Let’s go back in time, two years to be precise the Nigerian economy was rebased in April 2014 after a 24 year hiatus. The GDP was rebased from a 1990 base year to a 2010 one. This rebasing placed the value of the economy at USD 509.97 billion from USD 270 billion a whooping 90% increase.
This made it the largest economy in Africa toppling South Africa which had been for a longtime stood as the African Powerhouse. Furthermore, this very increase propelled it to capture 26th position globally.
So you may ask, why rebase? What’s GDP? Why the sudden growth in the economy yet the situation on the ground remains the same? All of these shall be answered in this very piece.
GDP is the Gross Domestic Product which can be defined in layman’s terms as the final value of all officially recognized final goods and services produced within a country over a given period of time usually a year. However, it can be assessed quarterly.
GDP is therefore computed in three ways. The Income approach, the Output approach as well as the Expenditure Approach.
The Income approach places emphasis on incomes generated from engaging factors of production namely labour, capital, entrepreneurship and land. Incomes generated from this engagement are wages, interest, profits and rent respectively. A summation of these rewards informs this approach
Expenditure Approach is the most commonly used approach the world over and it is computed as a summation of consumption, investments, government expenditure and net exports.
Finally, the output approach sums the value of the sales of goods in an economy and adjusting the purchase of the intermediate goods to produce the goods sold.
Nations need to rebase their economies every five years according to the United Nations Statistical Committee. This is in order to capture true picture of sectors that may have otherwise been ignored and have grown in leaps and bounds. It is important to note that there are certain countries in Africa who have not rebased their economies for slightly over three decades. Case in example, Democratic Republic of Congo and Equatorial Guinea are just but a few of those that have not.
The Nigerian rebasing was informed by certain sectors in the economy that had for a long time been overlooked or grossly under-reported . Furthermore, certain sectors contributed hugely to the GDP and these include : Entertainment (Nollywood which employs a staggering one million people) , Telecommunication which grew from 0.89%-8.69%, Services industry’s capacity expanded from 29.04%-51.59%, Manufacturing’s ground shifted from 1.9%-6.83%. This is as per the Nigerian Bureau of Statistics.
The statistics may have changed but the situation on the ground remains the same. This is because a growth in the GDP (economic growth) does not always translate into Economic Development. The latter is a function of the growth coupled with social welfare for instance affordable healthcare, quality education, reduction of unemployment, excellent sanitation among other qualitative aspects that contribute to the wellness of a populace.
So what ails the Nigerian economy or better yet African states? They are commodity driven economies and have a chronic lack of diversified ‘portfolios’. The Nigerian economy heavily relies on the oil industry and with the weakening of the global prices of crude it goes without saying that their economy would take a big hit. 70% of the Government’s income comes from crude and the global prices having taken a dip by more than a half from USD 112 a barrel a few years back to less than USD 50.
The dependency of oil coupled with the allure it generated of great wealth through government contracts, fed into other economic distortions. The country’s high propensity to import means roughly 80% of government expenditures is recycled into foreign exchange. Cheap consumer imports, resulting from a chronically overvalued local currency, with an extremely high domestic consumption due in part to erratic electricity and fuel supply, suppressed utilization of industrial capacity to less than 30%. Many more Nigerian factories would have closed except for relatively low labor costs (10%–15%). Domestic manufacturers, especially pharmaceuticals and textiles, have lost their ability to compete in traditional regional markets. However, there are signs that some manufacturers have begun to improve competitiveness.
The country then plunged into an all time high inflation the highest in 11 years of 17.1% as their GDP and economy at large shrunk by 2.06% and 0.36% respectively. To make matters worse production of oil in this large nation has taken a toll, a decline from 2.11 million barrels a day to 1.69 million barrels a situation contributed by militia at the Niger Delta the very source of crude. It is dangerous to have a commodity driven economy because it can be held ransom by a few people alias cartels.
It goes without question that African economies need to have a paradigm shift on structuring their economies. If the largest of its kind is already in recession what of the rest?
Essentially a component of GDP being trade i.e the net exports shows how African States are at a disadvantage because of exporting agricultural products in their raw form and fetch rather low foreign exchange as opposed to more had value been added. In other words, governments should aim at growing agro-processing plants that aim at adding value to exports. Such that we do not import what we already grow. An example is Kenya’s coffee which is grown locally and happens to be amongst the chief exports but the irony being so many international brands of the same product have a larger market share here. This shows then that there’s indeed a market for processed coffee within and without. Therefore , it is incumbent upon any government to ensure that the key exports especially agricultural produce have value addition. That’s how manufacturing sector gets to expand from the pre-existing traditional setup
The SMEs cannot go unmentioned. In the Kenyan case for instance, they constitute about 90% of the businesses, contribute 30% of jobs in the population and about 3% of the GDP. They also absorb up to 50% of new non-farm employment seekers as well as an employment growth rate of 12-14 % annually. If this sector can be streamlined and well incentives pumped their way, it’ll be able to tackle the issue of unemployment and also increase the tax revenue.
The creative industry is another industry that has yet to be fully exploited. It is arguably a dollar billion industry with a potential of engaging the youth and the old alike in gainful employment. Hollywood, Bollywood and our very own Nollywood are just but examples of successful tapping into diversification of an economy.
A lot needs to be done to achieve an economy that is diversified and like every journey, it begins with one step. The above are just but sectors that can be looked into when diversification of economies is put into perspective.
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