Nigeria’s “Rebased” Economy: Meaning and Areas of Concern

Nigeria's revised GDP now $510 billion. Image:

Nigeria now proudly wears the crown of Africa’s largest economy; knocking South Africa off a perch it has always occupied. With its “rebased” gross domestic product (GDP), the country’s total economic output for 2013 ballooned by 89% to $510 billion; easily surpassing South Africa’s GDP of $380 billion, and making it the 26th largest economy in the world. Nigeria’s GDP before rebasing was about $270 billion. What are we to make of Nigeria’s newly rebased economy? From my observations, there are two serious areas of concern illuminated by the rebased GDP? First, let me explain what is meant by “rebasing”, why Nigeria has decided to rebase its GDP now, and what the positives and negatives are of the new GDP.

What is “Rebasing”?

Real GDP (i.e. inflation-adjusted GDP) is evaluated using the market prices of a reference/base year to mitigate the distorting effects of inflation. This is because by having a constant price during calculations, policymakers and analysts can more accurately tell whether increases in GDP are caused by increased productivity rather than merely increased inflation.

Rebasing is the process whereby the base year is changed to a more recent year due to structural changes in the economy. These changes typically result from new, or previously marginal, sectors becoming increasingly relevant; previously dominant sectors slipping into decline; technological innovation driving productivity; or new products changing consumption patterns. Given such processes a base year becomes less relevant over time, thereby necessitating a “rebasing” to capture a truer image of a nation’s economy. Rebasing is therefore the realignment of GDP calculations to a new base year so as to reflect, as much as possible, the true nature and size of a country’s national economy.

Why has Nigeria rebased its GDP now?

The UN’s Statistics Division recommends that rebasing be done every five years. Nigeria, however, last rebased its economy in 1990. This was 24 years ago. This meant that recent GDP estimates became increasingly unreflective of the true nature and size of the economy. Industries such as banking and finance, Nollywood (Nigeria’s movie industry), internet and mobile communications etc. which blossomed in the 2000s as the economy rebounded from the near collapse of the 90s were consistently under-weighted in GDP estimates. 

This explains the staggering 89% leap in GDP after rebasing was concluded. Data on a significant amount of economic activity, over an extended period of time, simply went uncollated by official statisticians. Though the rebasing process was completed in April this year, the national bureau of statistics (NBS) set the country’s updated base year to 2010. And in keeping with international guidelines of a 5-year lapse between base years, the NBS plans to rebase the economy again in 2015.

So what does Nigeria’s economy now look like?

The main surprise has been the surge in the service sector’s share of the economy. In 2013, under the old GDP calculations, services made up 29% of the economy. The new rebased GDP now shows that services actually made up close to 52% of the total economic output for that year - which shows just how unrepresentative previous GDP estimates had been. If we add the percentages for telecommunications and information services (8.69%), and the movie and music industries (1.42%), the percentage for the service sector climbs up to about 62%. One of the main takeaways therefore is that Nigeria is a services-sector based economy - as opposed to an agricultural or industrial economy.

Download the Statistician General’s presentation here.

Agriculture, industry, and the crude oil and natural gas sectors which made up 35%, 36%, and 32% respectively in the pre-rebased estimates for 2013, shrank to 22%, 26%, and 14%. Manufacturing however, like the service sector, saw a dramatic increase after rebasing from the very low 2%, to the still low 7% of GDP.


The most obvious positive is bragging rights. There is obviously something to be said about being the biggest economy in your region. Nigeria’s economic weight within the continent has become far more significant overnight. The combined GDP of Africa's 54 countries is about $2 trillion, this means Nigeria now accounts for about 25% of this total. A percentage that will certainly give added weight to the often heard, but so far hollow, boast: “Giant of Africa”.

