Nigeria becomes Africa’s largest economy after GDP revision

Nigeria becomes Africa’s largest economy after GDP revision

Nigeria has begun using a new base year for its GDP calculations and has added new sectors to the economy. The change in calculation has nearly doubled its GDP estimate for 2013.

At the beginning of April, Nigeria overtook South Africa as the largest economy on the continent, nearly doubling its GDP through a statistical revision. The revision showed that Nigeria’s GDP stood at $510 billion, or 89% higher than previously estimated. This makes it the 24th largest economy in the world, just behind developed European countries like Poland and Norway.

South Africa had previously used its position as the largest African economy to garner international attention in groups like the G20 and the so-called “BRICS” countries. Nigeria may find itself able to do the same but it will face increased scrutiny for its still-lagging infrastructure and human development.

Previously, Nigeria’s GDP estimates used 1990 as the base year to measure economic growth, weighing each sector to match its representation in the economy. However, this form of measurement was hopelessly outdated and failed to capture new activity. For example, Nigeria’s GDP numbers now include the large film industry (Nollywood) and the booming mobile telecom sector.

Equally important is the improvement of the economic sample’s quality. Nigerian statisticians rely on a sample of around 850,000 businesses for the new numbers, ten times what was previously used to estimate economic output.

Abuja still has a lot of work to do

Nigeria’s per capita GDP is still only half of South Africa’s, however, due to its large population of 170 million. Looking at this figure gives a sense of how Nigeria still lags behind in development despite its size.

Nigeria ranks 147th on the World Bank’s Ease of Doing Business ranking and performs similarly on the UN’s Human Development Index at 153rd. Infrastructure remains underdeveloped and Nigeria’s electrical grid struggles to provide power to the population. A little less than half of the population (48%) has access to electricity and electrical generation produces only 149 kilowatt hours per capita (compare this to 85% access and 4,604 KwH/person in South Africa).

However, the population has become much more urban with the potential for greater access to services if the government can provide them. Half of Nigeria’s 170 million people dwell in urban areas, a percentage that compares favorably to China.

Nigeria home to several dynamic sectors

The GDP revision highlights the growing economic importance of the Nigerian consumer and of service industries. Nollywood generates around $600 million per year and is the second largest industry in the country based on the number of employees.

In 1990, the telecom industry accounted for 1% of GDP and had only one provider. It has since grown dramatically, now accounting for 9% of GDP. Close to 120 million people have subscribed to mobile devices.

Other areas of the economy have begun modernizing as well. As the country becomes more urbanized, credit card use has begun to pick up. Traditionally a cash based economy, the number of connected card readers has grown to 158,000 from a mere 5,000 in 2012 (still, 98% of transactions are in cash). This could help empower consumers and promote new businesses – like Kenya’s wildly successful M-Pesa money transfer system.

The revision has broader, more international implications. With a higher GDP, Nigeria’s debt to GDP ratio fell from 22% to 11.6%. While the ratings agency, Fitch, kept Nigeria’s rating stable at BB-, it noted “the results are likely to be credit positive in the longer term as perceptions of Nigeria as an investment destination improve.”

Growth is projected to pick up over the next two years. At the spring meetings of the IMF and the World Bank, the IMF predicted that GDP growth would increase by 0.8% to 7.1% in 2014. Nigeria is poised to expand rapidly, a necessary condition to create opportunities for its large and growing population.

That being said, many risks still remain. An insurgency in the north of Nigeria has destabilized the country and led to violent attacks on civilians. Just last week, an attack near the capital, Abuja, killed over seventy people. The energy sector remains inefficient and corruption still plagues the nation. President Goodluck Jonathan recently fired the head of the Nigerian Central Bank for reporting that billions of oil revenue owed to the state had gone missing.

Despite these risks, Nigeria has a chance to assume its leadership role in Africa substantively and not just through statistical changes.

About Author

Ned Pagliarulo

Ned Pagliarulo works for a Japanese press company, reporting on economics and government statistics. Ned received a BA in History with a minor in Japanese from Georgetown University in 2012.