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The limits of GDP

29 May 2012, 08:20

 Lagos - "There's more to life than GDP (gross domestic product)," is a favourite refrain of left-leaning social commentators and environmental activists.

But when it comes to geopolitics, there are few better ways of establishing dominance than by seeing whose is number one.

Nigeria plans to rebase its GDP calculations later this year, a move which insiders say will push the size of its economy up by 40%, bringing it close to South Africa's.

The potential turnaround will add fuel to a longstanding contest between the two nations to be Africa's undisputed leader, and eventually its voice at the United Nations, which periodically ignites rows between them.

By the end of this year, at least assuming oil prices don't collapse, Nigeria and South Africa should be approaching par in dollar terms: $370bn and $390bn, respectively.

With Nigeria growing at 7% a year and South Africa at less than half that, Nigeria could be ahead in just a few years.

Nigerians are hoping this will translate into more prestige on the world stage - as happened on a grander scale to China, when its GDP started dwarfing those of established world powers.

It will certainly wake investors up to the opportunities in Africa's most populous country and biggest energy producer.

"The country becomes unavoidably on the radar for anyone looking at Africa opportunities," said Fola Fagbule, Africa Finance Corporation vice-president for origination and coverage.

Nigeria has work to do if it wants to leverage this new profile. In international eyes the nation remains a byword for corruption and sleaze - a perception reinforced by a recent $6.8bn scandal over fuel subsidies.

South Africa is meanwhile seen as one of the few African destinations where the rule of law safeguards investments.

"I hope a larger GDP will increase pressure on government to do things right, to be more transparent," said Fagbule.

"More likely, we'll see a lot of chest beating, bragging about how we are the giant of Africa - even though we do things terribly."

Graft, diplomacy

Though governance is worsening in South Africa, it has a long way to go before it crosses places with Nigeria on the Transparency International corruption perceptions index.

South Africa has sunk 29 places in the gauge of perceived corruption since 2001, from 38th in the world to 64th last year.

But Nigeria was 143rd out of 183 places in 2011, and the sheer scale of its graft has led some analysts to ask whether government statistics on things like GDP can even be trusted.

“In Nigeria, (fuel subsidy) fraud of $6.8bn can go on without anyone really noticing or minding or it impacting official GDP,” said Antony Goldman, head of PM consulting.

"It must have had a huge impact, and yet apparently you can't find it in any of the data."

Nigeria is also competing with a South Africa that has put a great deal of effort into being seen as champion for Africa and developing countries in things like trade talks - its membership in the Brics (emerging market group including Brazil, Russia, India and China) has helped boost that aim.

A bigger GDP won't automatically help it win that contest.

Geopolitics aside, what will being Africa's giant mean for most Nigerians? Not much. Despite one of the top economic growth rates, poverty in Nigeria has been increasing.

"In practical terms will recalculation make much difference? Possibly in diplomatic terms, showing Nigeria's power. Will it make Nigerians feel richer? I doubt it," Goldman said.

The limits of GDP?

Unorthadox economists like Joseph Stiglitz have long argued that GDP is "a poor measure of well-being", because it fails to capture things like health, income equality and the environment.

South Africa's GDP per capita is six times Nigeria's and on most counts of quality of life, it scores better. Roads are good, tap water drinkable, and the power supply usually ample even if the grid is almost stretched to capacity.

Nigeria's roads are potholed, its water polluted and its power stations generate less than a mid-sized European city.

"In terms of economic development, Nigeria has far to go to catch up with South Africa. An increase in GDP is not going to suddenly change that," said Standard Bank’s Samir Gadio.

Nigeria also has one of the world's worst records on environmental protection. The Niger Delta, a labyrinth of tropical swamps home to hundreds of bird species, is a place where energy majors spill huge quantities of oil with impunity.

Frequent pipeline attacks by oil thieves leak even more.

South Africa, by contrast, has some of a the toughest laws to protect its wilderness in Africa. A rhino poaching epidemic to feed East Asian demand for quack medicines may be testing its resolve.

In Nigeria, though, the rhino is long since extinct.

- Fin24

Tags economy

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