One of the main positives of the increased GDP size is that Nigeria's debt-to-GDP ratio has fallen from an attractive 19% to the even more attractive 11%. This means after Saudi Arabia (3.7%), Russia (8.4%), and Iran (10.3), Nigeria currently has the lowest external debt burden in the world. In theory, it potentially gives the government more room to borrow money from from international lenders. The new size of the economy – just over half-a-trillion – could also in theory boost Nigeria’s visibility in terms of drawing in foreign direct investment into the country. I say in theory because international investors look for factors other than simply debt-to-GDP and economic size. Rule of law, ease of doing business, and quality infrastructure are just some of the other factors which make a country attractive for investment. Absence of these – as in the case of Nigeria – places a huge barrier to the inflow of foreign investment.

The biggest positive I took from the rebased figures is that Nigeria’s economy is more diversified – as the percentages in the section above shows – than I had previously assumed. The more diverse an economic is, the more resilient it becomes to external shocks (such as a drop in commodity prices etc.), the wider the economic space for private enterprise to flourish, and the greater the economic opportunities available. Another equally significant positive is the fact that the figures for the newly captured sectors confirm in official data what many already know: The ordinary Nigerian is irrepressibly entrepreneurial, resilient, and resourceful.

The growth of Nollywood is a quintessential example of this fact. Despite severe neglect of the industry by successive governments, and despite having to function in an extremely challenging environment where infrastructure is for the most part poor or non-existent, Nollywood has thrived and grown to about N9 trillion ($56 billion) in size – contributing just under 1.5% of the Nation’s GDP. Underscoring just how underappreciated Nollywood’s contribution to the national economy was, prior to rebasing, the industry was always grouped under “other services”. This is a category whose components barely account for about N5 billion ($31 million) in the national economy. As it now turns out, Nollywood was actually 1800 times larger than the entire “other services” category! 

Nollywood’s story in particular and the “silent” rise of the service sector in general illustrate both the latent potential of Nigeria’s huge population, and a potential tax-base that has gone untapped.


The new GDP figure of $510 billion, and the message of “largest economy in Africa”, has justifiably been met with considerable cynicism by Nigerians and by international observers. It is not difficult to see why.

Sharply rising poverty in the 2000s. A decade when the economy saw dramatic growth due to
high oil prices. A measure of the severe disconnect between economic growth and soci-economic
development. Source: 

Just 9% of Nigerians said they work full-time in a 2012 Gallup poll despite rising GDP and GDP per capita. A sizable percentage of Nigerians are either under-employed or work as "casual" laborers. A measure of the severe disconnect between macro-economic performance and micro-economic reality.

Even by Sub-Saharan African standards, Nigeria has one of the lowest payroll-to-population rates. The dominance of oil in the economy has led to the neglect of other sectors in the economy - which in turn has led to the extremely high levels of unemployment and under-employment.

Economic size may have inflated after rebasing, everything else however remains the same. Incomes are just as low, economic problems just as acute. A significant majority of the population still live on less than $1.25 a day – 67% or 112 million out of a population of 167 million according to the NBS’ most recent estimates. Despite Nigeria soaring to the dizzying heights of 26th largest economy in the world overnight, Nigerians still hug the bottom rungs of the table in human development index and GDP per capita – both of which are more useful indices for measuring the wealth, health and productivity of a society.

The country’s dilapidated infrastructure, weak governance institutions, pervasive insecurity, high unemployment, rampant corruption, and the widening chasm between economic growth and socio-economic development, only compounds the cynicism which has dented the feel-good factor of the new GDP. 

Areas of concern

That the new GDP showcases the latent potential of the national economy is true; but rebasing also sheds light on two serious areas of concern.

The first is just how ossified and impervious to changing circumstances Nigeria’s ruling elites are. The mismatch between the image of a diversifying economy portrayed by rebasing and the undiminished dominance of oil in funding the budget brings this obduracy into sharp relief. We now know that rather than hovering around a-third, oil and natural gas production actually makes up about 14%-15% of GDP. And its percentage of GDP has been shrinking since the mid-2000s. Despite this fact, Oil and natural gas still contributes over 80% of government revenues, and more than 90% of foreign exchange income. 

