The latest review of the nation’s real Gross Domestic Product (GDP) growth rate a fortnight ago has given more credibility to the recent rebasing of the nation’s GDP in spite of the marginal fall in the rates, writes Festus Akanbi
Two weeks ago, Nigeria’s real Gross Domestic Product (GDP) growth rate was revised downwards to 5.49 per cent for 2013 from the projected 7.41 per cent earlier announced in the April rebasing exercise undertaken by the National Bureau of Statistics (NBS).
Real GDP, often referred to as “constant price”, is an inflation-adjusted value that reflects the value of all goods and services produced in a given year, expressed in base-year prices, and is always lower than the nominal GDP that has not been adjusted for inflation.
Lower Growth
The NBS, in its revised and final GDP rebasing results, also showed that the Nigeria’s real GDP output at constant price in 2013 stood at $407.85 billion (N63.218 trillion).
At the rebasing exercise conducted in April, the country’s nominal GDP output in 2013 was put at $510 billion (N79.050 trillion).
Interestingly, the latest effort did not remove Nigeria from its position as the 26th largest economy in the world as well as Africa’s largest economy.
South Africa, the continent’s second largest economy, had a nominal GDP of 350.7 billion in 2013, according to the World Bank.
Research analysts, who lauded the review, said the latest figures would pave the way for more realistic planning.
According to the submissions of economic analysts, the review which has yielded lower growth rates as against a more ambitious exercise in April, has lent credibility to the nation’s GDP.
A number of economic affairs commentators had expressed reservations over the figures churned out earlier in the year, a development which necessitated the review.
The criticisms were also acknowledged by the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo- Iweala.
She was quoted as saying at a public forum titled the Nigeria’s GDP Rebasing: Issues, Facts and Fiction, organised by Kukah Centre for Faith and Leadership, in Abuja few months ago that although criticisms had traced the rebasing of the GDP, the exercise was carried out with a view to determining the size of the economy, and also know the areas of loopholes in order to make the necessary amendment.
One of the critics of the exercise
was Mohammed Danbaba of Green Oasis Associates Ltd, a Zaria-based Financial Consulting firm. He had described the data as more of “imaginary figures”. “Going by the reality on the ground, even if some ‘imaginary figures’ placed Nigeria atop any country, Nigerians are not any better. The report by NBS shows that about 112 million Nigerians now live below the poverty level. If this is really our situation, then what is the good news?”, Danbaba had told a national daily.
Plausible Growth Figures
However, the latest exercise, which promises to win the confidence of both local and international investors, according to Standard Chartered’s Head of Africa Research and a well-known commentator on African markets, Razia Khan, has presented a more plausible set of GDP growth figures.
Khan said the new data show growth rates down significantly on what had been released previously – which is not a surprise, with growth in Nigeria trending around five per cent, rather than the seven per cent that had previously been assumed.
She said the immediate market impact of this data release is expected to be minimal, alleging that in the past, Nigerian GDP data was more guesswork than anything robust. “The availability of better, more granular data now, showing quarterly performance in each individual subsector, will more than offset any disappointment over ‘weaker’ growth rates,” she said.
However, the international financial advisory firm, Renaissance Capital said “Nigeria’s growth rates under the rebased GDP reveal that growth is two ppts lower. An analysis of the growth drivers shows that telecoms is a maturing and slower-growing sector. The growth sectors are manufacturing –particularly food, cement and textile producers –and real estate.
Telecoms Maturing
Rencap, in a publication titled, ‘Nigeria’s GDP: Bigger but Slower Manufacturing is the Growth Engine,’ noted that Nigeria’s real GDP growth strengthened to 5.5 per cent in 2013 (vs. 6.9 per cent under the old GDP series), from 4.2 per cent in 2012 (vs. 6.6 per cent).
“The downward growth revision, which we expected, is in part the result of better measurement of previously understated but fast-growing sectors, such as telecoms. “Under the new series, telecoms accounts for 9 per cent of GDP (vs. 5 per cent previously) and grew by 4.7 per cent in 2013 (vs. c. 25.0 per cent),” the report stated, adding that the rebased growth numbers confirm that telecoms’ rapid growth is in the past and the sector has matured. The decline of oil and gas partly explains the lower growth, particularly in 2013 when the sector contracted by a sizeable 13 per cent and shaved 1.5 ppt growth.
