15th April, 2014
Dr Ayo Teriba, Managing Director of Economic Associates and one of the experts who knew how the figures came about, speaks to KUNLE AJIBADE, ADEMOLA ADEGBAMIGBE, FUNSHO BALOGUN and HENRY OJELU
Nigeria’s rebased GDP figure puts the country ahead of any other African countries. How did we suddenly arrive at the figure that now surpasses even that of South Africa?
The issue is why measured GDP changed so drastically. The last time Nigeria rebased its GDP was in 1990. A country is supposed to rebase every five years. The reason for rebasing is to capture activities that were previously insignificant. GDP has to do with the weight assigned to different activities. Activities that were not even included at all in the past, or assigned smaller weight in the past, should be rebased every five years to update and increase their weight. But leaving the rebasing for 20 years meant that some activities that were insignificant as of 1990 had grown to become very significant, yet were excluded from measured GDP. Their weight were still 1990 weight. An example that comes readily to mind is telecoms.
As of 1990, the telecoms sector was run by a government monopoly. Eleven years down the road, private operators were licensed, and they are the dominant ones now. And they have mobilised huge investments and connected with the consumers. When they were licensed in 2001 there were only 300,000 lines.
Now, there are about 120 million lines. That is huge. If you are still treating that sector with the weight of 1990, then you exclude a significant fraction of the economic activity taking place in Nigeria. Correcting that, you have got nearly N6 trillion. It’s not just their output, but the output of their suppliers and their distributors. And it is not just the telecoms sector. There is also the entertainment industry including the film-making, the music and other aspects of the industry that were not previously included. The figure for these came up to N1.1 trillion. Trading grew by more than N4 trillion. Manufacturing also grew in trillions, and other sectors had also grown bigger over time. If you include all these activities with their new weight, the economy that we thought was over |N40 trillion as of 2012 was estimated to be over N80 trillion by 2013.
Before the Federal Government came out with these figures, Okonjo-Iweala told Nigerians that for three months, six experts including you, spent three months working on this. Can we have an insight into what you discovered? Why did it take the country this long to rebase?
The important thing is that Nigeria did not rebase for 24 years. This government was not there since then, so it is difficult asking anybody that question. The fact is that Nigeria had not rebased for 24 years. If you want to know why the country did not rebase for so long, you will have to go to 1990 when it was Babangida’s time, to Abacha’s administration and then that of Abdulsalami, all the way to the Obasanjo administration. This is needless. There is no point flogging a dead horse. Nigeria failed to rebase for over 20 years, Nigeria has now rebased, and it should continue to rebase every five years. That is the issue. Then we can move on
How reliable are the rebased figures arrived at?
No country measures its GDP the way it wants. There is United Nations, UN, framework that countries adopt. And there is also a framework recommended by the World Bank recently that countries adopt. The Nigerian government did not do it alone. They actually did it collaboratively with the World Bank, the IMF, and with the African Development Bank. It’s not as if Nigeria just went and did what it wanted. The development partners were there when the numbers were presented. And they endorsed it. The highest standards of professionalism must have been applied. I guess the more important thing is what it means for us. We should use the empirical information to make whatever decisions we can make; you can never get a perfect measure of the GDP. There is no statistical measure that does not include errors and omissions.
We need to be careful. What is measured follows what has happened. You can only measure after it has happened. It’s not as if what you have measured will impact the life of anybody. It is a photograph to see ourselves and to begin to think of how we should look the next time we have to take another photograph.The well being of Nigerians did not change on Sunday (when the rebased GDP figure was known). The new figures suggest that we have under estimated the well being of Nigerians. It suggests that Nigeria’s output was indeed higher than it was assumed to be. That is very significant information. Those certain sectors were producing trillions of naira worth of goods that had previously not been measured.
It is not just that we understated the output of the economy. The unemployment rate now has to be revised, because if we excluded sectors that were producing nearly half of the output of the country, people who were employed in generating that nearly half would have been deemed unemployed. Nigeria’s employment rate was 23.9 per cent and I was an advocate of trying to tackle the problem which I see as alarming. That measure might have been overstated. With the rebased economy, we can now revise our impression about the size of the economy. It is bigger than we thought. It may lead us to revise our belief about the well-being of the populace as well. I think that is only logical.
