Looking beyond GDP rebasing in Nigeria
Gross Domestic Product (GDP) rebasing is just a statistical update; real progress comes from policies that drive sustainable and inclusive economic development, writes JOSEPH INOKOTONG
GROSS Domestic Product (GDP) is the total monetary value of all goods and services produced within a country's borders over a specific period (usually a year or a quarter). It is the most commonly used measure of a country's economic performance.
GDP is calculated using the expenditure approach, which includes: consumption – household spending on goods and services (e.g., food, rent, healthcare). Investment – Business spending on infrastructure, machinery, and housing. Government Spending – public sector expenditures on services like education, defence, and infrastructure, and Net Exports (Exports – Imports), which is the value of a country's exports minus its imports.
Types of GDP are nominal GDP, which measures the value of goods and services at current market prices, without adjusting for inflation; Real GDP adjusts for inflation, providing a more accurate reflection of economic growth, and Per Capita GDP, which is GDP, divided by the population, indicating the average economic output per person. GDP by Sector means breaking down GDP by industries such as agriculture, manufacturing, and services.
GDP is important in any nation's economy because it measures economic growth. Higher GDP indicates a growing economy, while a decline signals a slowdown or recession.
Also, it guides policy decisions of Governments as they use GDP data to plan budgets, set interest rates, and implement economic policies. A strong GDP attracts investment, and can increase investor confidence and foreign direct investment (FDI). Similarly, it compares economic performance. The GDP helps compare economic strength between countries or over time.
However, GDP has limitations; it does not account for income inequality, environmental impact or overall well-being. That is why other indicators like Human Development Index (HDI) and Genuine Progress Indicator (GPI) are sometimes used alongside GDP.
Adjunct to this is the overriding need for Gross Domestic Product (GDP) rebasing, which is the process of updating the base year used to calculate a country's GDP to better reflect the current economic structure. It involves revising the methods, data sources, and sectoral weights to ensure that GDP estimates accurately capture the economy's size and composition.
A number of reasons abound for rebasing the GDP of any country. One of them is that it reflects structural changes. Over time, new industries emerge, and some sectors become less significant. Rebasing ensures these changes are accounted for. It improves data accuracy by incorporating updated economic data, such as new surveys and better statistical methods. It enhances international comparability by aligning national statistics with global standards set by organizations like the International Monetary (IMF) and World Bank.
The effects of GDP rebasing can be noticed in the increased GDP size. Often, GDP figures rise after rebasing because previously unaccounted sectors (e.g., digital economy, informal sector) are included. Changes in economic indicators are also discerning after rebasing. Ratios like debt-to-GDP and tax-to-GDP may change, influencing policy decisions. Its impact on investment and credit ratings are always noticeable as a higher GDP may improve a country's attractiveness to investors and affect creditworthiness.
As a result of these and other factors, many countries rebase their GDP every five–10 years to keep their economic assessments up to date.
Interestingly, while GDP rebasing helps provide a more accurate picture of the economy, it does not automatically improve living standards or economic performance. It is, therefore, necessary that a country should focus on the certain priorities beyond GDP rebasing.
Aside rebasing its GDP, a country should pay more attention to economic diversification by reducing dependence on a single industry (e.g., oil, agriculture) but move into developing manufacturing, technology, and services sectors.
Economic diversification in a country is the key to sustainable growth. It is the process of expanding a country's economic activities across different sectors to reduce dependence on a single industry or resource. It helps improve resilience to economic shocks, create jobs, and promote long-term stability.
Economic diversification is important because it reduces economic vulnerability. Countries that rely on one sector (e.g., oil, agriculture) face high risks from price fluctuations or external shocks. It boosts Job creation as a diversified economy provides employment opportunities in multiple industries, reducing unemployment and underemployment.
Also, it increases economic stability because a broad-based economy is more resilient during crises (e.g., commodity price drops, global recessions). It enhances competitiveness. Diversification fosters innovation, industrial growth, and global trade opportunities. In the same fashion, it improves revenue Generation. A diverse economy expands the tax base and reduces reliance on a few revenue sources.
