As Nigerians await the release by the National Bureau of Statistics (NBS) of the country’s rebased GDP calculations proposed for September 2013, leading economists have argued that going forward, the country may experience a slower rate of economic growth because of the larger GDP base.
Statistical offices rebase the GDP to reflect input from other sectors of the economy. Nigeria GDP is computed on data from 1990.
According to the economists, the proposed new base year of 2008 will lead to a larger GDP base and this new denominator may lead to a slowdown in the rate of accretion in subsequent quarters.
Jimi Ogbobine, analyst at Consolidated Discount Limited, said in a chat with BusinessDay, that when the GDP is finally rebased, the GDP growth rate of the country could drop from the current 6-7 percent range, to around 3.5 to 5 percent. On the other hand, if Nigeria is to continue to achieve the 6-7 percent growth rate after the rebasing, it means that the country will have to post a much higher level of economic output per quarter than it is currently doing.
“This higher output would need to be induced by big ticket investments aimed at plugging the massive infrastructural deficit. Without sufficient investments in infrastructure, especially on power, roads, rail, sea ports and security”.
“ If these does not happen Nigeria’s economic output may continue to suffer from some significant dysfunctional patterns which may undermine the growth trajectory in the long term”.
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| Dr. Yemi Kale, Statistician General of the Federation |
Ogbobine further said Nigeria has a modest debt to GDP ratio of below 20 percent at current levels, and the outlook for the ratio indicates a further moderation after the rebasing.”While policy makers may be quick to applaud the country’s benign Debt to GDP, we must note that the 2013 – 2015 estimates of the Budget Office indicate that the country may use up to 10 percent of its entire Gross Federally Collectible Revenue for 2013 and 2014 and 9 percent in 2015 for debt servicing (domestic and external debts)”.
“Policy makers should thus adopt a cautionary stance over the sustainability of debt levels at the current revenue base. The debt to GDP will only make meaning to Nigeria if there is a determined effort to widen the tax net as GDP expands”. Without this, Nigeria may accelerate debt levels without matching it with the commensurate repayment capacity”.
“Another drawback of the GDP rebasing is that it will further embellish Nigeria’s poor human development indicators. With a GDP size that may place Nigeria as an emerging economy, it becomes more tenuous for policy makers to explain the current significant poverty and unemployment levels within the country”.
Tajudeen Olufadi, a financial expert said it is a known fact that most governments overhaul GDP calculations every few years, to reflect changes in output and consumption, such as telecoms, financial services and internet usage. Nigeria has not done so since 1990 suggesting that the previous GDP framework underestimated economic activity.
“It is expected that Nigeria’s GDP rebasing would give the country a greater positive outlook in terms of economic size and other indicators like the debt to GDP ratio, and the country’s per capita income.” It will also firm up Nigeria’s position as an emerging market economy and help improve the country’s economic profile amongst FPIs and FDIs, but a more comprehensive look, at the proposed October rebasing, also shows that Nigeria may experience a slower rate of economic growth because of the larger GDP base and this might automatically translate to a slowdown in the rate of economic growth, especially in some quarters”.
Olufadi further said that the risk is that once the GDP is expanded after calculations, a significantly smaller cosmetically enhanced budget deficit will encourage government to push up spending, which would be inflationary. A bigger GDP also implies an upward revision in per-capita income.
“Nigeria’s current per-capita income is estimated at $1,600, which still trails that of many other economies on the African continent. Nigeria’s GDP per capita is expected to increase from $1,600 to $2,600, if the country’s year-end 2012 GDP is revised upwards by 60 percent”.
“Even with this, ours is still far behind when compared to that of South Africa which stands at $8,700 per capita for, which is the IMF’s projection for 2012”.
“That said, the big increase in per-capita income is likely to attract interest in consumer names in Nigeria, from investors who are likely to extrapolate the effect of a seeming increase in purchasing power on such consumer stocks, as Nestle, Nigerian Breweries, Guinness, Flour Mills and PZ, amongst others”.
Olufadi further explained that the draw-back in all of this is that policy makers might throw caution to the wind, and go into big time borrowing, which might again unnecessarily expose us negatively. “The debt to GDP will only make meaning to Nigeria, if there is a determined effort to widen the tax net, as GDP expands. Without this, Nigeria may accelerate debt levels without matching it with the commensurate repayment capacity”.
“Another disadvantage for the country is that Nigeria might stop getting aid and grants from Millenium Development Agencies and global donors, because the rebasing might expose us to be seen as a big strong economy, strong enough to cater for our poor, which in the real sense of it, we are not, due to some internal reasons”.
Cadiz Asset Management equity analyst, Adrian Cloete estimates show Nigeria has more than 40-million consumers in the middle income segment — just shy of South Africa’s total population of 51-million — with millions more expected to join in the next decade. There is also a large swathe of Nigeria’s unbanked population where interested foreign banks are angling to come into the country, like First Rand Bank of South Africa, because they believe they can use the country’s rapidly growing mobile telephone penetration to provide cellphone banking services.
“Nigeria’s oil-based economy is expected to be the largest in the region, after South Africa, by 2015 after the country rebased its gross domestic product figures.
“That alone will turn in to a further attraction for investors and potentially provide opportunities for FNB and RMB, and other South African banks eyeing the Nigerian market. My only reservation or prayer is that policy makers try too, live up to the expected expansion in economy after the result of the calculations in October.”
Nigeria is a natural target for investors, given the size of its economy and its population, estimated at more than 160-million people.
“Economists estimate the country’s economy will grow more than seven percent annually over the next five years, compared with less than 5 percent in South Africa, for example”.
“This is among the reasons Nigeria was being seen “as a very attractive market for banks in South Africa.
Samir Gadio, analyst at Standard Bank This will probably mark a symbolic turnaround on the regional geo-political scene, but may not change much in terms of actual leadership in Sub-Sahara Africa. South Africa will certainly remain the dominant entity in the Southern African region and, to a lesser extent, in parts of the COMESA zone. Nigeria is and will be the most influential member -but not undisputed leader- of ECOWAS.
“Yet Nigeria remains significantly underdeveloped in terms of basic infrastructure (electricity, roads, etc) and faces very high income inequality. This negative perception will not dissipate just because of the revision in aggregate GDP, especially as output per capita in Nigeria will continue to trail that of South Africa over the next decades”.
“On the macro front, the implication is that GDP growth will probably slow further as output moves to a higher base. Additionally, the current account-to-GDP ratio will reduce, but so will the nominal FG fiscal deficit-to-GDP and public debt-to-GDP ratios”.
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