Manufacturing Growing Strongly
One of the highlights of the review was the higher performance figures assigned to the manufacturing sector. Rencap, which also noted this development said, manufacturing is a much bigger, faster-growing sector under the new series (9 per cent of GDP vs. 4 per cent previously).
The report stated that “In 2013, it (manufacturing) recorded substantial growth of 22 per cent (vs. 14 per cent in 2012), comprising one-third of total growth. Food, beverage and tobacco producers account for half of the manufacturing sector. The sub-sector’s growth accelerated to 12 per cent in 2013, vs. 7 per cent in 2012. We believe Nigeria’s large population of upwardly mobile consumers, particularly in the south-west, coupled with investments in power, implies the strong growth of manufacturers, including food producers and breweries, is sustainable.”
Boost in Construction Sector
Another important feature of the reviewed GDP is the fact that several of the smaller manufacturing sub-sectors are growing even faster than food producers. For instance, Rencap noted that cement, which only comprises one per cent of GDP, grew by a sizeable 39 per cent in 2013, up from a strong 14 per cent in 2012. This, the research firm believed, is consistent with a fast-growing construction sector (14.2 per cent in 2013, vs. 9.4 percent in 2012) and real estate sector (12.0 per cent vs. 5.6 per cent). It noted that Nigeria’s cement stocks give exposure to strong expansion in the building material itself, as well as the construction, real estate and infrastructure sectors.
Financial Sector not So Impressive
Another surprise from the review is the rise in the contribution of the trade and real estate sectors which outperformed agriculture and financial sectors, which used to be major drivers of the GDP.
Financial services’ share of GDP was unchanged at 3 per cent post-rebasing (vs. 4.5 per cent in Kenya).The sector’s growth contribution fell in 2013 because of high interest rates and tight liquidity. However, analysts from Rencap believed Nigeria’s low banking penetration and the likelihood of lower rates from 2H15 implied significant growth potential for banks.
Oil and Gas Sector
The oil and gas sector’s GDP share –11 per cent – is more or less the same as it was under the previous series. Because the sector has been contracting since 2012, its GDP share has dropped by 4 ppts under the rebased series, from 15 per cent in 2011. “Preliminary output data suggest that the rate of decline in the oil and gas sector has slowed in 1H14. Output was at 2.15 MB/d in June, according to a Bloomberg survey of OPEC producers. However, output remains volatile and there has been little in the way of reforms to suggest that there will be a material increase in output over the medium term. The passage of the long – delayed Petroleum Industry Bill (PIB), which we believe is not going to happen before the February 2015 elections, is seen by experts as a potential positive trigger for improved production,” the report stated.
What to Expect
Analysts foresee a moderate improvement in growth in 2014 to 5.7 per cent, partly due to a boost from higher election-related fiscal spending, including potential wage hikes for civil servants.
Rencap therefore believed that some sectors that are likely to gain from a loose fiscal policy include trade, financial service and telecoms, explaining that preliminary oil output numbers for first half of 2014 suggest a slowdown in the rate of the decline of the oil and gas sector, which is positive for growth. “We expect growth to moderate in 2015, particularly in first half of 2015 as the largesse that typically surrounds elections dissipates.
The Managing Director of Financial Derivatives Company, Mr. Bismarck Rewane, said it was not unusual for countries to revise their GDP figures to reflect the true growth rate and GDP output.
He said he had expressed concern when the NBS, last April, had projected a growth rate of 7.41 per cent as the country’s GDP growth rate for 2013, stating that it was not possible for the GDP growth rate to grow in tandem with an economy that is expanding in output.
“The larger the economy, the lower the rate of growth is what obtains worldwide. Even see what happened with the Chinese economy in the 1990s, it grew at 15 per cent, but has slowed down to 7 per cent as output grew,” he said.
“We expected that there will be a corresponding reduction in (Nigerian) growth … It’s much easier to grow when you are small than when you are big,” he was quoted by Reuters as stating also.
But Rewane added that the economy was still too heavily dependent on oil and vulnerable to price shocks.
“The Nigerian economy is narrower with oil as the dominant revenue earner. South Africa has a more balanced economy. The stage of development in Nigeria is still primordial, which makes our growth vulnerable,” he said. Thisday
