The consequences of Nigeria’s GDP rebasing

Another reason for the booming economic performance is Nigeria’s favourable demographics. Its population grew on average by more than 2.7% per annum over the past decade, reaching 168 m in 2012. The UN projects that this trend is set to continue. It expects Nigeria’s population to double within the next 25 years to 350m. Already the world’s seventh most populous nation today, this means that Nigeria will be the fourth most populous nation by 2040, trailing only India, China and the US.

The sheer size of the country means that Nigeria is already a vast market for products such as consumer goods, entertainment, communication and finance. With 127.6m active mobile lines, for example, it is the largest market for telecommunications in Africa and among the 10 largest worldwide. However, the fact that the share of cellular subscriptions is still significantly lower than in South Africa indicates that the market is still unsaturated. The picture is similar in many market segments and highlights Nigeria’s sizeable potential for future growth.

Since 2009 Nigeria has been the largest recipient of foreign direct investment in sub-Saharan Africa and in 2012 Nigeria also overtook South Africa as the chief destination for portfolio inflows. The spotlight associated with being the biggest economy in Africa might help to sustain this trend.

Nigeria still trails in economic development

Although Nigeria now exceeds South Africa in economic size, it still has a long way to go if it wants to reach a similar level of economic development and sophistication. Nigeria’s GDP per capita is still only around one-third the size of South Africa’s and the World Bank estimates that more than 80% of Nigeria’s population have to make do with less than $2 per day (compared to about 30% in South Africa). Although in the rebased GDP the size of the agricultural and hydrocarbon sectors declined significantly, primary commodities still play an overly large role in Nigeria’s economy and account for nearly all of its exports. Moreover, the manufacturing sector remains very small compared to other emerging markets.

Nigeria and South Africa also lie far apart in terms of capital market development. The market capitalisation of the Johannesburg Stock Exchange amounted to roughly $1tr at end-2013, and was thus more than 13 times higher than the market capitalisation of the Nigerian Stock Exchange.

In order to close these gaps in economic development Nigeria has to improve its institutions and business environment. The country lags far behind South Africa in every sub-indicator of the Worldwide Governance Indicators. Especially in the “political stability and absence of violence/terrorism” indicator, Nigeria is one of the worst performing countries in the world. This can be explained by the continuous security threat by the Islamist sect Boko Haram in the north of the country as well as sporadic tensions in the Niger Delta. Nigeria also has stark problems in the business environment. In the latest World Bank ease of doing business report, the country only ranks 147th, far behind South Africa in 41st place.

This article is a Deutsche Bank research report.