria’s post rebasing GDP per capita of about $2,200 is the lowest among the grouping, while its position in the World Bank’s ease of doing business ranking at 147 out of 189 countries is lower than Thailand (18), UAE (23), Austria (30), and Argentina (126).

Nigeria scores higher than Iran (152) on the ease of business index, however even with seven years of international sanctions, Iran does have a more diversified economy than Nigeria.

Iran’s domestic steel production grew 6.5 percent to 15.4 million tons last year, more than double the global growth rate of 2.4 percent, according to the World Steel Association.

“Iran has a broad manufacturing base – which produced 50 percent more cars than Turkey in 2011,” said Charles Robertson, global chief economist at Renaissance Capital, in a research note released March 11, 2014.

“The stock market capitalization is roughly $170 bn. The free float on the main market is closer to $30bn, which is above the MSCI free floats of Kuwait and Nigeria. On the local exchange’s data, daily trading volumes are around $150mn. This compares with $26mn in Nigeria in 2013.”

Thailand and UAE also have well diversified economies, with the latter using its massive oil and gas resources to expand economic activity in tourism, manufacturing, services, and construction. In 2012, seventy-one percent of UAE GDP came from non-oil sectors.

Thailand the number one rice exporter has became the world’s leading manufacturer of hard-disk drives by quantity and in 2012 moved ahead of Britain, Spain and Canada as an auto producer.

Of the 2.4 million vehicles produced in Thailand by Japanese, U.S. and European carmakers, 1 million were exported, according to Bloomberg data.

Nigeria’s rebased GDP components may show wholesale and retail trade, telecommunications, crude petroleum and gas, and business and other services making up a maximum of 68 percent of economic output, according to Rewane.  

“What this means it that we are becoming more of a services and extractive production economy,” said Rewane.

“Larger nominal numbers are useful for comparison but do not reflect economic growth.”