FEATURE ARTICLE

Paulinus C. IwujiFriday, April 25, 2014
chukwudipiwuji@yahoo.com
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GDP GROWTH
AND THE FAÇADE OF ECONOMIC DEVELOPMENT

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ecently the head of the National Bureau of Statistics (NBS), Yemi Kale, announced the Nigerian economy to be estimated at 80.3 trillion naira ($509.9 billion) GDP in a rebasing exercise, which is 89 percent larger than previously stated for last year. This estimation thereby overtakes the economic frontrunner of the continent, South Africa, with a GDP of $315 billion. "Nigeria has moved to be the largest economy by GDP size in Africa and has moved to be the 26th largest economy in the world. On per capita basis, Nigeria is number 121 in the world. So, we have a total GDP size where we have moved up to 26th," the finance minister and former World Bank Managing Director, Ngozi Okonjo-Iweala, said. This piece of news went viral immediately it was aired. All over the Internet, newspapers, digital devices and the news media, the high-tech era of information and technology has spread this information to all the four corners of the earth, and has become the subject matter of discussion in formal and informal gatherings. Of course, for many Nigerians, this is a welcome development.

It is important to understand the concept of Gross Domestic Product, GDP, within the fields of economics, development economics and political economy. GDP is an important measure of economic power. It designates "the total value of goods and services produced within a country's borders during a given year. The GDP records income in terms of where it is earned rather than who owns the factors of production." This means that a country's GDP includes the interest and profits domestic and foreign companies and individuals earn in the country; it does not include income the country's residence earn abroad. In contrast to the GDP is the Gross National Product, GNP, which records the income according to who owns the factors of production rather than where the income is earned. By this standard, GNP refers to "the total value of goods and services produced by domestically owned factors of production in a given year"; thus calculated by adding the income a country's residents earn from foreign activity to the GDP and subtracting the income foreigners earn from activity in the country".

From the information released, what was recorded was GDP growth and not GNP growth. Nothing was said of GNP per capita. What does this mean for Nigeria and Nigerians? Is this a sign of development and of better standard of living? I am not sure if everyone understands the facts about GDP as an econometric scale especially vis-à-vis Human Development Index of a set of people or country. On the one hand, GDP is relatively plausible since it measures the quantitative value of goods and services produced within a country. It creates an attractive transparency in the sense that it is in fact difficult for a country to manipulate or fudge the data for the sake of appearing good before others. Overall, it creates an impression that a nation's economy is heading in the right direction, and thus a reflection of a region's or nation's relative achievement. Especially for the government and its accolades, it is a great feat since it projects an impressive image of the nation to the outside world. It is also a hilarious boost and incentive for potential foreign investors to the country given the size of its population and as an oil rich and leading oil producing country in the continent.

Beyond this peripheral appearance lies an intriguing façade of GDP econometrics as an indication of development. Development is a normative concept and as such means, or should mean, that things are getting better. This implies that ranking nations in accordance with their GDP suggests that those with higher GDP are doing better by their people, meaning that their standard or quality of life is doing better. Even at its extreme exaggeration, average GDP has been equated with the quality of life in a nation. This necessary assumption is unfortunately oftentimes flawed since the theoretical projection of this framework is far from been a reflection of the real situation.

Without sounding pessimistic, the problem is that as a paradigm GDP and other similar approaches based on national average fail to take into consideration the fact of distribution and can possibly give credit to nations that contain huge amount of inequalities, corruption and economy driven by one or two sectors and so thinking that such nations are on the right path. The economic growth in terms of this paradigm obviously does not say where the wealth is located, who controls it, and what happens to the people who do not have direct access to this wealth or who do not belong to the elite group of the society. It fails to trickle down to the population. This analysis is supported by research and findings, by leading scholars and even nations. Given the flawed nature of this approach, France launched a counter influential approach, 'the rethinking of quality-of-life measurement' that became known as the Sarkozy Commission. As noted by Martha Nussbaum, in the first instance the benefits of increased wealth resulting from foreign investment almost as a rule go to the elites. This is not simply because GDP is an average figure, neglecting distribution but, as the Sarkozy Commission reports, profits from foreign investment frequently do not even raise average household income. The benefits of the increased wealth have no meaning in the life of the poor, and mostly where women are marginalized, unless the local elites are committed to policies of redistribution of wealth. Average real household income appears more important to people's actual living standard, and increase in GDP in not very well correlated with increase in average household income, especially in a world driven by globalization, where profits may be repatriated by foreign investors without contributing to the spending power of a country's citizens, or adding to the purchasing power parity of a nation. As a gross rather than a net measure, GDP does not account for the depreciation of capital goods. Supported by researches and existential realities, it is logical to affirm that GDP economic growth of a nation has neither a relationship of correlation nor causation with better life standard. National economic growth is itself not an assurance of improvement in health and education, in employment opportunities, in distribution and removal of inequalities, in the building of capabilities and empowerment of its people, if there is absence of direct state action. Similarly, the comparative studies done in Indian states by Amartya Sen and Jean Dreze have shown the same result that increased economic growth does not automatically improve quality of life in important areas such as health and education.

