Nigeria's economy is built largely on its oil industry
ANALYSIS
It was a good week for Nigeria, at least, on paper. Despite acute power shortages, religious insurgency in its northern states, and the cloud of corruption hanging over its hydrocarbons industry, it still revealed a $509-billion-strong economy.
But the long-awaited rebasing exercise that resulted in a nearly 90% increase in the country's gross domestic product (GDP) output estimates, according to the Nigerian Bureau of Statistics, is no silver bullet for the country's myriad challenges, economists say.
"While Nigeria offers plenty of commercial opportunity, one must be careful not to romanticise the possible experiences," said Goolam Ballim, chief economist at the Standard Bank group.
"As highlighted by the extreme electricity deficiencies, and compounded by wider logistical short-comings, one is quick to appreciate that the cost of doing business in Nigeria is significant."
The West African nation, with an estimated 162-million people, has installed electricity capacity of 0.08kW per person, said Ballim. South Africa's capacity is 0.84kW per person.
'Cause for cheer'
Nevertheless, Nigeria's rise was a "collective cause for cheer", he argued. It underscored Africa's burgeoning economy, and the broader shift in underlying economic activity from a reliance on primary sectors such as agriculture and resource extraction to value-added services.
The inefficiency of the country's tax system, particularly its reliance on the oil and gas sector, is another challenge.
According to Melissa Verrynne, an economist at NKC Independent Economists, although the contribution of the services sector was revised upward, the hydrocarbons sector remained the largest contributor to fiscal revenue.
"Post-rebasing, the government's revenue to GDP ratio is now 12.3%, which is low compared to other countries," she said, and markedly lower than the United Nations advised threshold of 20% of GDP needed to achieve millennium development goals.
"The government might use this as an excuse to raise tax rates. However, the actual problem that needs to be addressed is the leakage of oil revenue and high levels of corruption," Verrynne said. South Africa's tax revenue to GDP is estimated at just less than 26%.
Favourable debt metrics
Nigeria's debt metrics, however, even before rebasing, "were extremely favourable", she said, with public debt amounting to $66.4-billion, including the domestic and external liabilities of the federal government and individual states. This was equivalent to about 22.2% of GDP, but with the new GDP figure, the ratio fell to only 13.2%.
South Africa's net national government debt to GDP ratio is an estimated 39.7%, according to the 2014 budget review, with net foreign debt making up about 4.4% of the total.
Data from Reuters reveals that the yield on Nigeria's 10-year government bond is about 14.1%. Following rebasing, the external debt to GDP ratio is now estimated at only 2.2%, and external debt servicing as a percentage of GDP is extremely low at only 0.06%, according to Verrynne.
"This means that Nigeria would be able to take on more external debt without damaging macroeconomic stability. The publicity provided by the rebasing of GDP could also draw in new creditors."
The country's current account surplus was also revealed to be smaller relative to the size of the economy, she said, and it was expected to go on declining because of stagnating oil exports. The ratio for 2013 fell from 6.2% of GDP to 3.7% of GDP.
Foreign investment
Following the rebase, net foreign direct investment (FDI) as a percentage of GDP now looked quite low, said Verrynne, at 1.2% of GDP, compared with 2.1% previously.
Even so, Nigeria remains one of the top recipients of FDI on the continent, she said. In 2012, it received $7-billion in FDI inflows, followed by Mozambique at $5.2-billion and South Africa at $5.2-billion.
For Nigeria to take economic top spot on the continent could indicate change to Africa's "poles of influence", but it was not necessarily negative for South Africa, Ballim said.
"What Nigeria's GDP re-estimation confirms is that there is no single country in Africa that is going to have a pronounced impact on the region."
Instead, "a more substantive symbiotic relationship amongst nations and regions" would emerge.