How Nigeria’s economy grew by 89% overnight

Go Lean Commentary

Nigeria EconomyThese words jump off the page in reviewing the foregoing article:

Nigeria has a deserved reputation for corruption, so a skeptic might think the doubling of its economy a result of fiddling the numbers.

The publishers of the book Go Lean…Caribbean are among the skeptics.

The measurement of Gross Domestic Product (GDP) is a very important function for the governing authorities of any state. This point is strongly advocated in the Go Lean book, serving as a roadmap for the introduction and implementation of both the Caribbean Union Trade Federation (CU) and the independent, yet aligned Caribbean Central Bank (CCB). These institutions depend on (and will ensure) accurate GDP calculations.

What is so wrong with an 89% overnight GDP jump? Isn’t a jump in GDP indicative of successful economic policies for a country’s administration? Yes!

But 89% is beyond common sense and sensibilities! See the full news article, here:

ON SATURDAY, April 5th, South Africa was Africa’s largest economy. The IMF put its GDP at $354 billion last year, well ahead of its closest rival for the crown, Nigeria. By Sunday afternoon that had changed. Nigeria’s statistician-general announced that his country’s GDP for 2013 had been revised from 42.4 trillion naira to 80.2 trillion naira ($509 billion). The estimated income of the average Nigerian went from less than $1,500 a year to $2,688 in a trice. How can an economy grow by almost 90% overnight?

Nigeria has a deserved reputation for corruption, so a skeptic might think the doubling of its economy a result of fiddling the numbers. In fact it is the old numbers that are dodgy. An economy’s real growth rate is typically measured by reference to prices in a base year. In Nigeria the reference year for the old estimate of GDP was 1990. The IMF recommends that base years be updated at least every five years. Nigeria left it far too long; as a result, its old GDP figures were hopelessly inaccurate.

The new figures use 2010 as the base year. Why was the upgrade so big? To come up with an estimate of GDP, statisticians need to add together estimates of output from a sample of businesses in every part of the economy, from farming to service industries. The weight they give to each sector depends on its importance to the economy in the base year. A snapshot of Nigeria’s economy in 1990 gave little or no weight to fast-growing parts of the economy such as mobile telephony or the movie industry. At the time the state-owned telephone company had a few hundred thousand customers. Today the country has 120m mobile-phone subscriptions. On the old 1990 figures, the telecoms sector was less than 1% of GDP; it is now almost 9% of GDP. Motion pictures had not shown up at all in the old figures, but the industry’s size is now put at 1.4% of GDP. Nigeria’s number-crunchers have improved the gathering of statistics in other ways. The old GDP figures were based on an estimate of output. The new figures are cross-checked against separate surveys of spending and income. The sample on which the data are based has increased from around 85,000 establishments to 850,000. Only businesses with a fixed location are included: the traders who weave precariously between the traffic are not captured. Even so, many small businesses are now part of the GDP picture.

Of course, Nigerians are no richer than they were on Saturday night. The majority of the country’s 170m people live on less than a dollar a day. What the revised GDP figures show is that its economy is far more than just an oil enclave, exporting crude to pay for imported goods from richer countries. The oil industry’s share of GDP is now put at just 14%, compared with 33% according to the old figures. Manufacturing is much larger than previously thought. Services are booming. It is still a tough place in which to do business. But any company or investor who wants exposure to Africa’s fast-growing markets cannot afford to pass the continent’s largest economy by.
Source: The Economist Magazine – Retrieved 04/08/2014 from:

According to the foregoing article, the current GDP determination may be correct, while the previous GDP figures may be wrong. A better approach may have been to correct and methodically adjust the base year (1990) slowly over a period of some years.

Why is accurate GDP so important? The lessons from Greece (years: 2000-2010) are too vivid! GDP growth measures success in economic engines. From a Central Bank perspective, the measure of GDP contributes to the determination of the money supply (M0 and M1). Too much currency in circulation can result in devaluation. This fate has been the affliction for many Caribbean member-states. The book describes the dilemma of currency/economic mis-management and their impact on Caribbean society; this is one of the “push” factors contributing to human flight; (Anecdote 16 – Caribbean Currencies, Page 149). Assuaging further human flight/brain drain is a prime directive of the Go Lean roadmap for the CU. This point is pronounced in the opening Declaration of Interdependence – Page 13:

xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

The Go Lean roadmap calls for confederating all 30 member-states of the Caribbean, despite their language and legacy, into an integrated Single Market, with a unified currency, Caribbean Dollar (C$). The end result after 5 years, not overnight, would be the growth in GDP from $378 Billion (per 2010) to $800 Billion. This growth is based on new jobs, industrial output and lean operational efficiency, not fiddling with the accounting numbers.

The book posits that the adoption of electronic payment systems by the governing entities (e-Government – Page 168), and fostering Electronic Commerce (Page 198) will Mitigate Black Markets (Page 165), thus reducing the guesswork of statistical abstracts. Thus, the CU will be able to better Measure the Progress (Page 147) of the Go Lean roadmap, and make the required course correction; this is a path to indisputable success.

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