GDP Rebasing and the Morality Question

READING THE TEA LEAVES

By Obinna Chima

obinna.chima@thisdaylive.com 08152447875 (SmS only)

READING THE TEA LEAVES By Obinna Chima obinna.chima@thisdaylive.com 08152447875 (SmS only)

The National Bureau of Statistics (NBS) recent announcement of its plan to rebase the country’s Gross Domestic Product (GDP) to include the economic contributions of prostitution and other illegal activities has ignited a fierce debate.

Even though the NBS disclosed that other areas to be captured in the exercise expected to be carried out by the end of this month include the modular refineries sub-sector, the Nigerian Social Insurance Trust Fund (NSITF), e-commerce and digital activities, pension funds administrators, domestic households as employers of labour, the National Health Insurance Scheme (NHIS), quarrying and other mining activities, the decision by the national statistical body to also include the wages of sin in the computation of the country’s GDP has seen commentators express divergent views on the issues.

The NBS is also rebasing the metrics for computing the Consumer Price Index (CPI), which is used to gauge the level of inflation in the country.

While proponents argue for a more accurate reflection of the country’s economic reality, just like what had been adopted by countries under the European Union, critics have continued to raise serious concerns about the moral and practical implications of such a move. Some even argued that considering illegal activities may be taken to mean a tacit endorsement of such activities. Additionally, cynics see the move as a desperate attempt by the NBS to massage the country’s ailing economic data and give it the much-needed happy ending.

According to the International Monetary Fund (IMF), GDP measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period (say a quarter or a year). It counts all of the output generated within the borders of a country and is composed of goods and services produced for sale in the market and also includes some non-market production, such as defense or education services provided by the government.

On the other hand, rebasing the national account, which includes the GDP, is the process of replacing an old base year with a new and more recent base year. A base year provides the reference point to which future values of the GDP are then compared. In the case of Nigeria, the NBS intends to use 2019 as the base year and do away with the 2010 it had been using.

Certainly, GDP rebasing serves as a normal statistical procedure and ensures that national account statistics present the most accurate reflection of the economy as possible. The United Nations Statistical Commission recommends that countries rebase their national accounts every five years. For Nigeria, the last time the review was done was in 2014. So, 10 years down the line there is a compelling need to rebase the GDP, particularly after COVID-19, which saw the opening of new products and sectors that contribute significantly to the economy. No doubt, sectors such as e-commerce, knowledge, and digital economy have recorded changes in consumption patterns.

When the Nigerian economy was rebased in 2014, its GDP went from below $400 billion to over $500 billion and the country emerged as the biggest economy in Africa.

Interestingly, part of a panel discussion during the launch of Proshare Nigeria Limited’s 2025 Nigerian Capital Market Outlook Report titled: “The Capital Market and the Quest for a $1 Trillion Economy,” during the week, was the moral question behind the inclusion of illegal activities in the country’s GDP computation.

Analysts at Proshare argued that rebasing Nigeria’s macroeconomic data and capital market reforms would put the country in a position to achieve its desired $1 trillion GDP by 2030. They also stressed that imagination, strategy and execution are the keys to achieving Nigeria’s aspiration of that $1 trillion economy. According to Proshare, rebasing some of the sectors would likely help the Nigerian economy achieve a GDP size of $490 billion, which leaves it with a gap of $510 billion in the $1 trillion economy it aims to achieve by 2030.

According to Prof. Uche Uwaleke of the Nasarawa State University, while to get the true value of a GDP requires including activities in the shadow economy, “by so doing, you are legitimising illegal activities. “The second issue has to do with estimation. How do you estimate the values of these illegal activities, unlike what happens in Europe?

“It is not for nothing that there is no African country or no developing economy that includes illegal activities in its computation. It is only in the Euro Area and only the 27 countries of the European Union that do that. The US and Canada do not explicitly include illegal activities in their computation. So, I think we should exclude such activities and stay with the legitimate ones.”

In her contribution, the Head of Research, Parthian Partners Limited, Mrs. Olufunmilola Adebowale, argued that rebasing the GDP is necessary at this point as it will help recalibrate the numbers.

She, however, argued that “Looking at the activities that would be added: Digital economy, modular refinery – they are important because since the COVID-19, there has been a structural shift in the Nigerian economy and this has to be reflected in the size of our GDP.

“But a major concern for me is the illegal activities being added to the GDP. That is going to overstate the true picture of what the size is. It is not about the number; it is about getting a true reflection of what the size of the economy is.

“Economic indicators are inputs used by policymakers to come up with policies. So, having an over-estimated GDP is going to affect the decisions taken by the monetary and fiscal authorities.”

However, the Head of Research and Chief Economist at Proshare, Mr. Teslim Shitta-Bey, noted that “Europe has integrated some of those illicit activities into its GDP. So, if we are going to compare GDP-to-GDP, if we don’t include some of those illegal activities and Europe puts them in their computation, how do we compare them?”

Furthermore, Shitta-Bey stressed the need to address the country’s perennial forex scarcity, pointing out that, “forex is responsible for between 60 and 65 percent of domestic inflation. No matter how much we move the monetary policy rate, it is not going to move the needle of inflation. What we need to do is to see how we can increase forex inflows.”

But the Head of Corporate Analysis, Proshare, Ms. Ademidun Shogo, noted that beyond the GDP rebasing, Nigeria must address its structural problems. This, she argued would help the country attain its potential.

In an article published on Nairametrics, Joseph Edgar, who was perplexed by the decision of the NBS to include prostitution and some other illegal activities in its GDP computation, argued that “Attempting to artificially boost the GDP by including illegal activities is ethically and practically indefensible. It undermines the judiciary, complicates law enforcement, empowers criminals, and confuses youth about societal values.

“It also risks making the government appear inept or desperate to meet its economic targets. The NBS is tasked with providing accurate, well-articulated statistics to guide the government. Inflating GDP figures with dubious inclusions betrays that responsibility.”

Just like Edgar, Mr. Olusegun Adeniyi in his intervention on the matter in THISDAY this Thursday, wrote that “a GDP re-basing exercise that legitimises criminal and dark economic activities can only licence the drift to an immoral nation. At a period when drug trafficking, cybercrimes, prostitution, trade in ritual body parts, ransom for kidnapping, terrorism, etc. have compromised the integrity of our nation, legitimising them as components of our GDP would only embolden some of our young people who just want to ‘make it’ by hook or by crook.”

From the foregoing, including illegal activities in GDP calculations raises serious ethical concerns. It legitimises criminal activities and sends a troubling message that the government condones or even encourages them and gives the veneer of economic legitimacy.

Also, just like in countries that have adopted this metric, accurately measuring the economic impact of the underground economy is fraught with significant challenges. Data collection on illegal activities is inherently difficult and often unreliable due to their clandestine nature. For instance, how will the NBS get to know the average price of a session with a prostitute in the country or the cost of a room at a brothel? As stated previously, measuring the underground economy in any economy is hardly an exact science. While a more accurate representation of the Nigerian economy is a laudable goal, including prostitution and other illegal activities in GDP calculations presents significant ethical and practical challenges.

Semiu Adeniran and his men at the NBS should rather focus on ensuring that the outcome of the rebasing is not controversial, but on delivering a methodology that helps policymakers and analysts to obtain a more accurate set of economic statistics that are a truer reflection of current realities for evidence-based decision-making.

You can follow me on my X handle: @iamobinnachima

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