By Chinwendu Obienyi
From the perspective of experts, rebasing the Gross Domestic Product (GDP) and Consumer Price Index (CPI) offers a clearer economic picture, paving the way for smarter policies and increased foreign direct investments.
That perhaps explains why in 2024, the National Bureau of Statistics (NBS) decided to rebase the GDP and CPI, even though many Nigerians were unaware of the rationale behind the move or the profound impact it could have on the nation’s economy.
At a recent media sensitisation programme in Abuja, the Statistician-General of the Federation and Chief Executive Officer of the National Bureau of Statistics (NBS), Adeyemi Adeniran, emphasised that the decision to rebase the GDP and CPI was aimed at ensuring economic data accurately capture current realities and reflect the structural changes within the economy.
For context, rebasing is the process of adopting a new and more recent reference year to which future values of an economic variable is measured against. Rebasing affords an economy the opportunity to update weight and prices based on structural changes in the consumer and/or production patterns over time.
The United Nations Statistical Commission advises rebasing GDP every five years to ensure accuracy. Over time, the weight of components in a base year may no longer align with current realities, leading to distorted estimations. A period of normal economic activity is essential to establish a reliable base.
The last rebasing was done about six years ago in 2018/2019 and just last week the statistics office revealed that it will be using 2019 as its new base year instead of 2010. This means that constant prices previously based on 2010 will now be based on 2019.
According to the bureau, the selection of 2019 as the base year was guided by factors such as overall economic stability, the impact of the COVID-19, the availability of administrative data, and the completion of several significant surveys and data collection exercises.
Additionally, the new series has been expanded to capture digital economy, activities of pension fund administrators, National Health Insurance Scheme, Nigerian Social Insurance Trust, Activities of Modular Refineries, Domestic Households as Employers of Labour, Quarrying and Other Mining Activities and Illegal and Hidden Activities.
The new base year and expanded coverage was informed by data from two major censuses and follow-up surveys including the National Business Sample Census and National Establishment Survey 2021, National Agricultural Sample Census and National Agricultural Sample Survey 2022, Nigeria Living Standards Survey 2019&2023 and investigations into digital economic activities. The exercise was also shaped by supply and demand analysis of 46 industries and 217 products.
Based on ongoing efforts, crop production and trade are projected to remain the largest economic activities. However, real estate is anticipated to climb from 5th to 3rd, replacing crude petroleum and natural gas while telecommunications, construction and food, beverages and tobacco are expected to rank 4th, 6th and 7th, respectively.
For the Consumer Price Index (CPI), the NBS revised the base year for the price to 2014 from 2009, with 2023 adopted for weighting.
It is safe to state that the selection of 2024 as the base year was influenced by significant reforms introduced by President Bola Tinubu administration, including the removal of the Premium Motor Spirit (PMS) subsidy, the adoption of a unified exchange rate system and shifts in consumption patterns in the updated 2023 Nigeria Living Standards Survey. Also, the number of items captured in the basket increased to 960 from 740.
Experts’ views
Speaking on the development, rebasing a country’s GDP and CPI is a vital process that can significantly impact policy formulation, precision in economic planning, and the attraction of Foreign Direct Investments (FDIs).
Analysts at Afrinvest in their weekly market report said that there was a need to rebase considering the transition in the economy induced by demography, global trends and policy.
Lauding the efforts of the government at expanding surveys and studies to inform their revisions, Afrinvest noted that emphasis on the digital economy and mining sector should unlock growth levers provided that there is sufficient policy support to drive investment interest in the sectors.
According to Afrinvest, the new structure would be useful for designing more effective monetary and fiscal policies which could enhance the effectiveness of economic planning.
Recalling the last rebasing exercise in 2014, the report noted that the exercise boosted the Nigerian economy to $510 billion from $270 billion but added that FX quagmire and productivity challenges have since shrunk the economy to $363 billion based on N646.42/$1 average official exchange rate in 2023.
“Hence, while the expansive revision to GDP might enhance overall nominal GDP size – as a positive for the Tinubu-envisioned trillion dollar economy- policymakers must look beyond statistical effects to drive sustainable growth. Similarly, potential decline in Debt-to-GDP must not derail efforts to enhance fiscal discipline and sustainable debt growth.
On the CPI side, the improvement in services sector coverage (service index) and inclusion of the insurance and financial services sector (0.5% weight) should improve proximity of inflation reading to reality relative to the previous structure. Also, the increase in the number of items captured in the basket will provide legroom to capture activities relevant to consumers.
Thus, we note that the selection of 2024 and 2023 for price and weighting references respectively could have some limitations given the peculiarities of the period from an economic and political perspective- cash crunch, subsidy removal, significant exchange rate depreciation and other shocks due to early effects of reform policies e.t.c. While we expect more positive gains from the revisions, the underlying contexts and drivers for the economy would require sustained and quality economic reform based on coordinated fiscal and monetary efforts”, the report stated.
Founder, Nairametrics, Ugodre Obi-Chukwu, explaining how GDP rebasing could change everything during a podcast monitored by Daily Sun, said although the rebasing will lead to an increase in GDP value and an increased GDP value could imply a higher standard of living for Nigerians.
He noted that a rise in GDP per capita would suggest improved economic well-being but the limitation of the GDP per capita as regards portraying the standard of living is flawed because it does not take into the consideration the cost of living.
“I will not be surprised that when they are done rebasing, Nigeria which is currently $53 trillion in GDP might be more larger than that and so who knows if we could go back by being the largest in Africa but currently we are not. We can get more room for loans from international lenders but again the tax to GDP ratio may not favour us because when you resize your GDP base and it results in a larger economy, then the tax-to-GDP ratio could become much smaller which can drive the government to aggressively collect tax. But then again, as regards rebasing inflation, the numbers may be a bit lower or higher, this could influence CBN’s monetary policies and how they would combat inflation because they will have a better idea of what inflation numbers are”, Obi-Chukwu explained.
Conclusion
According to experts, GDP and CPI rebasing are not merely statistical exercises but essential tools for crafting informed policies, improving Nigeria’s global economic standing, and creating an environment conducive to foreign investments. By committing to these processes, Nigeria can enhance its economic precision and set a strong foundation for sustainable growth.