The World Bank has said the emergence of Nigeria as the 26th largest economy in the world as well as Africa’s biggest economy, following the rebasing of the nation’s nominal gross domestic product (GDP) may not necessarily trigger financial inflows unless there are good policies and prospects to woo foreign investors.
According to it, the concept of being a bigger economy may actually be meaningless if there are no marked improvements in per capita income and living standard of individuals.
The federal government on Sunday announced the rebased figure of Nigeriaâ€™s nominal GDP, which saw estimates for 2013 hitting $509.9 billion from $285. 56 billion.
Following the rebasing exercise, Nigeria emerged Africaâ€™s biggest economy and the 26th largest economy in the world.
Nigeriaâ€™s rebased figure, which was released by the National Bureau of Statistics (NBS), put the value of the nominal GDP in 2012 at N71.1 trillion (about $453.9 billion) as well as a projected figure of about N80.2 trillion (about $509.9 billion) in 2013.
However, the Breton Woods institution, which reacted to Sunday’s rebasing of Nigeria’s GDP that made its economy to leapfrog that of South Africa to emerge the continent’s largest economy, also projected the African economy to grow at 5.2 per cent in 2014.
Also, it revealed that overseas remittances to the continent grew by 6.2 per cent to $32 billion in 2013 from $30 billion in 2011.
But a global rating agency, Fitch Ratings, identified a possible gain for Nigeria following the rebasing of its GDP, saying the figure announced could support the countryâ€™s sovereign credit profile in the long term.
Speaking to journalists yesterday via videoconferencing from Washington DC on the occasion of the launch of new Africaâ€™s Pulse, a bi-annual analysis of issues shaping Africaâ€™s economic prospects, World Bank Chief Economist, Africa Region, Mr. Francisco Ferreira, said: “I think it’s great to have a sense of how large the economy is; it (Nigeria) is also the most populous country in the region.
“But going forward, what matters are living standards for everyone and the productivity that generates those living standards. I don’t think investors seeking foreign investment in London, New York, Beijing or Tokyo are looking at GDP statistics necessarily, they are looking at how profitable investments they can make in that country are.
“So if South Africa wants to worry about anything, they can worry about labour situation, strikes, persistence of inequality: those things make South Africa less attractive. The fact that Nigeria is the largest economy is not something I can worry about if I were South Africa.”
Also, Lead Economist, World Bank, Africa Region, Punam Chuhan-Pole, said Nigeria’s new economic status was unlikely to pose any investment challenge to South Africa whose economy has now been relegated to the second position.
“In the global economy, the pool of FDI is very large and capital flows are in the trillions; so the issue of because Nigeria’s economy is larger so South Africa is going to get less in terms of financial flows should not really be a concern.
“It depends on the merit of the country itself and the policies and prospects and how investors are viewing all that,” she added.
On its projections on the Africa’s economy, the World Bank in its report said economic growth in sub-Saharan Africa (SSA) continued to rise from 4.7 per cent in 2013 to a 5.2 per cent in 2014.
It explained that the performance would be boosted by rising investment in natural resources and infrastructure and strong household spending.
It added that growth was notably buoyant in resource-rich countries, including Sierra Leone and the Democratic Republic of Congo and remained steady in Cote dâ€™Ivoire, while rebounding in Mali, supported by improved political stability and security.
World Bank Groupâ€™s Vice-President for Africa, Makhtar Diop, who also spoke on the future growth of the African economy, said: “High quality university programmes in Africa, particularly in areas such as the applied sciences, technology, and engineering could dramatically increase the regionâ€™s competitiveness, productivity and growth. Strategic reforms are needed to expand young peopleâ€™s access to science-based education at both the country and the regional level, and to ensure that they graduate with cutting-edge knowledge that is relevant and meets the needs of private sector employers.â€
Among other things, the new Africa’s Pulse held that capital flows to sub-Saharan Africa has continued to rise, reaching an estimated 5.3 per cent of regional GDP in 2013, significantly above the developing countries’ average of 3.9 per cent.
