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Nigeria’s rebased nominal Gross Domestic Product (GDP) may have fallen short of meeting expectations in terms of adding value to the pocket, nevertheless it has among other things raised questions on the need for income redistribution in the economy, using the capital market as a veritable instrument, James Emejo writes
Nigeria finally emerged the 26th larger economy in the world and Africa’s biggest market going by the size of its nominal GDP but with income inequality still posing a major challenge.
By implication, the total monetary value of its GDP growth in 2013 was estimated at about N80.2 trillion (about $509.9 billion).
But since the new rebasing figures were announced, Nigerians, particularly the common man, had struggled to ascertain the immediate benefit of the positive economic indicators to their well-being with regards to job creation, poverty alleviation and economic empowerment.
Most observers were particularly bewildered that despite the accolades from the exercise, there were no statement to suggest any immediate improvement in living standards.
This was partly the reason why the apex capital market regulator, Securities and Exchange Commission (SEC), recently invited two experts – Statistician General of the Federation and Chief Executive, National Bureau of Statistics (NBS), Mr. Yemi Kale, as well as renowned analyst and Chief Executive, Financial Derivatives Company Limited, Mr. Bismarck Rewane, to the 2014 SEC Nigeria’s Learning Series themed: “The Rebased GDP and its Impact on the Nigerian Capital Market”, in an effort to bring the implications of the rebased outcome home to to the average Nigerian.
The gathering was also to explore the relevance of the stock market in the aftermath of the rebasing exercise.
However, in trying to explain the mismatch between the rebased figures and reality, the NBS boss had said it was rather erroneous to link GDP growth with job creation and poverty reduction.
According to him:”The growth in GDP is not synonymous with job creation. It is expected that as the economy grows, people’s income rise and their demand for goods and services increase. As a result, producers increase output and employ more people so that employment increases.
“However, though jobs are being created, the jobs may not be enough to reduce unemployment or poverty. This is the challenge of non-inclusive growth, which occurs when an economy that is greatly endowed with human labour (population) actually employs more capital-intensive production processes rather than labour.”
Kale said though developing countries are known to have higher and faster GDP growth rates than developed countries “The fact that a country has a higher nominal GDP than the other does not in itself suggest that one country is ‘more developed’ than the other, since development encompasses a broader set of measures of human progress than GDP, which is strictly a measure of economic output. However, GDP (or output) growth is necessary for development. When output rises, producers’ profits increase, government tax and revenue rise and, if deployed appropriately to building physical or social infrastructure, one can expect to witness tangible development progress.”
The NBS boss further argue that the issue of non-inclusiveness of growth is compounded by the new structure of the economy which showed that services sector which constitutes over 50 per cent of nominal GDP but provides the bulk of employment opportunities to foreign countries from which services were merely imported and consumed without a balance of output on the Nigerian side.
Moreover, he explained that the economic activities which significantly contributed to the GDP growth were often undertaken by a fewer sectors and companies, implying that contracts are awarded and executed by the same kinds of persons who influence GDP results and sometimes use capital-intensive method for production rather than labour- intensive mechanism.
The resultant impact of this is that only those who benefitted from government contracts get richer and the economy grows even when more Nigerian are out of job because technology and machine are used to production output.
Interestingly, it was further revealed that of all the companies that currently contribute significantly to GDP growth rate, none of them is listed on the Nigerian Stock Exchange, a development which hampers income distribution in the economy.
Yet, the rebased GDP estimates showed income inequality remained at an alarming rate in the country, fueling fears it could lead to a revolution as only the rich continue to get richer at the expense of an expanding and jobless population.
Notwithstanding, Director General, SEC, Ms Arunma Oteh, said the capital market has a critical role to play in wealth creation and distribution adding the rebased outcome had exposed the challenge of unequal distribution of income.
She said the rebasing has started an important national conversation about the significance of national output and how it affects the ordinary citizen.
Meanwhile, Rewane said it had become necessary to build and sustain investor-confidence adding that it had also become critical to develop a high productive population in order to improve living standards.
“It’s not all about population, it’s about productivity,” he said.
He said the higher the income inequality in a country, the higher the crime rate, lamenting that only few people are wealthy in the country.
He said, addressing income inequality is a major issue – income inequality is a product of lack of opportunity stressing that any country with high inequality is prone to anger, instability and backlash.
In proffering a solution to income inequality, Rewane said more should be done by SEC to win the confidence of local investors to list in the market in order to encourage foreign investors.
He said: “If there’s income inequality and the people that are rich have no confidence in that market, they don’t save there and they don’t invest in that market, it becomes counter- productive. So you must win the confidence of local investors. Everybody talk about foreign investors, foreigners would not come into the market if domestic investors are not happy with that market.”
For instance, he said: “If we can have the NLG to list, the democratic effect of Nigerians owning and having a revenue source would have a greater multiplier effect on consumption than the government itself losing the revenue because if the revenue comes to the government it goes to the consolidated revenue account.”
He added that one of the ways to address the issues of kidnapping and other social vices was to ensure income redistribution and provide appropriate safety nets for the people.
Rewane said there should be proper management in terms of ostentatious display of wealth in a country with high income inequality to reduce the chances of insurrection.
Meanwhile, Kale said: “It is difficult for growth to translate to meaningful development progress, whether in terms of physical infrastructure or progress with social indicators. Rebasing the GDP is an exercise which brings the comparison of current GDP estimates to the closest picture of reality as possible. By measuring better the level of economic activity, GDP rebasing provides a more accurate picture of the economy which is crucial to informing policy makers on the current economic trends. This helps in the formulation of more- informed policies to address poverty, unemployment and human development challenges.”