Recently I got into banter with someone over the composition of Nigeria’s GDP and the result is this blog post. Just to be clear, GDP is the market value of final goods and services produced within the boundaries of a country. Often, this is a composite of several sectors grouped for statistical purposes into Agriculture (defined as sum-total of Crop Production, Livestock, forestry and fishing), Industry, Services, Building & Construction, and Trade (i.e. wholesale and retail). The graph below plots the components of Nigeria’s GDP in the 5 decades since independence in 1960.
However the above raw figures are unclear and not much meaning can be gleaned from them so I express them in percentages below
From the above, agriculture appears to have given way to Industrial GDP in the 1980s and all seems well – right? Wrong exactly Industry is defined as sum-total of Crude oil/Natural gas, Mining activities and Manufacturing. Mining activities track coal mining, metal ores and quarrying activities. While manufacturing comprises oil refining, cement manufacturing and everything else. This implies that Industrial GDP in this sense can be misleading as will be seen in the chart below. This plots Industrial GDP and its components as defined by the Central Bank of Nigeria.
Since 1972-3, industrial GDP has been tracked closely by Crude, Petroleum and Natural Gas implying that crude oil exploration accounts largely for it. This leads to a paradox in definition, as the crude component as the name implies is ‘crude’ with no real value added. Furthermore with a Mining component defined as coal, metal ores and quarrying all primary products, Industrial GDP fails to capture the term ‘industrial’ in the popular sense of the word. It does not refer to the sum-total of productive processes involved in value adding to primary/raw materials to create a final good that can be consumed.
More clarity can be obtained by painting a picture that takes into cognizance the nature of output and value addition. A bit of theory here – the Lewis 2-sector theory named after Arthur Lewis the first and only Blackman ever to win a Nobel Prize in Economics proposes that every economy is made up of two sectors initially. The first sector is a primary often agrarian labour intensive sector with the other being a capital intensive industrial one. Lewis left out the services sector as he felt distributive activities take prominence after a country attains a high economic growth. More clearly, after countries have attained high growth rates, their citizens become less interested in efficiency and more agitated about equitable distribution of growth. Furthermore, the services type economy requires a higher level of human capital than the previous types. Today, people talk about a knowledge economy fired by technological innovation. Clearly these latter two sectors require much richer quality of human capital than the earlier two.
His theory posits that in the beginning the rapid increases in agricultural output spur growth and create a surplus, which is the leftover of what is not consumed locally. This surplus is exported and/or fed into Industrial/Manufacturing sector as capital. With more growth, this process is made faster and eventually taking advantage of economies of scale, industrial output rises faster than primary produce leading to a nation being termed Industrial.
Clearly, Manufacturing GDP in our present past democratic decade has declined from what it was in the 1990s. Basically, Nigeria’s economy has not been able to utilize the excess surplus created by its primary sector for industrial growth. It appears that Nigeria’s real sector has struggled to contribute more than 10% throughout her history.
The tertiary component comprising services and trade are clearly in second place implying that Nigeria will transit next to a service type economy. I exclude Building and construction in the Secondary/Industrial component which refers to the production of houses to give a clearer picture of the real sector’s contribution to Nigeria’s GDP. In addition, from the second graph above, Trade lies higher than Services implying that Nigeria’s economy is largely a trading outpost – production takes place elsewhere and we are a roadside market for sale of wares produced in other countries. This explains why the Central Bank is constantly behind the curve in fighting inflation – always firefighting with its attendant implications for interest and exchange rate management.
Furthermore, as our educational system is decaying as evidenced by the growth rates of WAEC/NECO fail rates a rush to a services sector is foolhardy – or more exactly will require significant imports of foreign expertise which will not come cheap in addition to the obvious externalities of higher local unemployment.
So how does all of this affect the price of crayfish in Daleko Market? From development history, we know NO nation with our population size developed without undergoing an industrial revolution/stage of growth. Clearly, for Nigeria to develop and we need an vibrant industrial sector, however from the evidence provided above, we seem to be stuck in reverse – we have a big primary sector but no industrial one to create value and feed into services sector. Our large ‘Distributive’ sector implies an obvious fact we are all simply involved in the inequitable distribution of our natural resources for consumption – a rent seeking country.
*All figures are obtained from the CBN statistical bulletin 2010
**All figures were re-scaled using their natural logarithm values. This is as the log is a strictly increasing function so transforming figures to their logarithmic values preserves the order and doesn’t really change anything; it only makes our analysis more tractable.