Nigeria has catapulted ahead of South Africa for the title of largest economy on the African continent. On April 6, Nigerian government officials announced that they had revised their 2013 GDP calculation to the tune of $510 billion. But in 2012 the World Bank estimated Nigeria’s GDP at $262 billion. So what can account for this rapid change? The answer lies in how the Nigerian government did the math.
The process is called “rebasing.” To calculate any country’s GDP, economists must first set a base year on which to model the economic growth. Then economists try to paint a picture of the economy in that year by studying different industries like agriculture, energy, and manufacturing. In the years to come, economists look at how these industries have grown. All GDP calculations, sometimes many years later, are based on this initial point of reference. However, this system of measurement does not account for the informal economy. Nor does it account for rapidly developing sectors such as telecommunications and film—industries that have sprung up in Nigeria over the last 20 years.
Nigeria’s model year was 1990. The new base year is 2010. As we will see, much has changed in the Nigerian economy since 1990. New industries have emerged and historically strong industries have fallen. Thus far, the World Bank has supported Nigeria’s recalculation. It is recommended that a country rebase its GDP numbers every five years. Since Nigeria has held off for so long, the change was quite drastic. Nigeria saw the highest gains in the service industry. The agriculture, oil, and gas industries decreased in terms of percentage of GDP. Telecommunications shot up from less than one per cent to 8.7% of GDP. The Nigerian film industry, known as Nollywood, makes up about 1.2% of GDP.
Sadly, despite these good numbers, the average Nigerian citizen will not see improvements in their quality of life. South Africa, who Nigeria unseated from the throne, has a GDP per capita of $7,336, a long way from Nigeria’s $3,000 (and that is with the new rebased numbers). There is still corruption, terrorism, power outages, and vast inequality in Nigeria. Many have criticized the new calculations, saying that nothing will ultimately change for poor Nigerians. What the new numbers can do, however, is open the door to more Foreign Direct Investment. As Africa’s largest economy, Nigeria has put itself in an advantageous position in the world marketplace by calling positive attention to themselves. As Forbes recently reported, the country is full of potential. They have a growing educated class, energy reserves, and a spirit of entrepreneurship. But as of today it seems that there remains many political and institutional barriers to overcome.