Nigeria’s GDP rebasing: Could we see a 53% rise in January?

Next year Nigeria is likely to overtake South Africa as the largest economy in Africa when it is expected to change the base year for its GDP calculations.

Charles Robertson

Charles Robertson

The consensus has generally been that this rebasing could see GDP increase by 40%. However, according to calculations by Charles Robertson, global chief economist and head of macro-strategy at Renaissance Capital, it is more likely that the increase will be closer to the 60% seen in Ghana in 2010, when the country changed its base year from 1993 to 2006.

“We will not be surprised by a rise of 45%-60%, and we favour 53% within a tighter range of 50%-55%. This is not because we are confident on 53%, but because we need one number in order to do percentage-of-GDP estimates for comparisons of the current account, budget, and other ratios as a share of GDP. So, 2013 GDP may be revised up from around NGN42trn (US$265bn) to NGN64trn ($405bn),” according to a Renaissance Capital report led by Robertson.

“This would easily give the country the largest GDP in Africa. Globally, it would move from 36th in the world to 28th, displacing Thailand.”

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. However, lower income countries often lack the technical resources to regularly overhaul the national income accounts. Nigeria’s GDP is currently calculated by using 1990 as the base year, which does not account for the rapid development of some of the country’s booming industries, such as in ICT and entertainment (notably in the Nollywood film industry).

“The effect could be dramatic. We expect that sectors such as Nollywood may be considerably larger than previously estimated, and other services too should increase. Because a national census of business has not been done for 20 years, we expect a big rise in the number of businesses that the [National Bureau of Statistics] can measure. On the production side, we expect agriculture to be revised down from nearly 40% of GDP to around 25%-30%, while on the expenditure side, consumption may be increased from 70%-80% to 80%-90% of GDP,” continued Robertson’s research.

“The new data may be released as soon as January, after final cross-checking by external and internal institutions.”

Anna Rosenberg, a senior analyst for sub-Saharan Africa at Frontier Strategy Group, stated in a How we made it in Africa article earlier this year that “the new GDP figures will be calculated by using prices of goods and services from a 2008 base year”.

“While the increased size of the economy makes the country more attractive on paper, performance targets may become harder to reach if they are calculated on a GDP multiplier basis. Executives must communicate changes in GDP forecasts to corporate to set expectations about performance in the Nigerian market,” wrote Rosenberg. “Companies should consider revising growth targets down to reflect revised GDP growth.”

Likely impacts of rebasing

The rebasing of Nigeria’s GDP will likely mean that the economy’s growth rate is revised down, according to Renaissance Capital’s research.

“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%.”

Robertson’s research also acknowledged that another impact of a higher GDP figure is that Nigeria’s debt ratio will improve.

“The public debt ratio could fall from 18% of GDP in 2012 to 13% of GDP in 2013-14, and gross external public debt (using the dollar figure reported by the [Central Bank of Nigeria] 2012 annual report) could drop from 2.5% of GDP in 2012 to 1.8% in 2013. The current account surplus would shrink from 8% of GDP, but still remain in healthy positive territory at 5% of GDP.”

Robertson stated in the Renaissance Capital report that he expects this revision to be supportive of Nigeria’s credit rating. “If fiscal and monetary policies do not come off the rails heading towards the 2015 election, we would see this as paving the way for rating upgrades.”