Placebo or economic stimulus in Nigeria’s GDP rebasing

Preparations by the National Bureau of Statistics (NBS) to rebase Nigeria’s Gross Domestic Product (GDP) are on a crescendo already. A few days ago, in pursuit of the objective, the NBS and the Nigerian Economic Summit Group (NESG) jointly held a sensitisation and public enlightenment workshop on the initiative, the methodology and its likely outcome(s).

GDP is the globally accepted indicator that measures the total value of goods and services produced within a country’s borders over a specific period, usually a year. GDP provides an overview of a country’s economic performance and growth. Rebasing the GDP entails adopting a new and more recent reference year to which future values of an economic variable is measured against. 

Rebasing affords an economy the opportunity to update weight and prices based on structural changes in the consumer and/or production patterns over time. This is why the United Nations Statistical Commission recommends a review or rebasing of GDP every five years. This is because the weighting of component items in a base year may no longer be reflective of reality, resulting in exaggerated estimations.

For the proposed GDP rebasing, the NBS has chosen 2019 as the new base year; and this replaces 2010 which has been in use since 2014 when Nigeria last rebased its GDP. The NBS says the selection of 2019 is guided by factors such as overall economic stability, the impact of COVID-19, the availability of administrative data, and the completion of several significant surveys and data collection exercises.

All these, the NBS says, have enabled it capture hitherto unreported or underreported activities in the Digital Economy; the Pension Fund Administrators; National Health Insurance Scheme (NHIS); Nigeria Social Insurance Trust Fund (NSITF); Modular Refineries; Domestic Households as employers of labour. Others include Quarrying and other Mining activities; and illegal and hidden activities (including smuggling, underground businesses, call girls duties, etc.)

Without a doubt, this expanded dragnet that captures practically all socio-economic activities stands the chance of leading to a GDP that really approximates the current size and makeup of the Nigerian economy. This stance is strongly buttressed by the 2014 experience, when Nigeria’s GDP rebasing threw the country up as the largest economy on the African continent.

Specifically, the 2014 rebasing increased Nigeria’s GDP estimate by a whopping 89 percent, making it the largest economy in Africa, surpassing South Africa. The new GDP reflected the country’s growing services sector, including Nollywood and mobile phone services. From about $270 billion, Nigeria’s ‘new’ GDP shot up to about $510 billion.

The 2014 rebasing also shifted the sectoral composition of Nigeria’s GDP, with services now contributing more than previously thought. The telecom industry in particular accounted for over a quarter of the phenomenal increase in GDP estimate. The fraction of the economy devoted to oil reduced by more than half to 14 percent. 

However, since hitting these figures, Nigeria’s GDP has literally been on a roller coaster; going through vicissitudes and buffeted by exogenous headwinds from across the globe. Mainly foreign exchange (FX) quagmire and productivity challenges have combined to shrink the economy to less than $200 billion by end-2023: making the Nigerian economy rank fourth — behind South Africa, Egypt and Algeria.

However, Nigeria’s macroeconomic challenges in recent years, which have seen not a few blue chips opting to leave the country, have the capacity to shrink rather than expand the economy. And which is why the ongoing GDP rebasing could result in higher figures in nominal terms, but may not translate into any tangible increases in real GDP.

While the 2014 GDP rebasing, alongside the prevailing economic environment, could attract investors from within and outside the country, today’s climate is markedly different. Inflation rate is at a thirty-month high — standing at 34.80 percent at end-December 2024.  Exchange rate volatility has remained almost intractable: with the naira depreciating irreversibly against the US dollar and other hard currencies.

As against the Nigeria of 2014, insecurity in the land has become an existential threat — terrorism, banditry, kidnapping, armed robbery, ritual killings, etc. — have become the order of the day. Structural issues are yet in place, including huge infrastructure deficit, corruption, and so much dependence on inflow from crude oil sales.

In this milieu, rebased GDP, no matter how huge the figures turn out to be, may not translate to any magic wand in pursuit of national economic growth and progress. Its cosmetic appeal becomes only a necessary but not sufficient condition for sustainable economic expansion and development.

It is in this vein that the outcome of the recent change of methodology in the computation of the unemployment rate in Nigeria by the NBS has served as only a psychological illusion. While the unemployment rate (especially youth unemployment) was almost hitting 40 percent (using the old method), the rate crashed to between four and five percent following the adoption of the new methodology by the NBS in 2023.

Today, even with the change in unemployment calculation method by the NBS, the (absolute) number of unemployed persons in Nigeria rather than dropping, has remained on the increase. This trend is underpinned by the number of companies that have either shut down or downsized due to the harsh operating environment in the past couple of years. So many Small and Medium-sized Enterprises (SMEs) have been scorched to extinction, just as many big companies have fled the country.

It is therefore not enough to parade the toga — Africa’s largest economy — but remain repulsive rather than attractive to investors. This is why the rebased GDP could end up as a mere placebo, as against any deliberate measure for the nation’s economic advancement. A placebo being a measure merely designed to humour or placate people.

This is akin to the mindset that informed the adoption of palliatives as support to largely failing economic policies of the federal government for close to two years now. The palliatives, mere crumbs, have turned out to be economic placeboes deployed by the Bola Ahmed Tinubu-led administration to assuage the hunger and anger of the citizenry — in the face of mounting economic hardship.

It is therefore most apposite to admonish that rebasing Nigeria’s GDP by itself can neither stimulate the economy nor grow it. The massive ‘baggage’ of other challenges bugging the economy are a major counterpoise to meaningful economic progress. So, the question remains: is the rebasing of Nigeria’s GDP this time, most likely to be a mere placebo or an economic stimulus?

• business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com