Apparently, Nigeria has discovered more than $200-billion (U.S.) of national wealth that it previously didn't know existed, and the country's chief statistical officer wants to tell you all about it. It sounds rather like an email scam, one of those farcical attempts to draw you into releasing your bank details with the promise to share untold riches of dubious provenance. In this case, however, the unexpected bounty is the nation's GDP which has increased by 89 per cent to an estimated $510-billion in 2013 after a review of the basis on which GDP data is calculated. This entirely legitimate statistical exercise has not only revealed hidden strengths in the Nigerian economy in services, manufacturing and entertainment, but has relegated South Africa to the status of also-ran in the contest for the continent's biggest economy.
Since the figures were released on Sunday showing Nigeria's economy pole-vaulting ahead of South Africa, valued in 2012 at $453-billion compared with latter's $384-billion, Nigerian politicians have been crowing while critics have been sniping. The effect of the recalculation boosts Nigeria's income per head from $1,656 to $2,689, a figure which still leaves the average Nigerian impoverished compared with South Africa's income per head of $7,508. These numbers have little bearing on the daily struggle faced by Nigerians in feeding their families. What it does do is force investors to reassess their view of Nigeria's potential and to jettison a few of the prejudices that cling to Africa's most dynamic and now largest economy.
If you thought Nigeria was a one-horse economy, clinging to the output of some very old oilfields, think again. Oil and gas were thought to account for a third of national income, but under the new calculation based on an output profile of activity in 2010, hydrocarbons represent only 14 per cent of the economy. Meanwhile, the service sector has doubled in size, representing 51 per cent of the economy. Much of this tallies with what we know about the speed at which Nigeria adopted mobile telephony and internet banking. Nollywood, Nigeria's motion picture industry is also booming. It grew by a third last year and now represents 1.2 per cent of the economy.
Unfortunately, the dynamism also exposes Nigeria's traditional weakness – the failure of the state. While the oil economy is growing at less than half the rate of the economy as a whole (thanks to rampant oil theft), the royalties from selling oil and gas still underpin Nigeria's ramshackle state institutions. These are failing to follow the dynamism of Nigeria's army of small entrepreneurs. Taxes as a percentage of GDP have fallen from 20 per cent to 12 per cent but if you subtract the state's rent from oil and gas, the ratio falls to just 4 per cent, evidence that the government has not found a way of bringing the new economy fully into the tax net.
As usual, Nigeria's public institutions are failing the country, and the investing world was reminded very recently of the continuing drag which corrupt elites exert on the country when the Central Bank Governor found himself ejected from office after he complained of rampant stealing by Nigerian National Petroleum Corporation. He alleged that some $20-billion had gone missing as recently as in the 19-month period preceding July 2013.
It would not be surprising if foreign investors chose to put the West African state back in the filing cabinet as an interesting possibility – for the future. That might be a mistake in terms of understanding how the non-resource economy is beginning to grow at a high speed, in those sectors where the pressure of demand on services from expanding populations is creating huge business opportunities. In an odd way, the incompetence of Nigeria's government, or its simple absence from the economy, is spurring development in ways that are not happening in more mature and bureaucratic societies such as South Africa. The GDP figures tell the tale – Nigeria is expected to grow at twice the rate of its southern rival over the next few years.
South Africa is in the grip of political failure. Large sections of its black population are disillusioned with establishment politics, as represented by the ANC, which is widely acknowledged to be infected with corruption. In a curious way, Nigeria finds itself less burdened by the past. While South Africans wait impatiently for their government to find solutions for entrenched social and economic problems, Nigerians have long given up hope that government will help. Instead, the country's entrepreneurs are just getting on with the job of getting rich as quickly as they can.