The failure of GDP approach to look at the life quality of the poor exacerbates the disenfranchisement of some groups within the population and thus succeeds in entrenching racial, religious, ethnic, or gender deprivation and marginalization. So, GDP lacks accountability.

Most importantly, the GDP approach to economic growth does not tell the broad picture of the lives and conditions of the people but only presents an aspect or aspects of the economy as the whole, creating a false picture and mistaking the part for the whole. This façade does not give us good information of much we need to know about qualitative life conditions and the enabling environment that nurtures the creation and flourishing of capabilities. Nussbaum puts it that "it funnels together aspects of human life that are both distinct and poorly correlated with one another: health, longevity, education, bodily security, political rights and access, environmental quality, employment opportunities, leisure time, and still others."

Analysis of this projection reveals that Nigerian GDP growth is driven not by all sectors of the economy but rather only a section, mainly the mobile telephone industry, music and the local film industry, Nollywood. Of course, the country still depends heavily on oil exports for much of its revenue. The economic growth says nothing about agriculture, production industry and manufacturing, infrastructure, education, health, employment, road and transportation, etc. The issue with this is that this economic growth is based not on strong foundation that can sustain itself since it is difficult for film industry and mobile telephone industry to sustain themselves where there is lack of infrastructure, basic necessities, production industry and power, and a teeming population without employment. Apparently, the current economic growth lacks sustainability. The power of a nation's economy lies in the strength of its infrastructure and productive capability, and the ability to provide for its population in a responsible and accountable manner. One has to eat, earn sustainable income, and be fairly self-reliant and healthy in order to maintain and pay phone bills and watch movies - a leisure exercise. Unfortunately this shaky foundation of the Nigerian economy applauds the superstructure to the detriment of the basic economic structure and infrastructure. Nigerian economy has heavily depended on oil for many years without realizing that oil may not last forever, or someday may drink its oil. "The absolute value of gross domestic product is not terribly helpful, especially in a place like Nigeria where 90 percent of export earnings are tied to oil," one author reacted.

According to the Finance Minister, the GDP per capita in Nigeria is now $2,688 - up from $1,555 in 2012. The government, however, has to concede to the stark truth presented by the reality that comparatively GDP per capita in South Africa is $7,508, more than triple times higher than that of Nigeria. South Africa is still ahead of Nigeria in infrastructure. The average Nigerian still lives on less than $2 dollars a day, and the so called economic growth may not add any meaning to the common man on the street. Thus, "By failing to make salient the issue of distribution, the importance of political freedom, the possible subordination of minorities, and the separate aspects of lives that deserve attention, the GDP approach distracts attention from these urgent matters, suggesting that when a nation has improved its average GDP, it is 'developing' well."

However, the current GDP growth can also open a door that can stir meaningful debate and propel incentives towards developing and investing in other sectors. It is an opportunity for the government to engage in economic and policy reforms, restructure the bases and diversify the economy, work towards winning the trust of Nigerians and foreign investors, and mobilize the human and natural resources at its disposal towards a meaningful end. Yes, it can!

The renowned Pakistani economist who inaugurated the Human Development Reports of the United Nations Development Programme, UNDP, the late Mahbub ul Haq, opened his reports in 1990 with this powerful prolegomenon: "The real wealth of a nation is its people. And the purpose of development is to create an enabling environment for people to enjoy long, healthy, and creative lives. This simple but powerful truth is too often forgotten in the pursuit of material and financial wealth." In 2006 the UNDP re-iterated this basic truth: "People are the real wealth of nations. That simple truth is sometimes forgotten. Mesmerized by the rise and fall of national incomes (as measured in GDP), we tend to equate human welfare with material wealth. The importance of GDP growth and economic stability should not be understated: both are fundamental to the sustained human progress, as it is clear from many countries that suffer from their absence. But the ultimate yardstick for measuring progress is peoples' quality of life. As Aristotle argued, 'Wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else.' That "something else" is the opportunity of people to realize their potential as human beings. Real opportunity is about having real choices - the choices that come with a sufficient income, an education, good health and living in a country that is not governed by tyranny." This is the task ahead.

Paulinus C. Iwuji is a Catholic Priest.

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