"Nigeria becomes Africa's biggest economy," proclaimed the BBC in April 2014. By "rebasing" its gross domestic product (GDP), Nigeria was able to show that its economy is even bigger than South Africa's. Here's an example of Nigeria's transformation. Only 25 years ago, this news would have been broadcast on the BBC World Service via short wave radio. Then the word might have spread over the unreliable landline telephone network of the state monopoly Nigerian Telecommunications (NITEL). Today, the Nigerian Communications Commission reports that the country has an estimated 129 million active telephone subscribers (73 percent of the population) and over 50 million Nigerians have access to the Internet. Indeed, Nigeria's telecommunications industry now contributes 8.5 percent to the nation's "rebased" GDP.
What is Rebasing?
The United Nations defines rebasing as the "process of replacing present price structure [base year] to compile volume measures of GDP with a new or more recent base year." Basically, it's the updating of a country's national statistics. Before the 2014 rebasing, Nigeria's GDP numbers had not counted some increasingly important industries, such as information technology, music, online sales, airlines, and "Nollywood" films. Back in 1990, for example, the national airline was the only flag carrier, while today there are 19 Nigerian air services flying domestically and internationally. As for Nollywood, it is now the second largest producer of films in the world, and the third largest revenue-producing one. The new GDP numbers include these industries and demonstrate that the country is moving from a predominantly agricultural, oil-based economy to a more mixed one with a large services component.
- In 2013, oil was reported as 32 percent of GDP. The rebased figures put it at 14 percent.
- Agriculture now accounts for 22 percent of GDP compared to the almost 35 percent in the 2013 report.
- Services have vaulted to almost 52 percent of GDP compared to 2013's 29 percent, more accurately profiling the new economy.
Other African Countries Follow Suit
Kenya has also reported startling results from rebasing. On September 30, 2014, Reuters reported that its gross domestic product was estimated to be 25 percent bigger after the authorities rebased the country's GDP from base year 2001 to base year 2009, placing the East African nation on the list of the continent's top 10 economies. Kenya leads the world in mobile money payments through Safaricom's M-Pesa offering. Only launched in 2007, the service has grown to 17 million users. This and other services, plus large natural resource discoveries, are now included in the GDP calculations.
Next came Uganda. After rebasing, in November last year, it announced that the country's GDP has expanded by 13 percent. Uganda's rebasing exercise meant that debt levels fell as a proportion of GDP, a closely watched ratio, and this could give the government some leeway for more borrowing to help finance its plans to build new transport links and repair creaking infrastructure.
On December 19, it was Tanzania's turn to announce its GDP had expanded by 32 percent after the state rebased its calculation to incorporate new sectors in the economy, including big discoveries of natural gas. Humphrey Moshi, professor of economics at the University of Dar es Salaam, said the expansion would give investors more confidence in Tanzania. "The rebasing of the GDP will allow for comparability of economic data between Tanzania and its east African neighbors such as Kenya and Uganda, which have also recently rebased their economies," he told Reuters.
Tanzania saw $500 million in aid halted recently as the result of a corruption scandal. Nevertheless, the finance ministry says it is pressing ahead with a sovereign debt issue, reportedly for $1 billion, sometime later this year. First they need to resolve their credit rating. Their rationale for the bond issuance is based upon the discovery of large natural gas deposits.
Back in May 2014, Christine Lagarde, International Monetary Fund (IMF) managing director, told African finance ministers at a meeting in Maputo, Mozambique, that growth in the region had "clearly" taken off, allowing more than a dozen countries to tap the sovereign debt market for the first time in their history. See an interview she gave to Financial Times reporters here.
According to the FT report, however, Lagarde warned about the risk of "spoiling" the Africa rising narrative. "Governments should be attentive and they should be cautious about not overloading the countries with too much debt," she said.
Sovereign bond issuance from countries such as Gabon and Rwanda helped African countries to raise a record $11 billion in 2013, up from $6 billion a year earlier. In 2000, African states raised a paltry $1 billion from capital markets. "That is additional financing, but that is an additional vulnerability," Ms Lagarde said.
So much for Lagarde's caution. By January 2015 Tunisia had come to market with a $1 billion debt offering that was over-subscribed fourfold. The Financial Times (FT) reported last January:
"Tunisia's transition to democratic stability was underlined on Tuesday with the country's first unassisted sale of government debt since popular uprisings sparked revolution across the Arab world. International investors keen to capitalize on the country's recent presidential elections put in orders of more than $4bn for the $1bn bond, allowing the country to borrow at a lower than expected rate of 5.875 per cent over 10 years."
Africa rising indeed! While economies across Africa have certainly improved, time will tell if Lagarde was right to urge against a correspondent rise in debt.