Rebasing: After the hypes and the hisses

on   /   in Business 7:06 pm   /   Comments

By Dele Sobowale

“Nigerian GDP at purchasing power parity has almost tripled from $170 billion to $451 billion ib 2012,”. CIA World Fact Book.

The spin doctors and the skeptics have had their say. It is time for the economists to regain their property and explain what rebasing means and what it does not imply. That, after all is the real benefit of conducting the exercise.

When the Nigerian Bureau of Statistics, NBS, recently released the rebased Gross Domestic Productivity, GDP, figure for Nigeria, the impression was given that there is only one measure of GDP. The Honourable Federal Minister for Finance, as well as other knowledgeable Ministers, in their attempt to deceive the President and Nigerians, failed to point out that there are two acceptable metrics for measuring GDP.

The first, and most commonly used, is the nominal figure and it was this which declared Nigeria’s economy as the largest in Africa with a GDP $510 billion (est) for 2013. GDP, everyone must understand is an annual estimate and not a perpetual figure. In fact, the 2014 estimates will be different from what was declared for 2013.

Minister of Finance, Dr Ngozi Okonjo-Iweala

Minister of Finance, Dr Ngozi Okonjo-Iweala

The second measure of GDP, which is a companion estimate, and which frequently provides a different figure, is called the Purchasing Power Parity, PPP. This measure of GDP, in 2012, also rebased, estimated Nigeria’s GDP at $451 billion – after the CIA Fact Book explained that the informal sector in Nigeria assigns a much higher GDP estimate to Nigeria than has been generally supposed. The estimates go as high as $630 billion per annum for Nigeria when some other factors left out by the NBS are included. What, then, are we supposed to make of all these figures for Nigeria?

The good news is that the Nigerian economy is much larger than most economic analysts have been telling us. Economists, including those from the World Bank (where our Finance Minister worked for years) and the International Monetary Fund, IMF, as well as leading Nigerian economists, especially the Nigerian Economic Society, NES, and the Nigerian Institute for Social and Economic Research, NISER, have been derelict in their duties by not correcting the wrong estimates which had been applied to Nigeria until now.

Given all the professors of economics we have in Nigeria, it is a cause for alarm that none ever drew our attention to the fact that our economy needed to be rebased every five years. And, given the unknown numbers of people who had been appointed Ministers of Finance and National Planning, it is also a cause for wonder that none ever once mentioned rebasing – until now.

Certainly, that was why the attempt by Dr Ngozi Okonjo-Iweala to turn this revelation to political advantage for the President blew up in everybody’s faces. She had a chance when she served Obasanjo to ask for rebasing and failed to attend to it. Was it ignorance, or, dereliction of duty? Either way her reputation as a world class economist had not been enhanced by the outcome.

If rebasing had been undertaken in 1995, 2000, 2005 and 2010, then the unprecedented jump in our GDP estimates by 89% overnight would have been avoided. In effect, what the rebased estimates tell us is clear – our GDP estimates for 1995, 2000, 2005 and 2010, as well as all the years in between had been understated all along. So, there is absolutely no reason for anybody, who is not an incorrigible liar, to attribute the result to any current agenda of the present government. It represents a backlog of adjustments which should have been made before now.

The most important question however is: where do we stand in comparison with South Africa? The next segment tells us all we need to know – without hypes or hisses.

Ext. Reserves   $42.8 b    (2012)          $54.98 b (2012).

Based on the figures above, it is clear that we are only deceiving ourselves by calling Nigeria the largest economy in Africa. We rank higher than South Africa only in having a larger nominal GDP.  When we take into consideration other measures of the size of an economy, Nigeria is still far behind. We are close with exports, but clearly anybody with anything to sell, will head for South Africa first – with almost 30 per cent more money to spend than Nigeria.

Then take a look at the revenues. South Africa generates almost four times the revenue of the “largest” economy in Africa – with $95 billion against our own $23 billion. Their expenses also are about four times our own at $116.5b to $31.61 b.

Now let us pause and consider the meanings of all of these facts. Some are obvious; others are not. If indeed, the Federal government expected to gain any political mileage out of rebasing, then the President should urgently consider sacking whoever advised him to approve the release of those figures.

Glaring to me, if not anybody else, is the fact that while South Africa captures almost 25 per cent of its annual GDP in revenues to be spent for future development, Nigeria garners a measly 4.5 per cent per annum. Now, it should be obvious to anyone why Nigerians are dying to migrate to South Africa and South Africans are reluctant to come here. Obviously, a great deal of taxable income is going untaxed in Nigeria – sometimes deliberately so. Let me provide an example.

One of the reasons why Nigeria’s GDP suddenly shot up had to do with recognition of a lot of income generating activities, which should be taxed; but are not. Our leaders, when entertaining, and we too, do something which is almost unheard of elsewhere in the world today. We engage top class musicians for the occasions. The musicians are not only paid, up front, huge amounts, from which no taxes are deducted or claimed by the state, then we proceed to “spray them” with cash, for which there is no accounting. Given the caliber of individuals in the gathering, a musician could walk away with up to N20 million or more in one evening and nobody would ask him to pay a kobo in taxes. In South Africa, that would be called economic lunacy. In Nigeria, it is encouraged by people in government and at the top levels of society. Is it any wonder that South Africa generates close to 40,000MW of power and we are still struggling to reach 5,000?…

    Print       Email