Because oil revenues cushions the extravagant consumption of the ruling class, it made it easy for them to neglect, and under-investment in, other more productive (and job creating) sectors of the economy. However, such extreme disconnect between policies of a feckless elite-class and the economic reality of a substantial majority of the population – as events in the Arab world remind us – only brings the hour of revolution closer. If Nigeria’s ruling class wish to lessen possibilities of political and social upheavals, they must as a matter of urgency reform state institutions – to make them more responsive to society’s needs.

Caricature of a Nigerian politician. Image: BusinessDay

The second area of concern is the depressingly low tax-to-GDP ratio. IMF and other economic experts suggest that a tax-to-GDP ratio below 15% is detrimental to development. While the UN suggests that for developing countries like Nigeria to meet their millennium development goals, they must have a consistent tax-to-GDP ratio of at least 20%. This is to ensure that governments have the revenues they need to implement programmes necessary for development – e.g. investments in education, healthcare, social services etc.

Prior to rebasing, Nigeria had a tax-to-GDP ratio of about 20%. Even this figure had always flattered to deceive as oil drew in most of the revenue. Of the 20%, non-oil revenue only made up about 6-7%. Unfortunately, even the thin layer of comfort of previously having a 20% tax-to-GDP ratio has been ripped clean off by the rebased GDP.

Because rebasing has nearly doubled Nigeria’s GDP, while government revenue – like pretty much everything else – remained the same, tax-to-GDP ratio correspondingly fell. Consequently, rather than 20%, the new figures now show that tax-to-GDP was actually around 11% for 2013; with 2010, 2011, and 2012 posting around 13%, 18%, and 14% respectively. And even more depressingly, of these low percentages the share of non-oil revenues was about 4% from 2010-2013! It now seems that, aside from the 20% UN suggestion for meeting the millennium development goal, even the 15% basic minimum for development has eluded us in recent years.

To give an example of the inadequacy of Nigeria’s revenues. The Greater London region in the UK has a population of just over 8 million. Its recently published budget for 2014/2015 budget estimates a total expenditure of just over £11 billion. Nigeria however, with a population of just under 170 million, has just passed a budget that’s just over £17 billion (N4.6 trillion).

Simply put: Government revenue as it currently stands is not enough to fulfil the state’s development needs! When the leakages caused by corruption and inefficiencies are taken into account, the inadequacy becomes even more glaring. It is no surprise that the Nigerian government perennially complains of “cash flow problems” (see here and here). It is also no surprise that despite enviable resource endowments, there are very few signs of development.

Oil dependency and the lack of a “development mentality” amongst policy elites have resulted in an utter failure to build and strengthen the sate's tax collecting capacity. As tax collection is one of the central functions of a state, the low tax-to-GDP ratio reveals the extent of Nigeria’s institutional decay. To transform Nigeria from a predatory to a developmental state, its institutional capacities must be strengthened.


The rebased economy, while reflecting a truer image of economic activity within the nation; is also a flash of light, illuminating areas that should be of serious concern for Nigeria’s policy makers – and for Nigerians in general. It also highlights the need for the urgent strengthening of Nigeria’s extremely weak governance institutions. The rebasing similarly casts a bright light on the depredations caused by a short-sighted and rapacious elite-class. Too busy feasting on the oil rent economy; they utterly failed to notice the “silent” rise of new sectors. And the energies these new sectors discharged, rather than being diverted to help drive Nigeria’s development, and lessen unemployment, were left instead to dissipate.

The message I see in Nigeria’s rebased GDP is not one of triumphalism, but a sober call for transforming Nigeria from a predatory state to an instrument of development. Should Nigeria’s ruling class fail to see this message, the clouds will continue to darken above them – until a cleansing thunderstorm clears away the tensions that have built up in the system. 

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