Nigeria's GDP may rise 53% next year, making it Africa's largest economy, if new measures to estimate GDP growth are implemented, according to one analyst.
The Nigerian Bureau of Statistics (NBS) has begun the process of rebasing the country's national account estimates that would determine its GDP based on more updated figures.
"Presently, 1990 is being used as the base year. This exercise will see the present base year move from 1990 to 2010, in the process taking into account new sectors of the economy that have sprung up over the last [23] years," the bureau said. "This is a very important statistical exercise, which when completed will give a more realistic and true estimate of the value and size of economic activities in Nigeria."
The exercise will entail the collection of data across the manufacturing, building and construction, mining and quarry, transportation, hotels and restaurants, wholesale and retail and business services sectors of the economy among others, across the country's 36 populous states. The NBS is expected to reveal the new data in January.
Renaissance Capital expects the new estimate would catapult Nigeria to first place, knocking South Africa to become the region's largest economy.
"This means Nigeria at USD 405 billion in 2013 would be the largest economy in Africa, ahead of SA at around USD 370 billion," said Charles Robertson, chief economist at Renaissance Capital.
"We must emphasise that while per capita GDP would appear to rise from around USD 1,700 to USD 2,400, in fact the NBS is just doing a better job in measuring the output that is already happening. No one in Nigeria should suddenly find 53% more naira in their pocket.
Renaissance Capital says sectors that may show the biggest upward revision range from Nollywood (Nigerian film industry) to IT and telecoms, while agriculture will likely shrink from around 40% of GDP to 25-30% of GDP.
NUMBER ONE
If Nigeria overtakes South Africa, it would serve as a huge psychological advantage for the country. Nigerian authorities are already drumming up support and looking to leverage its exalted profile to attract more foreign investment.
Despite its share of challenges, Nigeria's economy is expected to grow at 6.8% this year and another 7.2% next year. The Central Bank of Nigeria has reigned in monetary policy, which has tamed inflation to under 10%.
The new rebased GDP figures may lead to lower growth rates, according to Renaissance Capital, but will improve Nigeria's debt ratios.
"The public debt ratio could fall from 18% of GDP in 2012 to 13% of GDP in 2013-14, and gross external public debt (using the dollar figure reported by the CBN 2012 annual report) could drop from 2.5% of GDP in 2012 to 1.8% in 2013," said Robertson. "The current account surplus would shrink from 8% of GDP, but still remain in healthy positive territory at 5% of GDP."
GROWING PAINS
Nigeria's oil sector remains problematic.
While the much-awaited Petroleum Industry Bill remains stuck in parliament, the sector is also vulnerable to theft and vandalism, which could lead to the loss of as much as 200,000 barrels per day of crude oil.
Indeed, the hydrocarbon sector contracted in the first half of the year as output slipped to 21.1 million barrels per day in the industry.
The burden of growth rests on the shoulder of the non-oil sector, which grew 7.6% in the first half of the year.
"However, key drivers such as telecommunications (which is still expanding rapidly at over 20% a year) are beginning to slow and cannot be relied on to keep growth above 6% a year in future," said the Institute of International Finance.
"Growth in agriculture (the largest sector, accounting for about 40% of real GDP) picked up in 2013H1, but this partly reflected recovery after disruptions to activity in 2012 due to floods and terrorism. Reforms, which are now underway, are needed to raise growth."
In addition, fiscal weaknesses remain, despite efforts by the federal government to control spending. This has prompted the Central Bank of Nigeria (CBN) to maintain a restrictive monetary policy, cognizant that electioneering next year may result in further fiscal slippage," according to the IIF.
TROUBLE AHEAD
Nigeria may well be Africa's largest economy next year, but it still has a number of challenges to contend with. Elections in 2015 will make 2014 a messier year, with government spending expected to soar to appease voters.
The Exchange Crude Account has already seen significant drawdowns to make up for reduced export receipts from oil.
"We could not get reassurance on the 2H14 and 1H15 outlook. It remains unclear who will be the next Central Bank of Nigeria governor," Robertson said. "Politics is getting messier. The 2014 budget is not passed; even if it was, problems with the 2013 budget performance show it should be treated with caution."
In addition, growth has not been inclusive. President Jonathan Goodluck recently announced plans to develop the North-East to spread the wealth, but more needs to be done.
"To promote inclusive growth and mitigate the impact of vulnerabilities, ongoing structural and institutional reforms should be pursued resolutely," said the International Monetary Fund in a December 4 report on the country.
The government needs to pursue reforms, apart from privatization of power sector, initiatives to increase food security and viability of agriculture, and programs to improve human capital development.
"In addition, access to financial services for small-and medium-size enterprises, which have been key in many countries to enabling all to benefit from growth, could be improved," said the IMF. "Other initiatives to improve the business environment and investment promotion could support diversification across sectors, but should be underpinned mainly by improvements in productivity and competitiveness."
Nigeria will no doubt gain a huge momentum if it emerges as Africa's largest economy in the New Year. And it would probably be the most opportune time to push through reforms to make this nation of 180 million not only the largest economy in Africa, but also its most dynamic.
© alifarabia.com 2013
