Deceptive Gyrations: Rebasing the Growth of the Nigerian Economy
Statistics are the magic, and the manna, of the economist. They are less reliable than weather forecasts – the meteorologist has a better chance of forecasting rainfall than an economist of forecasting economic growth. Things get even more testy over the issue of Gross Domestic Product, that great calculator of a nation’s economic output. The proof, in this case, lies outside the pudding, rather than in it.
A suitable illustration of this statistical gazing comes in the form of assessing Nigerian economic performance. For one, the recent rebasing of its performance seemed to take other countries in the region by surprise. Nigeria is now Africa’s largest economy. This hardly seemed to make sense, given that South Africa, with a GDP of $354 billion in 2013, was streets ahead.
Nigeria’s statistician-general would have none of that. Figures showed a jump from 4.2 trillion naira to 80.2 trillion naira, the equivalent of $509 billion. Astonishingly, the economy had grown by 90 percent, effortlessly surpassing their rivals at the other end of the continent. Rating agencies, like eager paparazzi, have been swooping in with reassessments, giving snappy predictions.
Moody’s has suggested that Nigeria’s rebased GDP figure would rise dramatically by 2050 – not that their assessments can actually see the future with merit or reliability.
“With a population of 170 million and oil reserves estimated around 37.2 trillion barrels (or roughly 28 percent of total African reserves), Nigeria is likely to number among the world’s 15 largest economies by 2050 when GDP is projected to exceed $4.5 trillion in purchasing power parity terms.”
With this growth in GDP, other improvements have been noted, including debt to GDP, which fell from 19 percent to 11 percent for 2012, and interest payments to GDP. The economy is also more diversified than previously assessed, with growth in food, beverages, tobacco, chemical, and pharmaceutical products. Reforms of the agricultural sector has paid rich dividends.
This would have taken Marie-Francoise Marie-Nelly, World Bank Country Director of Nigeria, by surprise. Current World Bank President, Dr. Jim Yong Jim, was less impressed. He insisted that Nigeria needed to be bracketed with various like nations in terms of poverty. At the series of World Bank/IMF spring meetings being held in April, Nigeria came in third after India and China as having the world’s most indigent populations. It is little wonder than Nigerian finance minister Ngozi Okonjo-Iweala rankled at the remarks.
According to Kim, “Economic growth has been vital for reducing extreme poverty and improving the lives of many poor people. Yet, even if all countries grow at the same rates as over the past 20 years, and if the income distribution remains unchanged, world poverty will fall by 10 percent by 2030, from 17.7 percent in 2010.” That reduction was “simply not enough,” though Kim believed, somewhat optimistically, that this “generation” would be the one to lift a million people out of poverty each week till 2030. More magic, more manna.
The Nigerian reaction to this is that more is being done. The Subsidy Reinvestment Programme (SURE-P) is designed to provide various safety nets for the poor. Grants are being made to manufacturing and industry – N3 billion to the Nigerian film industry colloquially named Nollywood. For all of this, “rebasing” is its own illusion, suggesting that vast improvements in distinct sectors does not necessarily remove the blight of poverty.
The disagreement between Kim and his Nigerian counterpart has a story – Kim had a rival for the position of World Bank President in 2012 – non-other than Okonjo-Iweala himself. Kim’s inevitable election was scornfully dismissed by his Nigerian rival – there is no room for gracious defeat when it comes to World Bank appointments. “You know this thing is not really decided on merit. It is voting with political weight and shares, and therefore the United States will get it.”
Okonjo-Iweala had secured backing from states such as Brazil and South Africa, both sceptical about the banking behemoth and its grasp of governance and economic realities. Prior to the announcement, the South African finance minister, Pravin Gordhan, suggested the need to “look beyond the verbiage of democracy and the claims to democratic process, and ask whether in substantive terms the institution has met the democratic test.”
Economic categorisation, like credit ratings and classifications, tend to be as murky as World Bank politics itself. Individuals like Okonjo-Iweala dislike the institutionalise hypocrisy of the World Bank and western accounting techniques, but happily play the game when required. The phenomenon of rebasing GDP is certainly popular in the African context and is bound to turn up surprises of both a nasty and pleasant kind. In previous years, Botswana has seen an 11 percent reduction, while the Democratic Republic of Congo saw an increase of 66 percent.
The problem, as ever, is that GDP is one of the greatest tricks in the economist’s manual. In itself, it says nothing. Roy H. Webb of the Federal Reserve Bank of Richmond offers a definition: “the market value of current, final, domestic production during a specific interval of time.” Already we have our first problem – value includes prices for goods and services actually paid in market transactions. Defense costs may not be available because market prices are not available. What is left out can prove as vital as what is included.
States, on paper, can appear rich yet still have a good portion of its citizens living on less than a dollar a day. The GDP measurement had its origins in concepts of sound and sober management – monitoring the economy the way a doctor monitor’s a patient’s health. That management, as with other systems of accounting, went awry. It has been said that John Maynard Keynes’s The General Theory of Employment, Interest and Money was a true catalyst, given its emphasis on matters of national investment and product. The retiring Bureau of Economic Analysis chief Steven Landefeld has issued an appropriate warning: figures like GDP “are eminently useful in macroeconomic analysis if they are not regarded as a precision instrument.” The line between precision and lethality is a fine one.
Kim’s remarks have every reason to cause indignation in the ranks of those keen to see such economies as Nigeria climb the ladder of prosperity and take medals in the GDP stakes. But that would be the first error: economic improvement should never be a race. It should be a matter of genuine growth and poverty alleviation. Economic growth serves as both warning and promise. As well as it might suggest that some things are going well, it gives little indication about distribution. GDP remains a trick – even the World Bank, in its own dissimulating ways, admits to it. Poverty reduction, through growth, has its cruel limits.