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How Nigeria's economy grew by 89% overnight
Apr 7th 2014, 23:50 by J.O'S. | JOHANNESBURG
ON SATURDAY, April 5th, South Africa was Africa's largest economy. The IMF put its GDP at $354 billion last year, well ahead of its closest rival for the crown, Nigeria. By Sunday afternoon that had changed. Nigeria's statistician-general announced that his country's GDP for 2013 had been revised from 42.4 trillion naira to 80.2 trillion naira ($509 billion). The estimated income of the average Nigerian went from less than $1,500 a year to $2,688 in a trice. How can an economy grow by almost 90% overnight?
Nigeria has a deserved reputation for corruption, so a sceptic might think the doubling of its economy a result of fiddling the numbers. In fact it is the old numbers that are dodgy. An economy's real growth rate is typically measured by reference to prices in a base year. In Nigeria the reference year for the old estimate of GDP was 1990. The IMF recommends that base years be updated at least every five years. Nigeria left it far too long; as a result, its old GDP figures were hopelessly inaccurate.
The new figures use 2010 as the base year. Why was the upgrade so big? To come up with an estimate of GDP, statisticians need to add together estimates of output from a sample of businesses in every part of the economy, from farming to service industries. The weight they give to each sector depends on its importance to the economy in the base year. A snapshot of Nigeria's economy in 1990 gave little or no weight to fast-growing parts of the economy such as mobile telephony or the movie industry. At the time the state-owned telephone company had a few hundred thousand customers. Today the country has 120m mobile-phone subscriptions. On the old 1990 figures, the telecoms sector was less than 1% of GDP; it is now almost 9% of GDP. Motion pictures had not shown up at all in the old figures, but the industry's size is now put at 1.4% of GDP. Nigeria's number-crunchers have improved the gathering of statistics in other ways. The old GDP figures were based on an estimate of output. The new figures are cross-checked against separate surveys of spending and income. The sample on which the data are based has increased from around 85,000 establishments to 850,000. Only businesses with a fixed location are included: the traders who weave precariously between the traffic are not captured. Even so, many small businesses are now part of the GDP picture.
Of course, Nigerians are no richer than they were on Saturday night. The majority of the country's 170m people live on less than a dollar a day. What the revised GDP figures show is that its economy is far more than just an oil enclave, exporting crude to pay for imported goods from richer countries. The oil industry's share of GDP is now put at just 14%, compared with 33% according to the old figures. Manufacturing is much larger than previously thought. Services are booming. It is still a tough place in which to do business. But any company or investor who wants exposure to Africa's fast-growing markets cannot afford to pass the continent's largest economy by.
- See more at: The Economist explains: How Nigeria’s economy grew by 89% overnight | The Economist
ECONOMIC weight in Africa is shifting north. Nigeria has overtaken South Africa to become the continent's largest economy following the recalculation of GDP, although it remains less developed and more unequal than its rival. Moving up ten notches to become the world's 26[SUP]th[/SUP] largest economy, Nigeria has joined the burgeoning club of middle-income countries.
The size of the economy is now estimated at 80.3 trillion naira ($509.9 billion), 89% larger than previously stated for last year, according to Yemi Kale, head of the National Bureau of Statistics (NBS) speaking in the capital, Abuja, on Sunday. The GDP increase far exceeded expectations of analysts who had forecast a jump of between 40 and 60% prior to the rebasing exercise.
Most governments overhaul GDP calculations every few years to reflect changes in output and consumption but Nigeria had not updated its national statistics since 1990, a decade before the country's telecoms boom and love affair with Nollywood – Nigeria's prolific film industry.
Two decades ago, the country had only one telecom operator with around 300,000 telephone lines. Now, nearly a dozen operators service Nigeria's 120m mobile phone subscribers. Nollywood is now contributing 1.42% to the economy, Mr Kale said. Since 2011, a team of number-crunchers have taken to the streets across Nigeria to capture an up-to-date picture of the enormous informal economy – ranging from barbers and tailors to cyber cafes. The base year will now be recalibrated every few years, with the next recalculation scheduled for 2016.
Despite the celebratory tone of the announcement, Mr Kale and Nigeria's Finance Minister, Ngozi Okonjo-Iweala seemed keen to manage expectations. "Rebasing does not change what was already there, it's just about measuring better and more accurately," Mr Kale said. "It does not mean that within 24 hours something miraculous has happened and we are better or worse off."
Bigger is not always better, the finance minister said. Although the new figures shrank the debt-to-GDP ratio to 11% in 2013, from 19% in 2012, the rebasing has exposed a weaker tax base. "Our revenue-to-GDP ratio does not look that good anymore," the minister said, adding that tax collection will become a priority for the government.
Nigeria, with a population of 170m people, is growing investment destination due to the sheer size of its consumer market. Yet, despite strong growth and a bigger GDP, it still lags behind South Africa, the continent's only G20 member, in terms of basic infrastructure and governance. At 4,000 megawatts, Nigeria's electricity output is a tenth of South Africa's for a population three times the size. Nigeria's GDP per capita rose to $2,688 last year from an estimated $1,437 in 2012, while GDP per capita in South Africa was $7,508.
"What does it mean for me?" asks Abalaka Lokko, a taxi driver waiting in a fuel queue for more than two hours, "Will it mean I now have the money to fill my tank? Will it mean I can send all my children to university? Only the ogas [godfathers] at the top get the cream of the milk."
The most recent poverty survey by the NBS shows that 61% of Nigerians are living on less than a dollar a day in 2010, up from 52% in 2004. "Inequality has been rising," Mrs Okonjo-Iweala acknowledged, "We have to work on building a social safety net to take care of those at the bottom of the ladder."
