NIGERIA has overtaken South Africa as the biggest economy on the continent with the highly awaited release on Sunday of more accurate gross domestic product (GDP) data that show the West African country’s economy is about twice as large as previously thought.
According to the results of a rebasing exercise undertaken by Nigeria’s National Bureau of Statistics, the country’s nominal GDP last year at current prices was $509.9bn, Reuters reported on Sunday. This makes the Nigerian economy about 60% bigger than South Africa’s, with a nominal GDP of $322.6bn last year, based on Statistics SA figures and the rand-dollar exchange rate on December 31 last year.
The upward revisions were largely expected. They are the result of a technical adjustment process known as rebasing. This is a routine statistical exercise that most developed countries undertake every five years but was last done in Nigeria in 1990.
Since then, the structure of the Nigerian economy has been revolutionised by the rise of fast-growing firms in the oil and gas sector, finance, retail, telecommunications as well as the emergence of its film industry, Nollywood.
The data revisions shine a light on Africa’s biggest oil producer as one of the world’s up-and-coming investment destinations at a time when foreign direct investors are becoming increasingly downbeat about South Africa’s prospects.
"Perceptions of the two countries (South Africa and Nigeria) might be affected," says Capital Economics economist Shilan Shah. "A larger recorded Nigerian market means that investors may now look for opportunities in Nigeria potentially at the cost of other countries, including South Africa."
With a population of 169-million, Nigeria has been a growing destination for foreign investors partly because of its rapidly growing consumer market.
The revisions double Nigeria’s per capita GDP from about $1,555 in 2012, according to International Monetary Fund estimates, to about $3,020 now, boosting the attractiveness of its consumer-facing industries. But this still leaves South Africa far ahead in terms of individual consumer buying power with a per capita GDP of $6,089 last year, based on Stats SA estimates, given that Nigeria’s population is more than three times that of South Africa.
"It makes (us) look bigger," said Nigerian economist Bismarck Rewane. "But the Nigerian population is not better off. It doesn’t change the structure of the economy or mean investments are going to (do) better."
Further, the rebased data do nothing to change the pace of Nigeria’s growth because they affect the level of GDP, not the rate of real GDP growth. Even so, part of the reason why Nigeria has overtaken South Africa is because it has sustained high growth rates. Last year, Nigeria grew 6.4% while South Africa managed only 1,9%. The rebasing exercise reinforces South Africa’s position as the laggard on the continent.
Standard & Poor’s sub-Saharan Africa MD, Konrad Reuss, feels that "for South Africa, (Nigeria’s rebasing) should be a wake-up call to accelerate structural reform and strengthen the business climate". But Nigeria’s upward GDP revisions would do nothing to allay the concerns of direct investors about rising political risk, poor governance and weak institutions.
The rebasing did not alter S&P’s credit rating outlook on the economy, which was constrained at BBB-with a negative outlook for all the same reasons, Mr Reuss said. This was despite the revisions improving Nigeria’s key credit metrics, which might normally signal an improved sovereign credit rating.