Nigeria: GDP Rebasing
Brilliant Citizen: Hello, my Economist. Happy new year! Hope you had a good break.
Economist: Hi there! Happy new year. Thanks, I tried to get sometime off but found myself doing other work…
Brilliant Citizen: Oh dear. You do look fresh and rested.
Economist: Thank you. I am glad to hear that!
Brilliant Citizen: Please this new year, we need to make it BIG! No more playing small, I need to make big and bold moves!
Economist: Haaa, calm down o. You need to take it easy so you don’t hit the rocks. Certainly, I want you taking some risks, but they need to be calculated!
Brilliant Citizen: Talking about calculations, I heard Nigeria is about to recalculate our Gross Domestic Product (GDP)? What is it about?
Economist: Good to see you are updated on economic matters.
Brilliant Citizen: Well, you have trained me quite well. So, I try my best.
Economist:
GDP Rebasing is the process of updating the base year used to calculate a country’s GDP to reflect more current economic realities. It involves revising the structure of the economy to include new sectors, data, or methods that better capture economic activities.
Brilliant Citizen: Ha, which one is base year again? Does it mean that our GDP will go down? Well, you know I have been telling you that this economy is not growing. You keep saying we are growing by X%…
Economist: (cuts in) You really need to calm down this year. Let me clarify the base year concept. GDP calculation requires a base year to minimize the effect of inflation in that year. Without using a base year, a country can be perceived as growing but it may simply be as a result of increase in prices not output. Remember production value is a result of price and output and GDP is the sum of the total production within a country.
Brilliant Citizen: Hmmm, I am trying to understand. Please break it down further.
Economist: Sure, if I needed to calculate the total production value in a factory by the end of the year. I would add the quantity of goods produced (Q) and multiple it bythe price (P): Sum (Q *P)
Let’s assume the price is the same for all products. So, let’s imagine we have a hypothetical organization — Brilliant Citizen Enterprise (BCE) producing cakes.
Brilliant Citizen: (cuts in) No, I don’t want to produce cakes, let me manufacture cars.
Economist: Lol, ok producing cars. BCE produced 100 cars in 2024 and the price is NGN10 million for each car.
Brilliant Citizen: Please let’s make it in USD.
Economist: Lol, it is a Nigerian company so needs to be in NGN. We will calculate total production value as 100 cars * 10 million = NGN1billion
Brilliant Citizen: This is not bad, even in NGN terms, I am doing well.
Economist: Ok. So, we agreed that your company total production value is NGN1 billion. However, in 2022, it was NGN1 billion.
Brilliant Citizen: Haa, that is not fair. How was it the same in 2022? The business needs to be growing, not stagnant!
Economist: Well, in 2022 BCE even made 200 cars, but the price was NGN5,000,000. Hence the total production value was NGN1 billion. Se e the comparison table below:
Brilliant Citizen: (Looking at the table) So you mean we even made more cars in 2022? This business is declining, what rubbish!
Economist: Calm down again. But I like that you understand it better. BCE showed the same total production value in 2 years because its price increased. The company’s number of cars produced reduced. So, except it was a strategic decision to reduce production and increase price, it is not growing.
Brilliant Citizen: Oh wow. Well, I know it was not a strategic decision. The car prices increased across the market. You know the spare parts are imported so the dollar rate increased the price.
Economist: Exactly, the point. Inflation was the driver of BCE’s growth.
Brilliant Citizen: So how do we negate this in calculating the total production value?
Economist: Good question, you use a base year! If your base year was 2022. It will tell you that the real total production value for 2024 (similar to GDP for a country) is 100*500,000 = NGN500 million instead of the NGN1billion
Brilliant Citizen: Oh wow! I see the importance of the base year!
Economist: Glad you got it! So, a country needs to ensure it has a base year that is close to reality; not impacted by inflation and accounts for all the sectors in the country. Now that we understand why a base year is essential, let’s connect it back to Nigeria’s GDP calculation.
Brilliant Citizen: Yes, back to Nigeria, what is our current base year for GDP calculation?
Economist: It has been 2010 until January 2025 when the National Bureau of Statistics is revising it to 2019.
Brilliant Citizen: This makes sense. 2010 is quite far. I think I was a teenager then lol. But why 2019, why not a more recent year?
Economist: The NBS team selected 2019 because it represents a stable economic period, remember COVID disrupted things and there have been high inflations globally in recent years.
Brilliant Citizen: That’s true. So, do you think the GDP will be double or triple or what?
Economist: Well, you must wait for the official publication. But historically, it is expected to increase significantly. Also expect to see some new sectors like digital economic activities (fintech, e-commerce) and other emerging sectors included in the computation. We expect the revised GDP by the end of the month, that is in few days.
Brilliant Citizen: Thank you for this enlightening conversation. I will definitely watch out for the revised GDP data and see how the economy has evolved.
Economist: You are welcome. See you around next time. Have an amazing and prosperous 2025 with God.
Special thanks to Wale Olusi and Abraham Afariogun for their contribution to this article.