Amidst the lofty goals of economic diversification is the overriding issue of how a country can achieve economic diversification. Experts say it can be achieved through strengthening the industrial and manufacturing sector by investing in value addition industries, e.g., processing agricultural products instead of exporting raw materials. Beyond this, a country should develop manufacturing hubs to produce goods locally and reduce import dependence, and promote export-driven industries like textiles, automotive, and technology products.
Expanding the Services sector is another way of economic diversification. A country should strive to develop its financial services, including banking and fintech, to boost investment. It should promote tourism and hospitality by improving infrastructure and marketing attractions, and support the creative industries, e.g., film, music, fashion, and digital content.
Supporting Small and Medium Enterprises (SMEs) is a bold step in economic diversification of a country. This can be achieved by providing affordable financing, training, and market access to SMEs.
Creation of business-friendly policies to encourage entrepreneurship is another method that can enhance economic diversification. For example, by promoting local industries through 'Made in Nigeria' campaigns could assist in the process.
Investing in technology and innovation via a robust support to digital transformation in businesses and government services will engender the diversification of the economy. This can come to fruition by encouraging research and development (R&D) in science, engineering, and artificial intelligence; also by building tech hubs and incubators to support startups and software development.
In Nigeria, Agriculture has the potential to create jobs, and promote sustainable growth therefore strengthening the Agricultural Sector should seriously be considered when tinkering with economic diversification. There should be a deliberate effort to move beyond subsistence farming by investing in mechanized agriculture; developing agro-processing industries to add value to raw farm produce, and encourage climate-smart agriculture to ensure long-term food security.
Concerted effort should be made to enhance trade and regional integration by joining regional trade agreements to expand export markets; improve logistics, ports, and transport systems to facilitate trade, and reduce trade barriers and improve ease of doing business.
Investment in human capital development is necessary to achieve real economic diversification. In this vein, there should be improvement in the education systems to match market needs; promotion of vocational and technical training for skill development by encouraging STEM (Science, Technology, Engineering, and Math) education for industrial growth.
Examples abound of countries that have successfully diversified their economies. For instance, the United Arab Emirates (UAE) reduced its dependence on oil by investing in tourism, real estate, finance, and technology. Malaysia transitioned from an agriculture-based economy to an industrial and services powerhouse, and South Korea moved from agriculture to high-tech manufacturing (Samsung, Hyundai) and services.
Economic diversification is a long-term strategy that requires strong policies, investment, and innovation to ensure sustainable growth and resilience against economic shocks.
Again, looking beyond GDP rebasing is important, and it entails supporting entrepreneurship and innovation to drive sustainable growth. For this to take place, infrastructure development must take place. Government and other stakeholders should invest in roads, energy, telecommunications, and transportation to support business growth and attract investment. They must improve digital infrastructure to boost e-commerce and the digital economy; revamp education and vocational training to create a skilled workforce as well as strengthen healthcare systems to improve productivity and life expectancy.
The government and partners must ensure inclusive economic growth by promoting policies that reduce income inequality and create job opportunities; support small and medium-sized enterprises (SMEs) with financing and training.
Strengthening governance and institutions should occupy the authority's attention, while striving to combat corruption and improve transparency to attract foreign and domestic investment. The legal and regulatory frameworks should be strengthened to support business operations.
Industrialisation and value addition must be in a country's development plans, it states how and when to move from exporting raw materials to producing finished goods. It should invest in agro-processing, manufacturing, and technology-driven industries.
Furthermore, priority should be given to sustainable development where a balance is struck between economic growth with environmental protection and climate resilience as well as promoting renewable energy and green initiatives to ensure long-term sustainability.
Uppermost in the scheme of things is the need to strengthening the financial systems by expanding financial inclusion to bring more people into the formal economy, and improve access to credit and capital markets to support businesses.
It is pertinent to state that GDP rebasing is just a statistical update; real progress comes from policies that drive sustainable and inclusive economic development.
Therefore, the government and all stakeholders must look beyond rebasing the GDP, and focus more on growing the economy for shared prosperity.
Copyright © 2022 Nigerian Tribune Provided by SyndiGate Media Inc. (Syndigate.info).
by Joseph Inokotong
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