Nigeria today officially overtook South Africa as the largest economy on the continent, after the West African country changed the base year for calculating its gross domestic product (GDP).
Nigeria’s National Bureau of Statistics (NBS) on Sunday presented the country’s rebased GDP figure, revealing the economy is significantly bigger than originally reported. Nigeria’s GDP in 2013 was US$509.9bn, much higher than that of South Africa.
The base year is the benchmark for all calculations used in working out the GDP of a country, as it determines the year in which prices are held constant and enables one to distinguish between economic growth and inflation.
The majority of higher income countries revise their base year every five years to reflect changes in the nature of output and consumption. Up until today, Nigeria’s GDP was calculated using 1990 as the base year, which does not account for the rapid development of some of the country’s booming industries, such as telecommunications and entertainment (notably the Nollywood film industry).
Nigerians however shouldn’t expect to see any material benefits from the GDP rebasing. According Renaissance Captial chief economist Charles Robertson, the rebasing is simply “the NBS… doing a better job in measuring the output that is already happening”.
“Improving the measurement of GDP does not raise monthly wages. It does not lift consumption of imports. It does not make Nigeria better off in any obvious material way… The important fact to bear in mind is that GDP is only being recorded better. Rebasing does not mean Nigerians are better off – it just means they are better off than official statistics previously indicated,” said Robertson in an earlier note.
Being Africa’s largest economy could however hold some psychological advantages. “It would be interesting to see how international relations will be affected when South Africa is no longer the largest African economy – South Africa is, for example, the only African country represented in the G20,” wrote Roelof Horne, portfolio manager at Investec Asset Management in an opinion piece published by How we made it in Africa on Friday.
“South Africa was historically the ‘go-to’ country for investment into Africa. However, the reality is that other regions are increasingly asserting their economic voice and this has resulted in several multinational corporations opting to have their Africa base in countries such as Kenya or Nigeria, instead of South Africa,” Horne added.
The rebasing will also improve Nigeria’s balance sheet. “This should lead to lower borrowing costs for the government, which is ultimately beneficial for the country’s citizens,” said Horne.
According to Robertson, Nigeria’s growth rate is likely to be revised down following the rebasing. “Instead of around 7% annual growth over the previous decade, the higher GDP base means growth may turn out to have been closer to 5-6%.”