Nigeria: An Economy to Watch

GSM Subscriber Laments

GSM Subscriber Laments

The world celebrates Nigeria as the next largest economy in Africa and one of the emerging investment havens in the world, but to many Nigerians, the new economic status is a sad reminder of the paradox of a rich nation and its poor people

For many Nigerians whose collective aspiration is for the Nigerian economy to become one of the 20 largest in the world by the year 2020, the rebasing of the country’s gross domestic product, GDP, ranking the economy as the largest in Africa, would be a giant leap towards achieving the goal. Any moment from now, the National Bureau of Statistics, NBS, will release the figures for the rebased GDP after several postponements between 2012 and now.

Indeed, expectations are rife that the GDP will record a phenomenal increase of over 60 per cent, rising to over $400 billion, making it the largest economy in Africa ahead of South Africa and Egypt. Bismarck Rewane, an economist and managing director, Financial Derivatives Company Limited, in a recent analysis agreed that “Nigeria may record an approximate 40 per cent leap in nominal GDP to about $400 billion, putting it ahead of the giant of Africa: South Africa with a nominal GDP of $384 billion.” Some analysts are even more optimistic that the GDP may grow by 65 per cent. Although Yemi Kale, Statistician-General, NBS, is yet to declare a figure, he has nonetheless hinted that the rebased GDP is likely to be higher because the country’s economy has not only been hugely underestimated, its composition has changed over the years.

In the current figures, agriculture accounts for about 42 per cent of the economy, the highest among the sectoral groups. This figure is based on the base year of 1990 and therefore does not reflect the present realities. Over the years, new sectors not captured in the previous computation have sprung up, recording phenomenal growth. For instance, the emergence and growth of the Nigerian entertainment industry, particularly the movie sub-sector, cannot be ignored in the estimation of the country’s economy. Nollywood, as the country’s movie industry is called, has become a phenomenon, ranking second in the world only behind Bollywood, the Indian film industry. The industry produces about 2,400 films per year, putting it ahead of Hollywood, the American film industry, according to a 2009 UNESCO (United Nations Educational, Scientific and Cultural Organisation) report. As at the 1980s and early 1990s, the size of Nollywood was negligible but the industry is now estimated at $250 million a year, creating direct and indirect employment to millions of people. This is besides the music and other entertainment sub-sectors that are equally enjoying outstanding growth. The entertainment sector is, therefore, expected to make a huge difference in the rebased GDP.

Like entertainment, telecommunications, hospitality, and the trade sectors are an important part of the country’s growth story since the last base year of 1990 and are thus expected to alter significantly the composition of the rebased GDP. Nigeria, for instance, has the largest telecommunications market in Africa. From 500,000 total active telephone lines prior to the advent of GSM, for instance, the country can boast of a total installed capacity of 238 million, 169 million connected lines and 122 million total active lines of 121.8 million as at October 2013, with the industry providing direct and indirect employment for millions of Nigerians. Based on these realities, the rebased GDP could show the service sector as the dominant sector, displacing agriculture to the second position. Even agriculture has witnessed a great transformation in the country’s efforts to shift from mainly subsistence to commercial agriculture with value addition.

Also, Nigeria remains the number one oil producing country in Africa, producing over 2.4 million barrels per day. The country is also said to be a leading investment destination, attracting the highest foreign direct investment, FDI, in Africa of $7.01 billion in 2012, overtaking South Africa for the first time. It has achieved a fairly stable macro-economic environment in terms of inflation, interest and exchange rates. The recovery of the country’s capital market is evident in the increase in market capitalisation from N6.55 trillion in 2011 to N13.23 trillion in 2013 and the influx of foreign portfolio, which now constitutes 60 per cent from less than five per cent in 2000.

