Nigeria's Rebasing Exercise: A Bird's Eye View.

Discovering missed output is easier in a storehouse than in an economy. While this is easily achieved on a micro-level, there are financial and technical commitments on a macro scale. Thus, surveys are relied upon to create reliable estimates, as an outright daily enumeration task will be impossible. The UN advocates for the rebasing of an economy every 5 years. More sophisticated economies like the United States and China can afford to carry out such exercises yearly, given improved statistical methods and chain-linked data. Meanwhile, developing economies are held back by large output swings and funding challenges, which could delay the choice of a stable base year and the execution of the exercise, respectively.

2014 was a major rebasing year for African countries as five nations rebased their GDP to reflect changes in economic realities. This improved their capacity to take more debt and attract investors as their economies were larger than previously perceived. Nigeria was not left out as the country’s base year was changed from 1990 to 2010. This saw the inclusion of relevant sectors –telecommunications and entertainment– and culminated to an overnight 90% jump in the GDP of the Nigerian economy, propelling it to its top spot in Africa.

According to news reports, the Federal Government in collaboration with the World Bank, has commenced the process to carry out another rebasing exercise. While this may come at a pleasant surprise, the economy is overdue for rebasing going by the UN’s proposition. We believe the pandemic made it impossible to select 2020 as the base year, given the disruptive impact of the pandemic on several sectors of the economy. We believe the selected 2018/2019 year would be most appropriate considering the oil price crash of 2014, initial recession in 2016 and eventual recovery in 2017. More so, the selection of a 2018/2019 base year would provide useful insights for comparison given the significant changes to key economic indicators (oil prices, exchange rate, inflation etc.) over the past decade. A key feature of the proposed review exercise is the provision of sectoral GDP performances at state levels, which will be useful for investors to assess the economic structure and fiscal position of sub-nationals.

With the base year in mind, it will be essential to assess the likely implications of such exercise on the contribution of these sectors to GDP and future growth implications. Beginning with agriculture, the proposed base year will bode well for the sector, considering the incidences of conflict that slowed down pace of growth within the 2018/2019 period. However, the growth potential in the sector could be limited by the reopening of the borders unless shielded under the AfCFTA agreement. Meanwhile, sustained intervention by the fiscal and monetary authorities could keep the sector afloat.

Elsewhere, we expect broad expansion in the information and communication sector, considering innovation in the tech space as well as increased adoption of digital services across sectors. On the flip side, we could see re-allocation of these value chains to their host sectors, for instance, innovations in the fintech space could be accorded to the Financial services sector.

In addition, we expect the industrial sector to lose some steam considering currency adjustments and reopening of the borders, which reflects a fall in the purchasing power of the Naira and increased competition. Meanwhile, the automobile and agro-allied sub-sectors may witness expansion in size. However, the suspension of import duty on vehicles and the AfCFTA could stall the growth potentials in these sectors.

Post-rebasing, a well-captured digital sector could further swell the contribution of services to Nigeria’s GDP. While the rebasing exercise would improve our understanding of Nigeria’s economic milieu, structural reforms will be crucial in attracting the much-awaited foreign direct investments, expanding the economy organically and achieving inclusive growth.