Nigeria: No. 1 in Africa by 2014?

Via The Financial Times, a report on Nigeria’s potential to become Africa’s largest economy by 2014.  As the article notes:

Nigeria is by far Africa’s most populous nation but in 2010 its GDP was less than two thirds that of South Africa, the continent’s richest country.

That, at least, is according to the IMF – but the figures don’t reveal the whole picture. This year, Nigeria will change the base year for its GDP to 2008 from 1990. This looks likely to revise the size of its economy dramatically upwards. Depending on the scale of the revision, Renaissance Capital says Nigeria could surpass South Africa as the continent’s largest economy as soon as 2014.

When Ghana’s GDP was rebased in 2010, the size of its economy was found to be 60 per cent bigger than previously recorded – $31bn, compared to $18bn. Nigeria is expected to rebase its GDP sometime this year, having missed an earlier January target because of nationwide fuel protests.

Rebasing involves changing the weighting of sectors of the economy to reflect changes in economic activity over the past three decades. The new figures would, for instance, put more weighting on the country’s telecommunications industry, which has grown strongly over the past 20 years.

Here are RenCap’s GDP forecasts for Nigeria, compared to South Africa:

Source: Renaissance Capital and IMF data

Of course, this doesn’t mean that Nigeria will be producing any more – just that its previous production estimates were too low.

But the implications of the revision are more than superficial. For one thing, Yvonne Mhango at RenCap notes that Nigeria’s consolidated tax revenues currently seem fairly strong, at about 25 per cent of GDP. But a bigger GDP would take the share down to 17-22 per cent – lower than the average for Sub-Saharan Africa, implying room for improvement.

She wrote:

This implies that pressure on the government to mobilise additional fiscal revenue, particularly beyond the oil and gas sector, is likely to increase following this revision. The government is also likely to be urged to grow its non-tax revenue.

Other macroeconomic ratios will be affected, too. On the positive side, Mhango predicts that Nigeria’s public debt to GDP ratio – already lower than in most countries in Sub-Saharan Africa – will fall to 10.5-14.5 per cent, from 17.3 per cent at the end of 2011.

What’s more, a jump in GDP would assist the government in its fiscal consolidation strategy – a pledge to bring the federal budget deficit down to 1.08 per cent of GDP in 2015, from a projected 2.96 per cent in 2011. Mhango notes:

A bigger GDP would mask the impact of a higher budget oil price on the budget deficit/GDP ratio. The Senate is proposing increasing the budget oil price to $75/barrel or $80/barrel, from $70/barrel. We think the upward adjustment to GDP will still allow the government to achieve its medium-term objective of narrowing the federal budget deficit to 1.1 per cent  of GDP in 2015.

On the other hand, the country’s current account surplus, which dropped from 12.5 per cent of GDP in 2009 to 2.2 per cent in 2010, will appear smaller than before the revision.

Then there’s inflation. RenCap expects inflation in Nigeria to accelerate to 12.7 per cent in 2012, partly because of the cut in the fuel subsidy in January. If a cosmetic reduction in the budget deficit encourages more government spending, there is the risk of further inflationary pressure, squeezing real incomes and and dampening demand.

At a time when unemployment has hit 23.9 per cent – up from 12.3 per cent five years ago – that can ill be afforded. Particularly because of the escalation in deadly religious violence Nigeria has suffered this year. RenCap points out:

Unemployment is highest among the young and is worse in the northern states. The regional disparity of unemployment closely mirrors the Islamic-Christian north-south divide. This probably explains why the Islamic north is a fertile recruiting ground for terrorist groups.

So even if, as expected, Nigeria overtakes South Africa as the continent’s largest economy, there is still work to be done. As a result of the revisions, GDP per capita would climb from around $1,600 to $1,900-2,600. An impressive jump – but then, South Africa’s 2012 figure is forecast at $8,700: more than three times as much.

This entry was posted on Wednesday, February 8th, 2012 at 8:27 am and is filed under Nigeria.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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