Net foreign direct investment (FDI) inflows to the region grew by 16 per cent to a near-record $43 billion in 2013, boosted by new oil and gas discoveries in many countries, including Angola, Mozambique and Tanzania.
It said with lower international food and fuel prices and prudent monetary policy, inflation slowed in the region, growing at an annual rate of 6.3 per cent in 2013, compared with 10.7 per cent a year ago.
Some countries such as Ghana and Malawi had seen an uptick in inflation because of depreciating currencies while remittances to the region grew by 6.2 per cent to $32 billion in 2013, exceeding the record of $30 billion reached in 2011.
“Tourism also grew notably in 2013, helping to support the balance of payments of many countries in the region. According to the UN World Tourism Organisation, international tourist arrivals in sub-Saharan Africa grew by 5.2 per cent in 2013, reaching a record 36 million, up from 34 million in 2012, contributing to government revenue, private incomes and jobs,” it added.
In its own reaction to the rebasing of Nigeria’s nominal GDP, Fitch Ratings said the revised figure announced on Sunday might support the countryâ€™s sovereign credit profile in the long term.
It also noted that the development might boost investors’ sentiment about the country, adding that it could help in the long term to improve perception of Nigeria as an investment destination.
The rating agency, in a statement yesterday, however pointed out that the major GDP rebasing has a mixed impact on key sovereign rating metrics.
The agency stated that per capita GDP ranking relative to other countries is more important in its sovereign rating methodology than the absolute GDP.
It also added that the exercise did not have any automatic implication for Nigeria’s BB-/Stable sovereign rating.
The GDP uplift affects some key rating metrics positively and some negatively, Fitch said.
Fitch added: â€œThe 2013 per capita GDP rises by 89 per cent to $2,900 on Fitch’s calculations. But it remains below both the ‘BB’ and ‘B’ category peer group medians of $4,528 and $3,841, respectively. It is also below similarly rated oil exporters Gabon ($10,688) and Angola ($5,703).
â€œPer capita GDP ranking relative to other countries is more important in our sovereign rating methodology than the absolute level. Nigeria overtakes just three Fitch-rated sovereigns – Vietnam (B+), Philippines (BBB-) and Bolivia (BB-) – following the uplift.â€
Fitch stated that the other main positive impact would be on public debt indicators, which it stated were already a rating strength and now look even stronger.
According to the agencyâ€™s 2013 estimates, Nigeria’s low non-oil fiscal revenue looked lower at just 3.8 per cent of GDP.
Furthermore, it stated that the GDP uplift puts some other key metrics in a poorer light.
â€œThe 2013 current account surplus shrinks to 4.1 per cent of GDP (and is likely to be overstated given the large errors and omissions in the balance of payments).
â€œForeign direct investment drops to less than one per cent of GDP, among the lowest in the region. Broad money – a proxy for financial market development and banking sector penetration – also declines, from one-third of GDP to less than one-fifth of GDP.
â€œA number of other developmental indicators included in the UN’s Human Development Index – such as education and health outcomes – are unchanged, as are relatively weak -World Bank governance and business environment indicators,â€ it added.
Meanwhile, the Executive Vice-Chairman (EVC), Nigerian Communications Commission (NCC), Mr. Eugene Juwah, has expressed optimism that the Information and Communication Technology (ICT) sector will contribute about 15 per cent to the countryâ€™s GDP by 2015. This forecasted contribution represents about 95 per cent jump from its 8.53 per cent performance in 2013.
Sectoral contribution to GDP shows that the ICT contributed 8.69 per cent to the country’s rebased GDP in 2013.
The NCC boss, in the latest edition of NCC’s official publication, The Communicator, a copy of which THISDAY obtained yesterday, attributed the major successes in the industry to the codes and provisions of the Nigerian Communications Act 2003.
He hinted that the country would continue to attract foreign direct investment because of the conducive and attractive framework on the ground.
He however lamented the dearth of infrastructure in the sector, which he said had affected projections and growth when placed side by side the countryâ€™s huge population growth, resulting in only six per cent data penetration.