Nominal and Real GDP Explained
The GDP (a measure of the size of an economy) is the monetary value of all goods and services produced in a country during a given period of time and it can be calculated on either quarterly and/or annual basis. As an example, the monetary value of the rice sold by mama put is represented by calculating the number of plates of rice sold and multiplying by the amount each of the plates is being sold for. From the amount generated, ingredients, cost of fuel, and other inputs used up to cook the rice and stew are then subtracted. The resulting figure then gives us the monetary value of the rice being sold by mama put.
Real GDP on the other hand is the monetary value of all goods and services produced in an economy when adjusted by the price level. In calculating the real GDP therefore, the determination of how much nominal GDP has changed by inflation since the base year is paramount. Therefore, in calculating Nigeria’s real GDP given the base year of 2010, the quantities of all goods and services produced in the country in 2019 are multiplied by their prices in 2010. Without this, it could seem like the country is producing more goods and services when in the real sense, it is only that prices have gone up.
This can also be done by dividing the nominal GDP in 2019 by the implicit price deflator (where the price deflator measures the changes in price level of all goods and services produced in the country given the base year) and multiply the whole result by 100.
As an example, in Q3 2018, total monetary value of all goods and services produced in the country (nominal GDP) was N33.37 trillion and the implicit price deflator during the same period was 184.54 (which means prices have increased by 184.54% in 8 years- Q3 2010 to Q3 2018). Dividing the nominal GDP by the Price deflator and multiplying by 100, a real GDP value of N18.08 trillion is obtained.
How GDP Data is Obtained and Calculated
In obtaining data for the analysis of the country’s GDP, the Nigerian Bureau of Statistics (NBS) conducts Quarterly Establishment Survey (QES), obtains tax receipts from the Federal Inland Revenue Service (FIRS), and other relevant administrative sources (such as the NNPC). The series cover quarterly GDP aggregates under 46 activities at 2010 current and constant prices and in line with the international standards outlined under the United Nations Statistics Division (UNSTATS). As such, Nigeria’s GDP is calculated as Gross output minus consumption at the intermediate level. For example, to calculate the total monetary value of all crops produced in Nigeria in Q3 2019 (Crop Production GDP), the NBS multiplies the quantities produced by the price at the farm gate, then less wastage. After that, intermediate consumption such as seeds, fertilizers, pesticides, etc that are used up in one farming season (Q3’19) are all calculated. These are then subtracted from the gross output calculated. The resulting figure gives the total crop production GDP in Q3 2019. When this is done for all the 46 activity sectors, the aggregate figure arrived at is therefore called GDP at current basic price. The NBS thereafter adds the net to indirect taxes (which normally are withdrawal from the economy. But to capture it as gotten from the economy, it needs to be added back) on the products and the final figure arrived at is therefore called GDP at current market price.
Trend in Nigeria’s Real GDP since Q3 2018
Since the Nigerian economy came out of economic recession in Q2 2017, its highest quarterly GDP growth rate was achieved in Q4 2018 when it recorded a quarterly real GDP growth rate of 2.38%. The Q3 2019 real GDP growth rate of 2.28% therefore represents the second highest real GDP growth rate since 2016 as Q1 2019 and Q2 2019 real GDP were 2.10% and 2.12% respectively. The increase of real GDP to 2.28% may have been attributed to the closure of the land borders of the country which has spurred local production of goods and services.
It is pertinent to note that in nominal terms, the Q3 2019 GDP of Nigeria is more than the Q4 2018 GDP by N2.59 trillion but real GDP in Q4 2018 is more than the real GDP in Q3 2019 by N550 billion. This shows the effect of price changes explained earlier on as it denotes that general prices have increased more than they were in Q4 2018 given a base year price of 2010. Further scrutiny of the Q3 2019 and Q4 2018 reports show that the GDP deflator in Q3 2019 was 204.43 while it was 183.01 in Q4 2018. This therefore confirms the price changes within the two periods and further explains why real GDP is a better measure of economic size than the nominal GDP.
Oil and Non-Oil Sector Contribution to Real GDP since Q3 2018
With a daily oil production of 2.04 million barrels per day (representing its highest since 2015/2016), the oil sector contributed N1.81 trillion to the Q3 real GDP of the country. However, the non-oil sector which was largely driven by the Information and communication sector as well as Agriculture, Transportation, Manufacturing as well as mining and quarrying in the third quarter of 2019, contributed N16.68 trillion to the entire real GDP (representing 90.23%) in the period under review.
From the above, it can be seen that the contribution of oil to total GDP is less than 10% as the non-oil sector is the major driver of the economy. While the contribution of the oil sector is lowest in Q4 2018 (among the periods under review), it is highest in Q3 2019. It partially explains that both the oil and non-oil sector are drivers of the economy as against only one of the sectors. This is because, when the oil sector contribution was lowest in Q4 2018, Nigeria’s real GDP was highest since 2016 and a dip in oil price in 2016 led the country to its economic recession in 2016.
Comparing Real GDP Growth by Three Sector Classification
Based on the data obtained from the NBS, the contribution of agriculture, industry and services all increased Year-on-Year (YoY). The industrial contribution has the highest increase with 3.20% increase in contribution from N3.97 trillion in real terms in Q3 2018 to N4.09 trillion in Q3 2019. The agriculture sector also increased but by 2.27% YoY. The service sector however, recorded the lowest increase at 1.85% from N8.8 trillion in Q3 2018 to N8.98 trillion in Q3 2019.
Overall, the service sector is the largest contributor to the Nigerian economy as it contributed 48.59% to the entire real GDP in Q3 2019, followed by the agricultural sector which contributed 29.25% to the entire real GDP and the industrial sector which contributed the remaining 22.17% to the entire real GDP of the country.
Top 10 Major Activity Sectors
The agricultural sector remains the largest activity sector in Nigeria as 25.88% of all real outputs came from this activity as crop production dominates the agricultural sector, accounting for 91.6% of the sector in Q3 2019. Other agricultural activities such as fishery, forestry and livestock constitute the remaining 8.4% of the sector in Q3 2019.
The trade sector which is the second largest activity sector in the country based on the Q3 GDP report, consists of the whole sale and retail trade and the sector contributed 15.23% to the entire real GDP and this is lower than its contribution in Q3 2018 at 15.80%.
Comprising of four major activities (Telecommunications and Information services; Publishing and Motion Picture; Sound Recording and Music Production; Broadcasting), the Information and Communication activity sector is the third largest economic activity sector in Nigeria as it contributes 11.34% to the country’s real GDP in Q3 2019.
Consisting of the petroleum, coal mining, metal ores and other mineral sub activities, the mining and quarrying sector contributes 9.90% to the Nigerian economy as Petroleum and Natural gas remain the major contributor of the mining and quarrying sector accounting for 97.11% of the sector output in Q3 2019.
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