August—Nigeria will recalculate its gross domestic
product (GDP), a move that could turn out to be the
West African government’s most important decision
this year, with the potential to turn the continent’s
power balance on its head.
Nigeria is doing this because its GDP has been out of
sync with reality for many years. To understand
requires a brief lesson in the two types of GDP:
nominal and real. Nominal GDP is the simple addition
of the value of all local goods and services. Inflation
and fluctuating prices, however, make it difficult to
compare the nominal GDP of one year with that of
another. Take Zimbabwe: runaway inflation means
that Zimbabwe’s nominal GDP, as measured in
Zimbabwean dollars, increased explosively over the
last decade. In real terms, however, the Zimbabwean
economy declined
markedly during that time.
Real GDP, instead of just adding values together,
converts the amount to what it would have been if
prices had remained constant. It uses a base year to
determine what those constant prices should be. In
other words, when calculating the value of grain sold
domestically, statisticians would use the grain price
of the base year rather than the current market price.
This allows GDP figures to be compared against each
other because they are all calculated against the
same base. Real GDP provides a more accurate
picture of the relative size and growth of an
economy.
It is, however, vital to regularly update this base year
and the base prices used. This is to make sure that
the GDP is not completely out of touch with current
prices and market structures.
If you are still lost, do not worry; just think of your
favourite finance minister as a disc jockey, spinning
his tables in the club that is the national economy; at
some point, to stay fresh, he will have to play a
remix: same song, new and improved beat.
Nigeria’s trouble is that it has not rebased its
economy since 1993. Its real GDP is based on 1990
prices. The world’s economy has changed
considerably in the last 22 years. Nigeria has finally
woken up to the problem under the guidance of
President Goodluck Jonathan’s crack economic team:
finance minister Ngozi Okonjo-Iweala, central bank
governor Lamido Sanussi, and Africa’s richest man,
concrete king Aliko Dangote. They plan to update the
base year to 2008.
The impact of this on real GDP figures will be
enormous. Ghana rebased its GDP in 2010, after
being similarly negligent; its GDP shot up by an
astonishing 60%. Nigeria’s jump will not be quite
that high, but still impressive—some analysts are
estimating an increase of about 40%.
This could see Nigeria’s economy grow from the
current International Monetary Fund estimate of US
$273 billion to $382.2 billion, putting it just behind
Africa’s largest economy, South Africa ($419.9
billlion), which is watching this with discernible
unease. With the huge disparity in Nigeria and South
Africa’s predicted growth rates (7% compared to
3%), Nigeria is catching up quickly, with some
reports suggesting that it could overtake South
Africa by 2015.
It is tempting to dismiss these statistics. No matter
how much bigger Nigeria’s economy is on paper,
corruption and the lack of infrastructure still plague
its economy. “It’s not only a question of size,” said
Professor Danny Bradlow, an expert in African
development economics with the University of
Pretoria, in an interview with Good Governance Africa
(GGA). “The fact they’ve rebased doesn’t necessarily
make them a better place to invest.”
It is not about the money, Bradlow explains. The
rebasing is unlikely to have much impact on trade
and development. There is not much trade between
the two countries—neither makes it into the other’s
top ten list of trading partners.
Diplomatic relations, however, may change
enormously. “South Africa is represented in the G20
[a group of governments from the world’s biggest
economies] and the BRICS [Brazil, Russia, India,
China and South Africa] partly because it is the
largest African economy,” Bradlow says. “If the
Nigerian economy becomes bigger than South
Africa’s then it raises the question about who should
really be represented on those bodies.”
There is an even bigger prize on the horizon. All talk
of United Nations reform includes a permanent spot
on the Security Council for an African country.
Nigeria and South Africa are the obvious candidates:
Nigeria has the largest population; South Africa has
the largest economy. If that changes, Nigeria’s
position becomes much stronger.
The tension between the two countries over
diplomatic dominance manifested itself in the
bitterly fought campaign for the chairperson of the
African Union Commission, where the incumbent and
Nigerian-backed Jean Ping from Gabon was up
against South Africa’s Nkosazana Dlamini-Zuma.
Neither country was willing to even countenance
compromise in the first inconclusive election or its
aftermath, both sides recognising the importance of
asserting their continental leadership.
Timing is everything. There is a palpable sense that
Africa’s leadership is up for grabs: the West’s
economic power is in decline; the African Union’s
influence is growing; and Libya’s Muammar Gaddafi
has departed from the African stage. Coupled with
the vague possibility of United Nations reform, now is
a good time for countries with designs on leading the
continent to make their move.
It is within this context that Nigeria has chosen to
rebase its GDP. Not only does it show the world that
Nigeria is finally getting its act together, but it sends
a warning message to South Africa: be careful! We
are not far behind and we are moving faster than you
are.
Not that South Africa should be too concerned. As
The Economist outlined recently: “South Africa’s
decline is only relative. Despite having the
continent’s fifth- biggest population, it still has its
biggest economy, with GDP per head of over $11,000
at purchasing power parity, bigger than China’s or
India’s and more than four times the African average.
Its infrastructure is by far the best in Africa. It has
80% of the continent’s rail network and is home to
the region’s biggest stock exchange. It also has the
biggest middle class, proportional to its population,
of any African country.”
Unless its two strongest countries can find a way to
work together, Africa should brace itself for a
mammoth power struggle. It may have already
begun. After a nasty recent diplomatic incident over
yellow fever certificates which spiralled into tit-for-tat
deportations, the two countries revived the Bi-
National Commission, a bilateral forum designed to
smooth over differences. And it worked, according to
Dianna Games, head of the South Africa–Nigeria
Chamber of Commerce. “The yellow fever incident
was the catalyst for the resolution of a number of
other issues,” she said. “The relationship is at an all
time high at this stage.”
This seems an optimistic take on events which
produced little substance except a South African
commitment to import oil from Nigera after it faced
United States sanctions for importing oil from Iran.
The relationship between the two countries is not
really the issue here. What is at stake is much
grander: the chance to be Africa’s first major
superpower, and the ability to shape the continent’s
future. Once Nigeria’s GDP has been rebased, those
stakes become substantially higher—about 40%
higher, if those estimates prove correct.

Source?

scipher: Source?

gga.org/analysis/nigeria-statistics-and-the-race-to-continental-superpowerdom

Nice analysis.