With the new GDP figures affect any of the previous plans of government in terms of policies?
It will affect everything. It is going to redefine government policy itself. You now know the goose laying golden eggs. You have now found the eggs, and therefore, you are not likely to neglect the goose. The policy priorities would change.
We should take the biggest sectors contributing most to the economy and strengthen or support them and see how to get more growth out of such sectors. They now reclassify manufacturing from three sub-sectors to now eight or nine sub-sectors.
There will be a stronger policy focus on these activities than before because it was not know that they were that significant. Government is beginning to examine itself as well , saying things about the total net revenue collected into the federation account as being about 20 per cent of the old GDP, and you can now guess what the percentage for N80 trillion would be. The UN norm is that government revenue should be at least 20 per cent of GDP, so, government has to re-double its efforts. What it takes to cater to an economy that is N40 trillion strong would be different from what it is going to take to cater for an economy that is N80 trillion strong. If it wants to look after the economy, government has to look after the revenue.
Particularly the non-oil revenue. Truly, there is much more money being created out there in the economy. And government has to try to get a significant part of that.
We are supposed to believe that the estimated income of the average Nigerian has now gone from less than $1,500 a year to $2,688. Considering the plight of most Nigerians, this figure is hard to believe. Can we rely on such figures to determine our well-being in earnest? Should we now make policies based on such figures?
We have to be careful. You cannot go out and measure Nigeria’s GDP. Those who were there before this present group of people did not do it. It was unreasonable not to have done it in more than 20 years. It is unreasonable to have a base year that was 20 years out of date. They did what needed to be done, in open partnership with the World Bank, the IMF and the African Development Bank. I have read the Financial Times review endorsing it. I have also read The Economist’s review endorsing it.
The Economist’s review did not endorse it actually.
I read it
It actually implied in a paragraph that there is something questionable about the country that is noted for corruption and all that before further analysis
You can discuss corruption as an issue. As a matter of fact, the external world had always been sceptical about the old figures. And what they found the most eye-opening was when Nigeria invited bids for GSM licensing. Nigeria was snubbed by the big players; it was only South African companies that came for the bid, and they won it. These players felt in the Nigerian market, they could not get more than two million lines, because of the belief they had that the average spending of Nigerians was so minimal. They believed the market was just not there. But within two years they had reached 10 million lines. Now, they have about 120 million lines. That woke the world up to the fact that the economy is bigger than measured.
They found it a validation of the belief that they had held, that the investment opportunities in Nigeria are bigger than what past figures portrayed. South Africa has over 60 million people while Nigeria has about 170 million.They have diamond, Nigeria has oil. What does South Africa have that Nigeria does not? What we are saying is that activities that used to be informal, are taking place and we know that they are taking place but are unrecorded. By this GDP figure, they are now formalised and recorded. Informal activities have not dropped to zero so there will still be activities by the time you rebase the economy five years down the road.
The GDP figure estimates average income per person in a year is now about N430,000. Is this not a poor representation of reality?
The figure is just a statistical average. The figure is not for the typical Nigerian but a representation of the mean. We know that the average does not necessarily represent the situation. As we know, there will be a small percentage of the population that will be well above average. For instance, there is Aliko Dangote that has over US$25 billion. Truly, we know that there are people who are also below the average. As a professional, I will respect the figure provided by agencies mandated to do so and have undertaken technical partnership with capable agencies around the world. I believe South Africa is current. They have been doing theirs for more than five times. The last time they did was in 2009 and they adopted 2005 as the base. They will even soon do another one, maybe to adopt 2010 as the base.
So if I believe their valuation process, why will I not believe ours? Ghana also did theirs recently. So if I can believe Ghana’s figures, why won’t I believe Nigeria’s figures? I feel that to the extent that I cannot go to the field to measure GDP, I will believe the information provided by the bureau for statistics. Everywhere in the world, GDP figures get often revised. You rebase it to see if there is any new information that warrants revising. The standard is the same everywhere based on the criteria provided by the United Nations and the World Bank.