The strong growth in Nigeria’s economy has attracted global attention, which explains why the rebased GDP is being awaited with heightened expectation. The release of the figures will help determine the true value of the country’s economy, it will allow for a reliable international ranking. Since Goldman Sachs, the American multinational investment banking firm, predicted in 2004 that Nigeria could make the list of top 20 economies by 2025, the country’s economic growth has been moving in that direction. Though the country’s GDP still hovers around 7 per cent, Jim O’Neill, former chairman, Goldman Sachs Asset Management and chief economist, has predicted that the growth rate may increase to 10 per cent if the privatised power sector is able to deliver uninterrupted power supply. Olusegun Aganga, minister of trade, industry and investment, also supports the view that the country’s economy could expand at a double digit given her huge population of over 160 million and vast resources. Ngozi Okonjo-Iweala, minister of finance and coordinating minister for the economy, also noted recently that efforts to diversify the economy by the government and rebase the GDP could make the country the fastest growing economy in Africa.

So in the eyes of the world, Nigeria is one of the kids on the bloc, the others being Mexico, Indonesia and Turkey. They are referred to as the MINT countries and the second generation of emerging market pacesetters, the first being the BRICS countries – Brazil, Russia, India, China and South Africa. O’Neill who coined the acronym, MINT, has described the countries as the next frontiers of growth, the next economic powerhouses given their potential. Nigeria in particular is said to have recorded increasing attention from world investors over the last year. After the reassessment of her GDP, more investment roads could lead to the country in the years ahead.

Currently, Nigeria is ranked as the third largest economy in Africa behind South Africa and Egypt and has in the last few years been recording a healthy economic growth rate, which now stands at about 6.8 per cent. The United Nations Economic Commission for Africa, ECA, has also projected the growth rate to rise to 6.9 per cent this year, higher than Africa’s average of 4.7 per cent. The strong GDP growth has improved the country’s ranking on the global GDP index from 44th position in 2010 to 36th in 2012. According to Shamsudeen Usman, minister of national planning, this is an indication that the country is moving in the right direction. “Our move towards the vision 2020 is on course. Nigeria moved eight positions in the past three years in global gross domestic product ranking,” he said.

However, the rebased GDP which NBS is set to announce soon is expected to present a more accurate and reliable estimate of the size of the economy. Consequently, Renaissance Capital estimates that the present size of Nigeria’s economy put at $283 billion as at 2013 is now worth $405 billion. The process involves changing the current base year for computing the GDP from 1990 to 2010, taking into account new sectors of the economy that have sprung up over the years and newer production and consumption patterns. Kale explains that the current 1990 base year has become outdated thus making the GDP an unreliable guide to interpreting real economic changes. “Looking at the economy as the same as it was in 1990 might misguide policy makers because they would design their policies based on that,” he said, adding that a lot of changes have taken place since 1990 that needs to be reflected in the calculation.

According to Kale, there has been an increased focus on and demand for data and statistical information, “which is used to relate sectoral plans, evaluate governance, monitor progress and more importantly, effectively implement national development strategies, especially Mr. President’s Transformation Agenda and the Vision 20:2020.” Moreover, the United Nations Statistical Commission’s System of National Accounts, SNA, recommends that rebasing should be done every five years but Nigeria has not rebased its national account estimates, which yields the GDP since 1990, about 24 years, making the present exercise imperative. Corroborating this fact, Kingsley Moghalu, deputy governor, financial system stability, Central Bank of Nigeria, CBN, stated last year that “Rebasing is essential because countries rebase their GDP every five years and at most 10 years. But we haven’t done that in over 20 years. Therefore, our economic statistics are totally out of place as far as GDP growth and output is concerned.”

But with the rising level of unemployment and poverty, crumbling industrial sector, dilapidating infrastructure, attenuated by government policy inconsistency, this optimistic view of the economy offers little prospects or hope of a better life to the likes of James Adigun whose parents spared no expense to provide him with a good education so that he could be their pillar of support in their old age. Now at 36 and with two degrees, Adigun still lives with his now old parents as he has been unable to secure a job since obtaining his second degree four years ago. He is just one of the growing army of the unemployed who trudge the streets daily in search of non-existent jobs.

