On April 6, the Federal Government through the National Bureau of Statistics, Abuja announced the rebasing or re-benchmarking of the nation’s Gross Domestic Product (GDP). DigitalSENSE Business News, hereby brought you some fundamental questions and answers on rebasing as explained by the Statistician General of the Federation, Dr. Yemi Kale, to the business community. Excerpts:
A. Introduction:
Statistics are a vital source of evidence as they provide us with clear objective numerical data on all aspects of our lives and the state of our economy. Without this, we cannot plan or make well informed decisions that will catalyse our social and economic development. The Rebasing / Re-benchmarking of Nigeria’s economy is overdue, necessary, credible and beneficial to the country.
Rebasing will give government tools to better tackle the challenges of growing the economy and fighting poverty. It is only when we are able to collate, understand and interpret data correctly as well as identify key areas in our economy that require change that our policy prescriptions and direction are more likely to respond to the real needs of the Nigerian economy.
B. Understanding GDP:
Q: What is GDP and GDP growth and why are these statistics important?
Answer: The Gross Domestic Product is the market value of all officially recognized final goods and services produced within a country in a given period. It measures overall economic activity and signals the direction of economic growth and welfare. 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 a given 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 year to another.
Q. Is GDP growth synonymous with economic development?
Answer: No, it is not. 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 which are not well captured by GDP.
The terms “Rebasing” and “Re-benchmarking” though technically distinct from one another, are simply referred to as “Rebasing” in this document for the convenience of the reader.
Q. How is the GDP computed?
Answer: There are three ways of computing GDP:
i. 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)
ii. 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.
iii. The Production or Value Added Approach: It is the value of sales of goods minus the purchase of intermediate inputs used to produce the final products.
C. Rationale for rebasing cum re-benchmarking the GDP Estates
Q What is GDP rebasing cum re-benchmarking?
Answer: Rebasing cum 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.
Q. Key benefits of rebasing/re-benchmarking
Answer: The key benefit of the rebasing exercise is that its results enables 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 which 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.
Q: How often should a country rebase?
Answer: The UN Statistical Commission (UNSC) recommends that countries rebase every 5 years, although some countries do at intervals of less than 5 years.
Q: Why hasn’t Nigeria done it before now?
Answer: With the abandonment of planning, and consequently the use of data for evidence based decision-making in the 1980s, the development of the national statistical system received less attention. With the return to democracy, strategic planning and evidence based policy and decision-making however, there has been an increase in the demand for accurate and reliable data. The Nigerian Statistical System has also evolved gradually with improving staff capacity, funding, increasing application of technology, and supporting legislation which has made it more feasible to undertake such a demanding exercise at this time, than it would have been some years back.
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