Source: Nigeria's economy is bigger than everyone thought: Give yourself an 89% raise | The Economist
Apr 7th 2014, 23:50 by J.O'S. | JOHANNESBURG
ON SATURDAY, April 5th, South Africa was Africa's largest economy. The IMF put its GDP at $354 billion last year, well ahead of its closest rival for the crown, Nigeria. By Sunday afternoon that had changed. Nigeria's statistician-general announced that his country's GDP for 2013 had been revised from 42.4 trillion naira to 80.2 trillion naira ($509 billion). The estimated income of the average Nigerian went from less than $1,500 a year to $2,688 in a trice. How can an economy grow by almost 90% overnight?
Nigeria has a deserved reputation for corruption, so a sceptic might think the doubling of its economy a result of fiddling the numbers. In fact it is the old numbers that are dodgy. An economy's real growth rate is typically measured by reference to prices in a base year. In Nigeria the reference year for the old estimate of GDP was 1990. The IMF recommends that base years be updated at least every five years. Nigeria left it far too long; as a result, its old GDP figures were hopelessly inaccurate.
The new figures use 2010 as the base year. Why was the upgrade so big? To come up with an estimate of GDP, statisticians need to add together estimates of output from a sample of businesses in every part of the economy, from farming to service industries. The weight they give to each sector depends on its importance to the economy in the base year. A snapshot of Nigeria's economy in 1990 gave little or no weight to fast-growing parts of the economy such as mobile telephony or the movie industry. At the time the state-owned telephone company had a few hundred thousand customers. Today the country has 120m mobile-phone subscriptions. On the old 1990 figures, the telecoms sector was less than 1% of GDP; it is now almost 9% of GDP. Motion pictures had not shown up at all in the old figures, but the industry's size is now put at 1.4% of GDP. Nigeria's number-crunchers have improved the gathering of statistics in other ways. The old GDP figures were based on an estimate of output. The new figures are cross-checked against separate surveys of spending and income. The sample on which the data are based has increased from around 85,000 establishments to 850,000. Only businesses with a fixed location are included: the traders who weave precariously between the traffic are not captured. Even so, many small businesses are now part of the GDP picture.
Of course, Nigerians are no richer than they were on Saturday night. The majority of the country's 170m people live on less than a dollar a day. What the revised GDP figures show is that its economy is far more than just an oil enclave, exporting crude to pay for imported goods from richer countries. The oil industry's share of GDP is now put at just 14%, compared with 33% according to the old figures. Manufacturing is much larger than previously thought. Services are booming. It is still a tough place in which to do business. But any company or investor who wants exposure to Africa's fast-growing markets cannot afford to pass the continent's largest economy by.
- See more at: The Economist explains: How Nigeria’s economy grew by 89% overnight | The Economist
ECONOMIC weight in Africa is shifting north. Nigeria has overtaken South Africa to become the continent's largest economy following the recalculation of GDP, although it remains less developed and more unequal than its rival. Moving up ten notches to become the world's 26[SUP]th[/SUP] largest economy, Nigeria has joined the burgeoning club of middle-income countries.
The size of the economy is now estimated at 80.3 trillion naira ($509.9 billion), 89% larger than previously stated for last year, according to Yemi Kale, head of the National Bureau of Statistics (NBS) speaking in the capital, Abuja, on Sunday. The GDP increase far exceeded expectations of analysts who had forecast a jump of between 40 and 60% prior to the rebasing exercise.
Most governments overhaul GDP calculations every few years to reflect changes in output and consumption but Nigeria had not updated its national statistics since 1990, a decade before the country's telecoms boom and love affair with Nollywood – Nigeria's prolific film industry.
Two decades ago, the country had only one telecom operator with around 300,000 telephone lines. Now, nearly a dozen operators service Nigeria's 120m mobile phone subscribers. Nollywood is now contributing 1.42% to the economy, Mr Kale said. Since 2011, a team of number-crunchers have taken to the streets across Nigeria to capture an up-to-date picture of the enormous informal economy – ranging from barbers and tailors to cyber cafes. The base year will now be recalibrated every few years, with the next recalculation scheduled for 2016.
Despite the celebratory tone of the announcement, Mr Kale and Nigeria's Finance Minister, Ngozi Okonjo-Iweala seemed keen to manage expectations. "Rebasing does not change what was already there, it's just about measuring better and more accurately," Mr Kale said. "It does not mean that within 24 hours something miraculous has happened and we are better or worse off."
Bigger is not always better, the finance minister said. Although the new figures shrank the debt-to-GDP ratio to 11% in 2013, from 19% in 2012, the rebasing has exposed a weaker tax base. "Our revenue-to-GDP ratio does not look that good anymore," the minister said, adding that tax collection will become a priority for the government.
Nigeria, with a population of 170m people, is growing investment destination due to the sheer size of its consumer market. Yet, despite strong growth and a bigger GDP, it still lags behind South Africa, the continent's only G20 member, in terms of basic infrastructure and governance. At 4,000 megawatts, Nigeria's electricity output is a tenth of South Africa's for a population three times the size. Nigeria's GDP per capita rose to $2,688 last year from an estimated $1,437 in 2012, while GDP per capita in South Africa was $7,508.
"What does it mean for me?" asks Abalaka Lokko, a taxi driver waiting in a fuel queue for more than two hours, "Will it mean I now have the money to fill my tank? Will it mean I can send all my children to university? Only the ogas [godfathers] at the top get the cream of the milk."
The most recent poverty survey by the NBS shows that 61% of Nigerians are living on less than a dollar a day in 2010, up from 52% in 2004. "Inequality has been rising," Mrs Okonjo-Iweala acknowledged, "We have to work on building a social safety net to take care of those at the bottom of the ladder."
Source: Nigeria's economy is bigger than everyone thought: Give yourself an 89% raise | The Economist
