Tuesday , 2 September 2014
GDP Rebasing and Nigeria’s Macro- economic ratios

GDP Rebasing and Nigeria’s Macro- economic ratios

Nigeria is expected to announce the new re-based Gross Domestic Product (GDP) figures on December 10, 2013 which will better reflect the structure of its economy.

The expected rebasing may catapult Nigeria’s economy’s size to $400 billion making it become the 28th largest economy in the World, from its 36th position in 2012 according to Business day analysis.

This will bring its economy similar in size to South Africa’s which was the 29th largest economy in the world in 2012.

Nigeria leapfrogged Egypt in 2011 to become the second largest economy in Africa behind South Africa.

It jumped six places to 36th in 2012, according to International Monetary Fund (IMF) data, which put it roughly where Argentina was when it joined the G-20 (A grouping of the 20 largest and most industrialized countries in the world). Most governments overhaul GDP calculations every few years to reflect changes in output and consumption, such as mobile phones and internet usage, but Nigeria has not done so since 1990 suggesting that the previous GDP framework underestimated economic activity.

Yemi Kale, the head of the National Bureau of Statistics NBS said earlier in the year in a visit to BusinessDay’s office that the latest personal consumption figures for Nigeria was larger than the current estimated GDP of $272 billion (N42.9 trillion), meaning that GDP will be much larger when rebased figures come out later in the year.

When Ghana’s GDP was rebased in 2010, the size of its economy was found to be 60 per cent bigger than previously recorded – $31billion, compared to $18 billion.

The new GDP figure, according to Kale, would enable Nigeria to join the ranks of middle-income countries.

The rebased GDP will show that the services sector is also much bigger, while Agriculture as a percentage of GDP will be much less than the current 40 percent, Kale said.

The effect of the expected rebasing on Nigeria’s macro – economic ratios would however be mixed. A bigger GDP would mask the impact of a higher budget oil price on the budget deficit/GDP ratio. The 2013 budget oil price is based on a benchmark of $79 / barrel.

The upward adjustment to GDP will allow the government to achieve its medium-term objective of narrowing the federal budget deficit to 1.1 percent of GDP in 2015.

This is because as the numerator (which is the GDP), increases, the deficit expressed as a percentage of GDP, diminishes.  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.

For example Nigeria’s population is three times bigger than that of South Africa’s and after its GDP adjustment Nigeria’s revised GDP per capita will still be smaller than that of South Africa.

Nigeria’s GDP per capita is expected to increase from $1,600 to 2,600, if GDP is revised by 60 percent. This compares with $8,700 per capita for South Africa, 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.

Nigeria’s public debt to GDP ratio stands at 18.7 percent as at the end of 2012 according to data from the Debt Management Office (DMO). This debt to GDP ratio which is already lower than that of most Sub Sahara African (SSA) countries is expected to drop to 10.5-14.5 percent of GDP, depending on the extent of the upward revision.

This implies that the government will have more capacity to borrow and is likely to be more inclined to do so and thus sustain the deficit for a few more years due to the favorable debt ratio.

Analysts say given Nigeria’s large infrastructure deficit, this may not be viewed as a negative for the country’s fiscal outlook, provided any such new government borrowing would be used to improve infrastructure and other capital projects to expand economic activity.

Nigeria’s current-account surplus, which was significantly eroded in 2010, when it dropped to 2.2 percent of GDP, from 12.5 percent in 2009, will appear even smaller following the upward GDP revision.

Nigeria’s current account surplus is estimated at $20 billion or 7.5 percent of GDP for 2011. The current-account surplus projection for 2012, under the present national accounts of base year 1990, is 8.0 percent of GDP, up from a projected 7.5 percent in 2011. An upward revision of GDP implies a current-account surplus of 5.6-7.4 percent of GDP, according to IMF estimates.

Nigeria’s consolidated government revenue is at about 25 percent of GDP for 2012.

However, a bigger GDP may suggest that Nigeria’s revenue collection has room for improvement. An upward adjustment to GDP could lower consolidated government revenue to 17-22 percent of GDP, which is lower than the average for SSA countries.

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