Economists are anxiously awaiting the release of Nigeria’s rebased GDP calculations, which were expected to be concluded by the National Bureau of Statistics (NBS) in the fourth quarter of 2012.
Most governments overhaul GDP calculations every few years, to reflect changes in output and consumption, such as telecoms, financial services and internet usage.
Nigeria has not done so since 1990 suggesting that the previous GDP framework underestimated economic activity.
Analysts expect the rebasing of national accounts will result in a sizeable increase in nominal GDP.
When Ghana’s GDP was rebased in 2010, the size of its economy was found to be 60 per cent bigger than previously recorded – $31billion, compared to $18 billion.
Charles Robertson, chief economist at Renaissance Capital, an emerging markets focused investment bank, reckons Nigeria’s nominal GDP will rise 40 percent from $270 billion to $370 billion. Other analysts forecast a 60 percent rise, when the NBS completes work in 2013.
“At this stage, the magnitude of the upward revision is still somewhat unclear,” said Samir Gadio, an emerging markets strategist at Standard Bank, London.
“If we assume that output is hypothetically adjusted by 40 percent in 2013, GDP could rise to about $425bn on our estimates.”
This is just shy of the $440bn 2013 GDP estimate projected for South Africa, according to Standard Bank estimates.
Gadio says because Nigeria is growing faster than South Africa, it is likely to become the largest economy on the continent by 2014-2015.
Analysts forecast Nigeria’s economy will expand by 6.48 percent in 2013, compared to sub 4 percent growth for South Africa.
The rebasing is also expected to boost Nigeria’s financial markets, as portfolio investors show greater interest, making the country too important a frontier market and investment destination to ignore.
However, with a market capitalisation of over $800 billion, the Johannesburg Stock Exchange (JSE), is 358 percent larger than the Nigerian Stock Exchange (NSE) at $54 billion.
As a percentage of GDP, the market capitalisation of listed companies in South Africa approaches 250 percent, while in Nigeria it is less than 30 percent.
“In Nigeria, many large companies are unlisted, from local champions like Glo, South Atlantic Petroleum, and NNPC, to multinationals with local subsidiaries like MTN, Airtel, Mobil, and Chevron. Until we have more of these companies listed, the Nigerian Stock Exchange (NSE) will not fulfill its potential,” said Kayode Akindele, Partner at 46 Parallels, an investment firm.
Even when Nigerian companies are listed, they tend to be much smaller than their South African counterparts, highlighting the development deficit in Nigeria, as well as an opportunity for growth.
Analysts say that South Africa will certainly remain the dominant entity in the Southern African region and, to a lesser extent, in parts of the COMESA zone, for some time to come.
Nigeria will however remain the most influential member of ECOWAS, as the country currently accounts for 18 percent of sub-Saharan Africa GDP.
Skeptics say Nigeria remains significantly underdeveloped in terms of basic infrastructure (electricity, roads, etc) and faces very high income inequality.
This negative perception will not dissipate just because of the revision in aggregate GDP, especially as output per capita in Nigeria will continue to trail that of South Africa over the next decades, they argue.
“The rebasing will probably mark a symbolic turnaround on the regional geo-political scene, but may not change much in terms of actual leadership in Sub-Sahara Africa,” said Gadio.
The effect of the expected rebasing on Nigeria’s macro – economic ratios would however be mixed.
A bigger GDP would mask the impact of a higher budget oil price on the budget deficit/GDP ratio. The 2013 budget oil price is based on a benchmark of $78 / barrel.
The upward adjustment to GDP will allow the government to achieve its medium-term objective of narrowing the federal budget deficit to 1.1percent of GDP in 2015.
Analysts say the risk is that a significantly smaller cosmetically enhanced budget deficit will encourage the government to push up spending, which would be inflationary.
A bigger GDP also implies an upward revision in per-capita income.
Nigeria’s current per-capita income is estimated at $1,600, which still trails that of many other economies on the African continent.
Nigeria’s GDP per capita is expected to increase from $1,600 to $2,600, if the country’s year-end 2012 GDP is revised upwards by 60 percent.
This compares with $8,700 per capita for South Africa, which is the IMF’s projection for 2012.
That said, the big increase in per-capita income is likely to attract interest in consumer names in Nigeria, from investors who are likely to extrapolate the effect of a seeming increase in purchasing power on such consumer stocks, as Nestle, Nigerian Breweries, Guinness, Flour Mills and PZ, amongst others.