THE HYPE OF GDP REVALUATION AND MATTERS ARISING
By: Sir Henry Olujimi Boyo (Les Leba) first published in April 2014
INTRO:
Last week, this column republished‘Economic Mismanagement in Retrospect?’the article discusses how media can play a role in deceiving the masses, and challenges the reader to look past the surface of propaganda.
(See www.betternaijanow.com for this series and more articles by the Late Sir Henry Boyo)
This week’s republication debunks some common misconceptions about growth in GDP and the accompanying immediate, as well as long term effects. It describes what this means for the layman and the necessary instruments that must be set in motion for GDP growth to have a lasting positive impact on Nigerians.
As you read through the below article taking note of previous events or rates, keep in mind its year of publication (2014), a clear indication that Nigeria’s economic situation is yet to improve even after all this time.
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In the aftermath of the announcement that Nigeria’s current Gross Domestic Product (GDP) had risen to $510bn, the question on the street was simply, that of, whether or not food will become readily available on the table for the common man, and whether or not the teeming millions of Nigerian youths who are currently unemployed will quickly be provided with jobs.
In the short term, the higher revalued gross estimate of all locally produced goods and services will remain meaningless to the micro-economy, as the higher revaluation from a modest value of about $264bn would literally not change anything. The wages of the man on the street will not also increase, neither will the purchasing value of his paltry minimum wage of N18,000/month; furthermore, quality education and healthcare facilities will remain inaccessible to the masses, in spite of a much higher GDP.
On the long run, however, if the right enabling political and economic environment also exist, foreign direct investments will flow into the real sector, and this would ultimately induce a positive trickle-down impact on micro enterprises as well as the man on the street, and more jobs will be created, with the collateral of increasing consumer demand, which will in turn, propel additional economic growth.
In the rest of this article, we will assess some of the other salient questions that have been asked by concerned Nigerians on our newly acquired status as the 28th-largest economy in the world, with output that is, way-ahead of economies such as Denmark, Austria and Singapore, which are notwithstanding, currently preferred destinations than home, for our frustrated and economically disenfranchised countrymen.
Let us first respond to the question of what rebasing actually means. The word rebasing conveys a similar meaning to the simple accounting process of revaluation. The figure of $264bn was the estimated value of all goods and services produced within the territory called Nigeria by 1994. However, 24 years thereafter, a new estimate of total current output of goods and services has now been found to be above $500bn. The rise in total output of goods and services is apparently attributable to the identification of significant growth in sectors such as telecom, aviation, entertainment (particularly Nollywood), which hitherto accounted for modest or nil values in 1994.
In addition to defining the structure and the sectoral potentials in each economy for the purpose of properly guiding development, the size of a country's annual GDP also serves as a measure of comparison with the relative size of the gross output of other nations.
In the new GDP estimate, commercial services subsector now contributes over 50% of total output, while industrial and agricultural outputs have similarly increased. Consequently, in view of the significant relative growth in these sectors, it would be misleading to continue to see the size of Nigeria's economy from the prism of the much lower estimates of 24 years ago.
Indeed, in practice, GDP estimates are generally reviewed around every five years, so that government plans will be predicated on more current and accurate estimates of the performance of each economic sector. Some analysts may however, observe that in the event that average annual growth rates of 5% were officially reported between 1994 and 2014, the rebased GDP figure should be in excess of 120% of the 1994 figure of $264bn!
Another frequently asked question is whether or not the higher GDP will attract more foreign direct investment to Nigeria. Indeed, increasing foreign direct investment in the real sector will certainly contribute to expanding the GDP of the host country. This is without prejudice, of course, to the fact that domestic investors could similarly grow output if they had access to cheaper funds and appropriate government support as their foreign counterparts.
So, in reality, buoyant output figures may actually attract foreign investors, nonetheless, such investments may not necessarily go into the real sector, if the economy is also bedeviled by challenges such as a tortuous process of land acquisition, extended process of company registration, grant of expatriate quotas and multiple taxes, as well as the additional challenge of insecurity, where threats of kidnapping of expatriate staff also exist.
Furthermore, in spite of a buoyant GDP, popular perception of a corrupt public service would also create major obstacles to the attraction of foreign direct investment into our country.
In such event, despite the increased GDP, foreign investors may decide to simply stay away or at best decide on the less risky investment of lending money to Nigeria's government at interest rates which will be considered to be highly excessive and oppressive, for what is actually a risk-free sovereign debt, which should normally attract less than 2% interest in successful economies elsewhere. Thus, it may be possible for a foreign investor to borrow from those international banks, which hold Nigeria’s foreign reserves with little or no yield and for this same investor to, thereafter, simply turn around to lend the same funds to the Nigeria government at over 12% interest!
Another question that has also been asked, is whether or not the average Nigerian is now better off than his South African counterpart, and if investors will now find Nigeria as a better investment destination than South Africa.
Nigeria's reviewed GDP at $510bn is literally larger than South Africa's current GDP of $370.3bn, and this may give those Nigerians, who have the notion of competition between South Africa and Nigeria bragging rights, which may induce a psychological ‘feel-good’ sensation. Nevertheless, such ephemeral rights do not make the average Nigerian to be better off than his South African counterpart, as the revalued average annual personal income of the Nigerian worker is now about $2,700, compared to South Africa's average personal income of almost $7,000. Besides, the quality of education, as well as the facilities for health and availability of other social welfare infrastructure, including power, remain much more readily available in South Africa than in Nigeria.
Furthermore, foreign investors have previously perceived South Africa's economy as the largest in Africa; this perception as well as the presence of other factors such as security and advanced infrastructure, may still make South Africa the first port of call for foreign investors. Nonetheless, this preference would radically change in favour of Nigeria, if we are able to put in place, political structures that would engender peace and harmony, with a transparent and accountable public service that is committed to growing our economy, with monetary and fiscal strategies that do not widen class inequity and further deepen poverty.
SAVE THE NAIRA, SAVE NIGERIANS!!
