In 2014, the National Bureau of
Statistics (NBS) announced the rebasing of Nigeria’s 2013 GDP figures from N43
trillion ($270 billion) to about N81trillion ($510 billion). Subsequently, Nigeria
(previously the third largest economy in Africa behind South Africa and Egypt) was
heralded as the largest economy in Africa. This is very reminiscent of its “Giant
of Africa” tag in the 70s and 80s. The
rebasing exercise has raised a lot of questions about its meaning and
relevance. Critiques complain that it is of no real value since much of the touted
growth is non-inclusive: There is rising inequality with much of the country’s wealth
residing in the hands of a very privileged few while the masses wallow in
abject poverty.
Though the points raised above
are valid, I would like to put the “largest economy” tag into perspective by
looking at government budget (revenues and expenditures). But before we take a deep
dive, I would first like to state that size does not necessarily imply quality.
That Nigeria is the largest economy in Africa does not imply it is the most
advanced, modernized, or developed. A Rising GDP is just a necessary but not a
sufficient condition for economic development.
Before touching on government
budget, let’s take a quick look at GDP per capita.
Per capita income is a measure of average income per person in
a country. It is the GDP divided by the total population and measures how
prosperous a country feels to each of its citizens. GDP in turn is the market
value of all “officially” recognized final goods and services produced within a
country in a given period (NBS).
Source: AnswersAfrica. Top 10 African Countries with the Biggest Economy
Looking at the table above, out of
the ten largest economies in Africa by GDP; Nigeria comes 7th in
terms of per capita GDP. Despite being the largest economy in Africa, the standard
of living in Nigeria remains relatively low. Viewed the other way round, it
simply implies that given Nigeria’s population size its GDP should be way above
its current rebased value of $569 billion.
Source: CIA, The World FactBook
A country’s national budget is very important as it is the expression of public policy determining the allocation of resources and consequently economic growth and expansion. Governments are governed mainly by their budgets, which are written estimates of anticipated revenue and expenditures during a specific period of time. Nigeria ranks
a miserly 6th out of the top ten African economies in terms of budget. The
revenue accruing to the federal government of Nigeria in 2014 is a meager $23
billion while South Africa earns about $87.1 billion. Hence South Africa’s
revenue is four times that of Nigeria even though Nigeria’s economy is about
twice that of South Africa. Likewise South Africa’s expenditure ($102 billion) is
three times that of Nigeria ($34.62). South Africa earns and spends more than
Nigeria and this in part explains why its economy is far more developed. Excluding Nigeria and the bottom three countries (Sudan, Ethiopia, Tanzania), the other countries' budgetary expenditure as a percentage of their GDP averages 36%. Nigeria budgetary expenditure is merely 6% of its GDP. If Nigeria is to spend 36% of its GDP, its budget will be about $200 billion.
Based on its GDP, Nigeria should
be earning more revenues than South Africa and it can earn more if it
strengthens its tax systems and continues to diversify the economy. The World
Bank currently classifies Nigeria as a lower-middle-income economy (countries
with GNI per capita between $1,046 to $4,125)
with robust growth averaging 7% for the past decade. However, it is currently threatened
by exchange-rate volatility and falling global oil prices that impact
public-sector revenues. Lower revenues due to the over-dependence on oil (oil accounts
for 75% of the country's revenues) means ever dwindling government expenditure
on much needed infrastructure required to develop the country.
This brings me home to my
question, “Given that Nigeria needs to develop and modernize, must its spending
on infrastructural depend solely on what government generates in revenues? The
answer is “NO.” The Africa Infrastructure Country
Diagnostic (AICD) Report for 2011 estimates that Nigeria requires sustained
spending of $14.2 billion per annum over the next decade in order to address
the infrastructure challenge. Furthermore, it is estimated that
Nigeria needs N10.63 trillion ($67 billion) for road upgrades, bridge repairs,
the energy sector, hospitals and schools. Clearly, Nigeria must borrow to be
able to build new infrastructure. As early mentioned, Nigeria should be spending close to $200 billion and if the country is serious about developing, it
has to borrow to cover the current revenue shortfall. However,
budgetary discipline and a change in fiscal policy are needed to ensure money
borrowed is judiciously employed. Nigeria’s budget should ideally be clocking the
neighbourhood of $200 billion is we are serious about advancing our economy.
Countries with growing vibrant
economies usually take on more debt to finance economic development. Governments
borrow to maximise their GDPs and grow their economies. Ironically, the
opposite is the case in Nigeria. Despite the fact that the economy has been
growing at 7% for over a decade, Nigeria has maintained extraordinarily low
debt levels of about 9.9% since 2005 (compared to an average of 60% in Eurozone
countries- IMF). Nigeria has a very poor road and rail network, only one
functional seaport, and a largely inadequate power supply system. With our
current budget levels, we will keep taking ten years to build a ten kilometer
road. It is best for Nigeria to follow the BRICS model where on the average,
debt to GDP ratio is 41.7%.
References
- FinIntell. http://www.myfinancialintelligence.com/banking-and-finance/real-output-and-aggregate-leverage-%E2%80%93optimal-levels-emerging-economies#sthash.LGzOAQpD.dpuf
- CIA World Fact Book
- AnswersAfrica. http://answersafrica.com/largest-economies-africa.html
