By Cheta Nwanze
Nigeria’s National Bureau of Statistics (NBS) is planning to rebase the country’s GDP and Consumer Price Index (CPI). This process involves updating the base year used for calculating economic metrics to reflect changes in the economy. The current base year for GDP is 2010, while the CPI base year is 2009.
Ever since the announcement last week, there has been a lot of commentary on social media about it. Some people have expressed apprehension that the NBS will use the opportunity to “magically” bring inflation down from its current level of around 35% to 15%. Given that Nigeria is a low-trust society and given that food prices have literally doubled over the last year despite food inflation officially being 40%, these fears can be seen as valid.
However, such a fear does not consider a phenomenon known as “base effect.” The base effect occurs when a new starting point is introduced into a calculation. This change can have a significant impact on values that depend on this starting point. In economic terms, when a new base year is introduced, it alters how we see economic trends. A change in base year can make economic growth appear stronger or weaker than it actually is. One of the most obvious points where the base effect is seen is inflation.
So, as an example, in the five years that Sani Abacha sat in Aso Rock, inflation averaged 57.17%, 57.03%, 72.84%, 29.27% and 8.53%. Did Abacha suddenly start working miracles in 1996 and 1997? No, he did not. The cost of a tin of Peak Milk, the evaporated variety (I remember this one because my Uncle was marketing manager at Wamco at the time), was ₦10 at the end of 1994; by the end of 1995, it was ₦15, and my Mum moved to Cowbell, much to her brother’s annoyance, when it hit ₦20 in 1996. Then, Wamco, the maker of Peak Milk, learned from Cowbell and introduced sachet milk. By 1999, when I moved to my Uncle’s house in Lagos, the price of the tinned variety had held at ₦25 from 1997. So it’s not that there was no inflation; it’s just that the rate of price change was no longer as sharp as before. Again, 57.17%, 57.03%, 72.84%, 29.27% and 8.53%.
Rebasing is a standard practice that should help us remove the tinted spectacles of the base effect. It ought to occur every five years, according to global best practices. The goal is to capture changes in the economy, such as the growth of the digital sector, and provide a more accurate picture of the economy’s size and composition. However, there are concerns that the NBS might use what ought to be a genuine and normal exercise to manipulate the numbers to present a more favourable picture of the economy. These concerns are valid, given the government’s history of playing fast and loose with economic data, such as unemployment rates, where our official definition of an employed person is an implausible one hour of work per week!
If done right, the rebasing process could potentially lead to an increase in the overall size of Nigeria’s economy, as previously underrepresented sectors are better captured. Remember that the last rebasing exercise was a decade and a half ago, and there are activities we do now that were not captured back in 2010. Think, for example, FinTech and that whole swathe of the digital economy. We need to bring these in. However, the reports that have dominated social media about the NBS saying they’d include illegal activities into the calculation raise concerns about the political imperative to present a robust economy rather than an accurate reflection of the economic reality, and this is where not doing the right thing at the right time, because of politics, becomes an albatross.
There is no doubt that the NBS, in the decade under the stewardship of Dr Yemi Kale, adhered to global best practices and performed its critical but underappreciated role of telling Nigeria’s political rulers the kind of truths they would not want to hear. Because of this, the NBS was routinely denied the funds that it needed to operate. Does anyone remember the ugly spectacle of President Buhari’s spokesman, Garba Shehu, attacking Dr Kale because the unemployment data in Q4 2017 exposed that the 12 million jobs he claimed that the government created were phantom jobs? Following that, the NBS did not see money to do another unemployment survey, and by the end of 2018, Dr Kale was tweeting openly about the lack of funds to do the unemployment survey…
It’s a similar video game with the rebasing and with pretty much so many other things we do. Our fire brigade approach to most things means that when it is time to do the right thing, it becomes painful. Increasing petrol prices every year in line with inflation would have made the removal of the petrol subsidy less painful. Letting the naira trade freely when oil prices were very high, and we had the buffer of an Excess Crude Account would have made the loss of value easier to manage. An incremental rebasing every five years would eliminate mistrust.
When you don’t do things at the right time, you create a lacuna, which becomes a canyon when someone tries to fill it. The structure of Nigeria’s economy has changed in the 15 years since we last rebased it. We need to rebase. To address concerns around the rebasing process, there is a need for end-to-end transparency. Organisations like the World Bank and the International Monetary Fund (IMF) have to be involved in monitoring the process to ensure that it follows international best practices.
Nwanze is founder of SBM Intelligence.
