Every economy evolves, shaped by changing consumption patterns, emerging industries, and shifting global dynamics. To accurately reflect these changes, countries periodically undertake a statistical exercise known as rebasing. This ensures that national accounts capture the current structure and performance of the economy rather than relying on outdated benchmarks.
For Nigeria, the National Bureau of Statistics (NBS) has just completed a significant rebasing of its GDP figures, moving the base year from 2010 to 2019; a crucial update aimed at providing more relevant, timely, and accurate economic data.
Despite its importance, rebasing is often misunderstood by the general public. Many assume it automatically means economic growth or an improvement in living standards, which isn’t always the case.
To help clear up these misconceptions and provide clarity, we sat with an expert in national accounting, Mr Moses Waniko, to answer some questions that shed light on what rebasing truly mean, and why they matter for everyday Nigerians.
What is GDP and GDP growth, and why are these statistics important?
The Gross Domestic Product is the market value of all goods and services produced within a country in each period. It measures overall economic activity and signals the direction of economic growth. It is also a barometer to measure the health of the economy. It is an internationally recognized indicator for measuring the size of an economy in each period of time. The GDP growth rate is a measure of the rate of change that a nation’s gross domestic product (GDP) experiences from one period to another either annually or quarterly.
Is GDP growth synonymous with economic development?
No, GDP growth is not synonymous with economic development. Development encompasses broader measures of human progress beyond measuring output (GDP) growth, which mostly measures economic progress. In addition to measures of economic progress, development includes social and environmental measures that are not well captured by GDP.
What are the approaches for computing GDP?
There are three approaches to computing GDP, which are;
The Expenditure Approach: This approach captures spending by key economic agents in an economy. It is the sum of consumption expenditures by households, investments expenditures by firms, government expenditures, as well as the difference between exports and imports: GDP = C + I + G + (EX – IM).
The Income Approach: This approach measures the income earned by various factors of production. It is a sum of: compensation to workers, rental income, taxes on production and imports (less subsidies), interest, miscellaneous payments, and depreciation.
The Production or Value-Added Approach: Gross output (GO) less the purchase of intermediate inputs used to produce the final products.
Q4 What is GDP rebasing/re-benchmarking?
Rebasing/re-benchmarking of the national account series (GDP) is the process of replacing an old base year used to compile volume measures of GDP with a new and more recent base year or price structure. Economies are dynamic in nature. They grow, they shrink; they add new sectors, new products and new technologies, and consumer behaviour and tastes change over time.
Rebasing/Re-benchmarking is used to account for these changes, so as to give a more current snapshot of the economy, as well as improve the coverage of economic activities included in the GDP compilation framework. The base year provides the reference point to which future values of the GDP are compared. It is a normal statistical procedure undertaken by the national statistical offices of countries to ensure that national accounts statistics present the most accurate reflection of the economy as possible.
What are the key benefits of rebasing/re-benchmarking?
The key benefit of the rebasing exercise is that its results enable policy makers and analysts obtain a more accurate set of economic statistics that is a truer reflection of current realities for evidence-based decision-making. It also reveals a more accurate estimate of the size and structure of the economy by incorporating new economic activities that were not previously captured in the computational framework.
Rebasing will enable government to have a better understanding of the structure of the economy, an indication of sectoral growth drivers, sectors where policies and resources should be channeled in order to grow the economy, create jobs, improve infrastructure and reduce poverty.
How often should a country rebase?
The UN Statistical Commission (UNSC) recommends that countries rebase every five years. However, some countries do at intervals of less than five years.
Why is Nigeria rebasing the GDP at an interval more than recommended by the UNSC?
GDP rebasing is a resource intensive project. It requires major surveys that are highly capital intensive such as the Nigeria Living Standard Survey (NLSS), Agricultural Census and census/survey of establishments. The output of these surveys serves as input into the rebasing process. Sourcing the funds to conduct all of these surveys is always difficult hence the lag in rebasing interval.
What influenced the choice of the base year?
The last exercise was done in 2014. The UN Statistical Commission (UNSC) recommends that countries rebase their national accounts (GDP) estimates every five years. An “appropriate” base year is one for which data is readily available and which witnessed relative stability. Currently, Nigeria’s base year is 2010, but a new base year of 2019 has been selected for the rebasing exercise.
How long has it taken to complete this exercise?
The time from preparation to publishing of the result of the rebasing exercise took approximately five (5) years. The preparatory work for the rebasing exercise commenced in the last quarter of 2018. Since then, several activities have been undertaken some of which include field surveys for certain economic activities that were not adequately captured previously like the Research and Development (R&D), Trade and Transport Margin as well as Water Supply, Waste Management and Remediation. There was also validation with sector experts, and technical assistance from international development partners.
What methodology was used for this rebasing exercise?
The exercise was conducted in line with internationally-recognized methodology procedures and guides. The National Bureau of Statistics (NBS) started with an update of its survey frame, complemented by a listing exercise. Three major methodological pillars were used to compile the rebased GDP estimates: System of National Accounts (SNA 2008 version), International Standard Industrial Classification (ISIC Revision 4), and Central Product Classification (CPC version 2). Construction of Supply and Use Tables (SUT) for Nigeria Balance of Payment Version 6 Government Finance Statistics Manual 2014. These are the most up to date methodologies in National Accounting. Less than half of the countries in the world have been able to make these upgrades successfully. The SNA is the internationally agreed standard set of recommendations on how to compile measures of economic activity.