April 09 ,2014 | by Hari Sri

How Did Nigeria Become Africa’s Biggest Economy?

How did Nigeria nearly double the size of its economy last weekend?

Nigeria is often seen as a developing economy with lots of potential. It’s included in the unlikely combination of nations that make up the promising ‘MINT’ economies (Mexico, Indonesia, Nigeria and Turkey), but it has generally been thought it has much to do to catch up with Africa’s biggest economy, South Africa.

It is likely some of those perceptions have changed after last weekend. New calculations showed that Nigeria’s GDP in 2013 came to around 80.3 trillion naira (£307.6 billion), an increase of 89 per cent that superseded all expectations and by far surpassed South Africa’s £221.21 billion.

By rebasing its gross domestic product (GDP), Nigeria has easily surpassed South Africa to be recognised as the economic powerhouse of the continent.

 

What is GDPrebasing?

So how did Nigeria’s economy nearly double overnight? Rebasing doesn’t mean making any fundamental changes to the economy itself or the way it works. Rather, it’s a question of how that economy is measured and estimated.

As economies change and develop, the same comparisons to previous years become less appropriate. To understand how the economy is changing, statisticians need to use the right reference points to make accurate comparisons.

Rebasing involves changing the price structure on which GDP calculations are based so that current activity is being compared with a more recent year. Basically, it’s a question of updating the country’s parameters for calculating national statistics.

 

Why was the jump so huge?

The consequences of rebasing can be staggering – when Ghana rebased in 2010, output suddenly leapt by 60 per cent. What happened in Nigeria was even more extreme, largely thanks to the huge changes that have taken place since it last rebased its figures.

Ideally GDP should be rebased every few years to ensure the data remains up to date. But Nigeria hadn’t done so for more than two decades, meaning the data didn’t reflect the massive social, economic and industrial change it has undergone. By updating its base year from 1990 to 2010, Nigeria should now have a much better idea of where it stands.

Telecommunications, e-commerce, airlines, film production and a number of other industries that weren’t counted before – many because they simply didn’t exist – are now incorporated. Oil has also become even more of a vital asset for government revenues and has brought in a valuable income stream. In addition, the country’s burgeoning industry has also attracted plenty of investment that may not be fully reported.

“It’s the equivalent of suddenly discovering the existence of six Ghanas within Nigeria,” writes Tolu Ogunlesi for the Guardian Africa network.

 

What’s changed?

The average Nigerian won’t see any change as a result of rebasing – the facts on the ground haven’t changed in the slightest. Significantly, the country still lags behind South Africa on key issues such as infrastructure and energy supply, which are widely believed to be holding the nation back and could be pushing further investment away. Poverty continues to be a serious problem.

Yet publishing more accurate data which indicates the true scope of Nigeria’s growth could potentially have a big impact on consumer and business confidence, which might have a knock-on effect on growth.

Probably the most significant development will be in the way future growth is perceived. Speaking to Reuters before the rebased figures were released, Ecobank economist Gaimin Nonyane said that the nation’s market size may increase, but real GDP growth will look slower in the coming months. Either way, regardless of its flaws, it seems Nigeria is building up its status as a major global player.

Hari Sri

Hari is the LSBF Blog's News Editor. He manages the editorial content on the blog and writes about current affairs, SME, entrepreneurship, energy, education and emerging market news.

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