Thhe GDP was said to have improved significantly, but the performance index of industries dropped from 46.08 per cent to 25.81 per cent. On the other hand service industry doubled to 50 per cent from 23.03 per cent. Does it not translate to a negative trend in the economy with heavier consumption over production? Moreover, what, in your opinion, should the government do to revive the real sector?
Two things are involved here. The real sector and the assertion that industry declined. Industry declined not on absolute terms. It is a question of the value ascribed to industry. Let me reconcile an issue here. Industry as computed in the GDP includes mining, manufacturing and utilities. Mining includes oil and gas. The biggest chunk in the numbers as a result of the rebasing, of course is the oil and gas. Oil and gas dropped like N6 trillion. When we queried this, the NBS explained to us that they used to base the oil and gas sector on estimate. They know the oil output, but they were estimating the gas output. They said the NNPC before, never responded to their request for figures but this time they did. They found that the gas figures have been lower that estimated. So there was a drop of N6 trillion. If that is included in the industry figures, industry would seem to have grown. But the manufacturing component of it which I know that is the one you are concerned when you referred to industry, grew by more than N2 trillion. Industry did not decline. We don’t regard oil as industry. It was oil that declined.
The question of what should be done with the productive sector of the economy is very important. The notion that service growth means consumption is wrong. Service growth is production. There are three ways in which you produce. Either extracting from nature, or transforming what you have extracted from nature and the third one services. Services could be direct or indirect. Health, education, transportation and the rest of them are service. Insurance and banking also form part of them. These are not consumption but productive activities. For a country this big with over 170 million people, services like shipping, haulage and the rest of them will thrive. There are productive activities that deserve to be encouraged. Nollywood has N1.1 trillion and for telecoms, we are talking about nearly 10 per cent of the economy. We should encourage all the three types of activities, be it the extractive, the transformative or services.
People have asked questions like: If the small base has been growing prior to the rebasing, how is the rebase going to affect the growth rate? People are a bit pessimistic about the growth prospect. They believe that measured growth will decline. Some people say it is easier for small economy to grow and difficult for large economies to grow. I think that notion is wrong. The large economies that find it difficult to grow are the mature economies. An immature economy will grow regardless of size. By mature economy, I mean economies that for instance have had rail since inception. They have had roads, water transport and every sector works.
So they are already operating at near full employment across the board so where are you going to find additional road for instance? The only way mature economies can grow now is when there is a change in technology. But for developing market, here in Nigeria, our schools are not working so there is still room for making them work better. Our hospitals are not working, road transport is the same. Rail transport is dysfunctional. What we have now is nothing to write about. The biggest benefit about rail is not about transport but haulage. The inefficiencies in all sectors are just to much and if they are resolved, Nigeria will certainly grow. China is the second largest economy and fastest growing economy in the world. This tells you that being big does not prevent you from growing. If we learn as China has been doing, to fix our internal inefficiencies, the growth will come.
We are starting from a situation where we have high unemployment not just of labor but almost of all factors of production. All we need to do is to curb unemployment and there is no limit to how Nigeria can grow. We have seen how telecoms contributed significantly to growth. If our attempt to revive the power sector succeeds, you will be shocked at the amount of growth that development will trigger. We have always believed that if power supply becomes steady more output would be created. But we shouldn’t stop at power. We must also resolve our railway system. You wonder why Nigeria could inherit a functioning rail system in 1960 and in 2014 we are nowhere.
Finally, I must add that the benefit of measuring our economy more accurately is that things will begin to pick up faster than expected. One of the advantages that South Africa has over us is that they have been measuring their economy more accurately. Their measured GDP is closer to reality and investors take such information very seriously. We too have shown up to presenting something of a meaningful measure of how large our economy is and it turned out to be larger than figures offered anywhere in Africa. With this, we are likely to see improved investments flow to Nigeria. Once any investor decides that its destination is Africa, it would also have to resolve the question of where. It will be very difficult for such an investor to ignore where the market is larger or where the opportunities are largest. We should expect that over the next few years, Nigeria will not just attract investors from South Africa but elsewhere in the world. We would also become a preferred destination than South Africa. You can be assured that once we find the investment, we will be able to resolve most of our problems and put the economy on a higher growth pattern.