Nigeria’s economy becomes Africa’s biggest after GDP rebasing

Nigeria’s statistician-general Yemi Kale said Nigeria’s GDP now stands at $510 billion, compared to $262.6 billion in 2012 under data compiled by the World Bank.

Kale said the rebasing, which was last carried out in 1990, was “just one of the things the country needs to get its statistics right”.

Nigeria’s National Bureau of Statistics (NBS) said in a revised report issued on 6 April that the rebasing of the economy was “overdue, necessary, credible and beneficial to the country”, adding: “Rebasing will give government tools to better tackle the challenges of growing the economy and fighting poverty.”

NBS said it expected the inflow of foreign direct investment (FDI) to “improve further to take advantage of the higher domestic spending power” while local investment is projected to increase. “FDI is dependent on the expectation of foreign investors on the risks of investing in an economy as well as the returns from such investment,” NBS said. “Therefore, if as a result of the rebased estimates investors perceive better opportunities for them to invest, then it is likely to result in a higher FDI into the Nigerian economy.”

In its report, NBS said: “The exercise will provide significant support for the growing pool of investors – especially foreigners and Nigerians in the diaspora seeking a more accurate view of local conditions. Investors looking for local fixed-income and equity markets investments would be encouraged by both lower aggregate indebtedness as well as the higher purchasing power.”

However, NBS warned that rebasing did not necessarily mean the country was “rich enough” and no longer qualified for concessional donor funds”. NBS added: “It is worthy to note that even before the rebasing exercise, the country was already in the process of transitioning from a low-income economy, covered under the World Bank’s International Development Association, to a lower-middle-income economy under the World Bank’s International Bank for Reconstruction and Development programme over the three years to 2016 even without rebasing.”

Ratings agency Fitch said in a report issued on 7 April that the large-scale GDP rebasing had “a mixed impact on key sovereign rating metrics, and therefore no automatic implications for Nigeria's BB-/Stable sovereign rating”.

However, Fitch said the move “could boost investor sentiment and that is likely to support the sovereign credit profile over the longer term”. FDI drops to less than 1% of GDP, “among the lowest in the region”, Fitch said.

According to Fitch, the rebasing affects some key rating metrics positively and some negatively. The agency said, on its calculations, per capita GDP in 2013 rose by 89% to $2,900 – but remained below both the 'BB' and 'B' category peer group medians of $4,528 and $3,841, respectively. “It is also below similarly rated oil exporters Gabon ($10,688) and Angola ($5,703).”

Fitch said per capita GDP ranking relative to other countries “is more important in our sovereign rating methodology than the absolute level”. Following the rebasing, Nigeria overtakes just three Fitch-rated sovereigns – Vietnam (B+), Philippines (BBB-) and Bolivia (BB-) – Fitch added.

Another “main positive impact” of rebasing is on public debt indicators, “which are already a rating strength and now look even stronger”, Fitch said. “2013 debt-to-GDP drops to 11.6% from 22% and the average deficit-to-GDP ratio is just 1.4% over the past three years (both calculated on a general government basis).” However, according to a 2013 Fitch estimate, Nigeria's low non-oil fiscal revenue “now looks even lower at just 3.8% of GDP”.

Fitch said: “2013 real GDP growth was higher than previously estimated, with the NBS revising its estimate up to 7.4% from 6.9%. However, a lower estimate for 2011 meant that real annual GDP growth was slightly lower for the 2011-2013 rebased period as a whole (6.4%, from 7%), though still well above rating peers. The new series therefore shows more variability in GDP growth despite the more diversified economy revealed in the new national accounts, with a larger services and manufacturing sector (52.3% and 6.8% of GDP, respectively) and a smaller agricultural (22%) and oil sector (14.4%).”

The results of the rebasing exercise “are likely to be credit positive in the longer term” as perceptions of Nigeria as an investment destination improve, Fitch added. “The rebasing also highlights the importance of data quality, which is taken into account in the rating process.”

African infrastructure investment expert Akshai Fofaria of Pinsent Masons, the law firm behind Out-Law.com, said: “An upwards rebasement of GDP is not an end in itself. The quality of power and transportation infrastructure and, of course, the alleviation of extreme income inequalities will be the true barometers of sustainable wealth. However, Nigeria is moving in the right direction, and these newer numbers will, one hopes, assist the central planners to diversify the economy away from extraction, as well as generating the excitement and profile required to entrench its position as a key African investment destination.”