Nigeria is now Africa’s biggest Economy- what it means to Uganda

By Kasirye Ibrahim

In one day, Nigeria’s GDP increased by 89% and leap frogged South Africa to become the continent’s largest economy. The Nigerian economy is now officially valued at 80.3trillion Naira (US$ 510 billion) and the country has become 24^th largest economy in the world. The Nigerian government announced the re-valuation of the country gross domestic product (GDP) figures on April 7^th 2014. Based on the International Monetary Fund (IMF), Uganda’s GDP in 2013 was US$ 23 billion and this placed the country at 102 position in the global rankings. This revaluation means that the Nigerian economy is now more than 22 times larger than the Ugandan economy. 

Although changes in the GDP base may directly increase other metrics used to capture income status such as GDP per capita, actual welfare status may not change much given the very large informal and non-monetary economy that is characteristic of African countries. Indeed, recent statistics show that the social status of Nigerian is much poorer than many other African countries. For example, based the 2014 Social Progress Index—which capture non-GDP measures of well-being, Nigeria is ranked 123^rd in the world while Uganda fairs better at the 111^th position.

With the revaluation, the surge in Nigeria’s GDP will come with a number of advantages. For instance, the country is likely to attract more foreign direct investment (FDI) especially from multinationals who consider investment destination based on the size of the economy. Nigeria could also use it new “Leading economic power in Africa” position to more actively engage in political disputes on the continent. On the other hand, as Nigeria moves into middle income status, the country may no longer qualify for concessionary loans—normally preserved for low income countries.

Furthermore, rebasing Nigeria’s GDP resulted in a substantial reduction in the share of GDP attributed to its once flag bearer—mining crude oil—from 32% to 14% and that for agriculture—from 35% to 22%. The above changes were partly driven by the diversification of the Nigerian economy during the past 20 years—into services. Indeed, the share of GDP attributed to services jumped from 29% to 52%. For example, the telecommunications and information sub sectors currently contributes US$ 44 billion (about 8.7% of the Nigerian GDP) whereas the sector was not very significant 20 years ago. 

A comparison of the structure of Nigeria and Uganda’s GDP in 2013 suggests that there are substantial differences in the two countries (Figure 1). First, Uganda’s mining sector is yet to take off—only contributes US$ 690 million (0.3% of Uganda’s GDP) where mining including oil and gas contributes US$ 73 billion to Nigeria’s coffers (14.5% of total GDP). Secondly, the share of GDP attributed to transport and telecommunications in Uganda (4.9%) is less than half that for Nigeria (12.2%). This suggests that Uganda is yet to fully exploit the potential offered by the telecommunication revolution. Third, hotels and restaurants are about 10 times more important in Uganda than in Nigeria. On the other hand, the construction sector is far more important for the Ugandan than Nigeria economy (contributing 13.4% and 3.1% respectively).  Nonetheless, the agricultural and trade sectors account for relatively equal shares in both countries (22% and 17% respectively).

As such, although agriculture and trade remain the backbones for both the Ugandan and Nigerian economy, Nigeria appears to have been more successful in diversifying into high value services sectors—notably telecommunications, real estate and production of motion pictures aka eki-Nigeria. Uganda on the other hand appear to be heavily involved in low value services—notably the informal sector based hotels and restaurants sector. On a positive note, Uganda is far better in investing in human capital than Nigeria—given the shares of education in the country’s GDP. Given on-going oil exploration prospects in the Albertine region, the structure of the Ugandan economy could mirror that of Nigeria within 10 years—when oil production starts in Uganda.

The revaluation of an economy is not unique to Nigeria; Ghana did the same in 2010 and the USA in May 2013. Already plans are underway for our neighbours Kenya to rebase its own GDP figures in September 2014 and this is expected to increase Kenya’s 2013 GDP by 20% to US$ 50 billion. Countries re-base GDP figures mainly to more accurate capture the present structure of economies. The technological revolution has meant that the structure of economies is changing very rapidly unlike in the past. Secondly, a number of developing countries have now built capacity in their statistical systems which can better capture economic changes. However, the re-basing of a country’s GDP can only be as good as the country’s ability to capture and produce accurate economic statistics. If the statistics based on which the GDP is re-based are flawed, then any new changes have no meaning.

Can Uganda go the same route? The idea that Uganda may follow other African countries and re-base its GDP figure in the not too distant future may not be far-fetched. Given that Uganda’s most recent GDP figure are based on 2002 prices, one can hypothesise that Uganda may go the Nigerian route and rebase it’s GDP within the next 5 years. Other factors that likely to spur this change include the coming on board on population estimates at the end of 2014 and the significant changes that have occurred in the Ugandan economy since 2002. For example, the regular national household surveys for Uganda show only 7% of households in Ugandan had mobile phones in 2002/3 and this share had increased to 46% by 2009/10. Related, mobile money was non-existent in 2002 whereas at present, Ugandans transfer about UGX 1.7 trillion (US$ 700 million) annually and mobile money employs over 27,000 agents. Furthermore, given that the entertainment industry is valued at US$ 7.2 billion in Nigeria, the recent growth in Uganda’s entertainment industry may also provide some justification for Uganda to revalue Uganda’s GDP. So should Uganda re-base its GDP figures?

Figure 1: Sectoral composition of GDP in Nigeria and Uganda (%)

Sources: Nigeria Bureau of Statistics and Uganda Bureau of Statistics

Ibrahim Kasirye is the Principal Research Fellow at the Economic Policy Research Centre (EPRC)