Unemployment is one of the critical socio-economic problems confronting the nation. From 14.6 per cent in 2006, the unemployment rate has increased to 24 per cent as at 2013, even though analysts say the percentage is conservative. Many industries, which in time past provided huge employment opportunities, have collapsed due to unfavourable business environment, particularly power, roads and rail infrastructure, among others. The statistics for poverty also appear grim as 112 million – or 67 per cent – of Nigerian population are said to live below the poverty threshold.

Godwin Owoh, economist and executive chairman, Union Consulting International, is not excited by the country’s strong growth statistics, because it does not impact on other key sectors and on the life of the people. Making reference to the Human Happiness Report 2013, issued by the United Nations Sustainable Development Solution Network, which defines the aggregate of how the households have been affected by economic programmes of the country, he noted that Nigeria’s ranking was very poor. “Nigeria is number five in Africa with Ghana as number six. If you look at that report, you will observe that the country that came first in Africa is Angola and it is 61 in the world. Mauritius is second, 67 in the world; Algeria is third, 73 in the world; Libya is fourth, 78 in the world. Nigeria is fifth and 82 in the world.” Owoh said, “The happiness report is not just defined as the emotional meaning of happiness, but an aggregate, evaluation of quality of life of the people of 156 countries in the world,” adding that it measures economic performance, the income of the household, the level of corruption, quality of education and many other socio-economic indices. So a higher GDP resulting from the rebasing exercise may not change the misery level of millions of poor Nigerians.

Moghalu had cautioned that although the rebasing was imperative, it would be a mirage for Nigerians to think that the higher figures that would be produced would translate to economic empowerment, stressing that everybody in the country, particularly policy makers, should work towards improving the quality of life of the people and reduce poverty. Akpan Ekpo, a professor of economics and director-general, West African Institute for Financial and Economic Management, WAIFEM, also expressed the view that “the rebasing will not impact on the lives of Nigerians unless government takes concerted steps to address the development challenges confronting the nation,” stressing that a country can grow and not be developed. According to him, a high income capital is not an indication that the people are doing well as there are other social indicators that should be considered. “You have to ask what is happening to education, health, employment, water, etc. It is the totality of all these that will determine whether an economy is doing well or not,” he said. Making reference to Ghana whose status changed from a poor to a lower middle-income country following the rebasing of its economy in 2010, which increased its GDP by 60 per cent, Ekpo said Nigeria would be similarly reclassified with attendant implications for borrowing.

The World Bank, last year, announced that Nigeria was no longer eligible for loans under the International Development Agency’s, IDA, concessionary window because the country was no more regarded as poor following the release of NBS statistics, which indicated that the country’s poverty rate had declined from 64.2 per cent to 62.6 per cent and its gross national income, GNI, per capita of about $1,200 had exceeded the IDA assessment threshold of $1,170. “Of the Bank’s new fiscal year, beginning July 2014, Nigeria is to become ‘blend country’. Till now, Nigeria was under the IDA only window, which is the concessional window, where financing, which comes as grants, attracts no interest, with 40 years’ repayment moratorium, 10 years’ grace period, and service charge of only 0.75 per cent,” declared Francoise Marie-Nelly, country director, World Bank, Nigeria, in Abuja last year.

With the reclassification of the country from poor to a lower middle-income economy therefore, Nigeria will only be eligible to access funds from the International Bank for Reconstruction and Development, IBRD, window under different moratorium and interest payment terms. Analysts say the country’s anticipated upward movement to a middle-income country from the current lower middle-economy on account of the rebasing will equally have implications for borrowing.

To Ekpo, the implication is that Nigeria may not be able to get cheap funds for infrastructural development and other vital projects. “The money we depend on is oil and the revenue from oil is from an exogenous source of which we have no control over the price or output. If for some reasons the oil price drops and the country cannot get the required resources to meet her financial obligations, the IDA window will not be there to fall back on,” he said. He also cautioned that if prices are not checked, the inflation rate which has been stable at single digit of 8 per cent for some months will rise. To the masses, this may be the burden of growth, but to government, it is a wake-up call to pursue policies that will bring real development to the country and remove the population from the threshold of poverty.

Profile photo of Helen Eni

former Broad Street Journal Editor

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