I am not an Economist and I do not lay claim to any form of expertise in economic matters. I however have a fair understanding of how the economy runs and I learnt a little bit about the dynamics of the macro-economy under one of the best teachers in that subject, Dr. Doyin Salami.
In addition to his faculty engagement at LBS, Salami is a member of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria.
In our MBA classes a couple of years back at the Lagos Business School, Salami dwelt extensively on GDP so it will not be out of place to relate what I learnt then to the maritime sector.
When the rebased GDP was released a few days ago, I quickly looked out for the contribution of the maritime sector but found none. Of course I saw a line on water transportation but that was not shipping. The water transport sector referred to only movement of goods and persons within the inland waterways. This, in my opinion, represented only an infinitesimal portion of the maritime sector.
I was taken aback therefore when an industry operator made a case in defense of the inexplicable omission of the contributions of such a critical and vital component of the Nigerian economy.
The particular operator has a background in Finance and was in charge of economic planning in one of the Eastern states during the military era. I was taken aback because he is one of those who should know and who should have spoken out against the omission notwithstanding that he holds a board appointment under the present administration.
The rebasing of Nigeria’s GDP has brought the subject to the front burner with a lot of passion and public discuss on the subject. To advance my argument however, please permit me to refresh your minds and explain in a layman’s language what GDP is all about.
Gross domestic product (GDP) is one of the primary indicators used to gauge the health of a country's economy. It represents the total value of all goods and services produced over a specific time period - you can think of it as the size of the economy.
Salami’s formula for calculating GDP was
GDP = C + G + I + NX
"C" = All private consumption, or consumer spending, in a nation's economy
"G" = Government spending
"I" = Sum of all the country's businesses spending on capital
"NX" = The nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports).
It is clear from the formula that GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period. It is usually calculated on an annual basis. Developed economies such as the United Kingdom and the United States of America release quarterly GDP figures. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
Measuring GDP is a bit complicated (which is why we leave it to the economists), but at its most basic, the calculation can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total.
The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non-incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports as indicated in the formula above.
As one can imagine, economic production and growth, what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It is not hard to understand why: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.
With the above explanation which I drew out of my LBS notes, could there be a justifiable reason to leave out any sector of the Nigerian economy in the GDP calculation? Leaving out any sector simply means the sector did not add value to the national economy and that would be a fallacy as far as the maritime sector is concerned.
The maritime sector has three major component industries. They are the port industry, the shipping industry and the maritime business services industry. All three industries have direct and indirect economic impact on this nation.
The maritime industry has, in general, enjoyed rapid growth over the past decade following the signing into law of the Cabotage Act in 2003, the Local Content Act of 2010 and the Port Reform of 2006.
Not taking into account the foreign ships that visit the country’s seaports, the industry employed an estimated 150,000 workers in 2013 and contributed as much as USD15 billion to the economy. I am talking about contributions in terms of real economic activities undertaken by Nigerian-owned shipping companies; port terminal operators, shipping agents, clearing and forwarding agents, dock workers and others. Is there any reason why these contributions should have been omitted from the national data?
Our maritime practitioner’s argument was that shipping is a service sector and should rightly have been omitted. Really? How about rail services, wasn’t that captured? Was aviation not captured? Is telecommunication not a service sector? Was it not captured?
I am not entirely blaming the Jonathan administration for the omission; it has consistently been so over the years. I have taken the pain to go through our past GDP profiles and the story has not been any different.
Government might not be able to pull this one back for reasons of pride but going forward; the sector’s contribution should be well captured.
I am particular about correcting this anomaly in future because it is important that economic sectors were measured accurately to give potential investors good pictures of their values.
The idea behind rebasing the GDP is to help investors identify new opportunities in Nigeria, especially in areas that were previously not factored in.
On the flip side and like many Nigerians, one is not particularly excited about our $510 billion GDP figure and all the political gymnastics trailing it. I think what is important is the GDP per capita. Being Africa’s largest economy is definitely a great confidence booster for Nigeria but it doesn’t change anything. Nigerians are still among the poorest in the world with more than half living below the poverty line.