Nigeria's GDP Rebase Illustrates Challenge for Many Developing Countries

Date: 
2014

Last week, anyone paying attention to international news likely saw headlines very similar to this one from The Economist: “How Nigeria’s economy grew by 89% overnight.” While I assume the publication is just trying to amp up their page views with a provocative headline—after all, how can an economy nearly double overnight?—the rebasing process that took place in Nigeria is far less sensational. The actual text does a much better job of summarizing what really happened.

The reality is that people in Abuja are still more or less making and buying just as much stuff as they were before the April 6 rebase. What’s different is that the Nigerian Bureau of Statistics has gotten much, much better at measuring the economy in terms of the kinds of things that people make and sell (and the prices at which they sell them) in Nigeria today rather than what they made and sold twenty years ago.

So what does it mean to rebase a GDP or any macroeconomic variable for that matter? Since it’s impractical, if not impossible, to count and appraise every single good or service a country produces, statisticians still rely on estimates to calculate any of these figures. For example, calculation of GDP requires two things: an estimate of the volume of goods a country produces and prices for those goods. Rebasing means changing the base-year prices that are used to value final goods and services. Usually, in the case of periodic rebasing, it also includes an update to the weights given to different kinds of goods produced in an economy, which are used to determine the volume of the various goods considered in the measurement.

As with most national accounts data, there are several ways to go about determining a new set of base prices with which to assess GDP. There are four different ways a country can rebase their GDP. The chart below compares them.

 

Periodic Rebase

No linking

Full Time-series

Periodic Rebase

No Linking

Forward Series Only

Periodic Rebase

With Linking

Annual Rebase

With Chain Linking

Components additive?

Yes

Yes

No

No

Revision of past growth rates?

Yes

No

No

No

Historical Series Revised?

Yes

No

No

No

Weights representative of historical year?

No

Yes

Yes

Yes

Consistent time series?

Yes

No

Yes

Yes

Examples

 

Myanmar, Cambodia

Singapore

USA, China

Recommended

No

--

Yes-Second best

Yes

Note: Table compiled from presentation: “Rebasing and Linking of National Accounts Workshop on the Methodological Review of Benchmarking, Rebasing and Chain-Linking of Economic Indicators” given by Benson Sim (UN Statistics Division), 24-26 August 2011, Vientiane, Lao People’s Democratic Republic

 

The gold standard, used by the vast majority of developed countries, is an annually chained volume measure of GDP. This means that statisticians rebase the GDP annually, and these estimates are linked to one another using price indices, which are calculated for the past year, current year, or both.

What makes this such a challenging task in resource-constrained settings is that in order to complete a rebase, data need to be collected at the most detailed level possible. To complete their most recent rebasing, for instance, the Nigerians surveyed 850,000 businesses in order to compile the most detailed data possible on what exactly companies make and the prices at which they sell their goods and services.  

This will help minimize the impact of these revisions, which greatly affects how we as forecasters and practitioners understand a country’s development. GDP is a widely used measure of economic output, but it is least reliable as an indicator when it has not been recently updated or when a country has been through a period of significant economic change. This is less of a problem among countries who rebase annually, because changes in overall economic structure will be captured by the rebase, but in developing country contexts you have a double blow: infrequent re-measurement, and sometimes very significant structural changes which occur in the intervening years. In other words, GDP is least reliable in the context where researchers with an interest in development are most interested in it. In the case of Nigeria, and Africa more broadly, there are a large number of studies using old GDP data that may need reviews or revisions as a result, according to a post by the Center for Global Development.

The real challenge here is encouraging countries to move towards regular five-year rebases, or annual chaining where feasible. Aside from the financing requirements for rebasing, there may be incentives to delay rebases when countries begin to develop economically as concessional funding eligibility is frequently determined on the basis of per capita GDP. Some have speculated that this dynamic was at work in the Nigerian decision not to rebase in 2000. But it’s not just Nigeria that’s facing this obstacle. Burundi, Ghana, Zambia, and the DRC have all rebased in the last 5 years, and Kenya is due to in June.

Abuja National Mosque, Nigeria

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