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Fri May 31, 2013
How Recalculating GDP Can Help App Designers In Nigeria
Originally published on Fri May 31, 2013 2:34 pm
If you're trying to grow a business in Nigeria and you want investors, you want Nigeria's economy to look as big as possible.
Bayo Puddicombe and Zubair Abubakar own a company called Pledge 51, which creates applications for Nigeria's low-tech cellphones. One of their most popular games lets players pretend to drive the notoriously wild buses crisscrossing the Nigerian city Lagos. It's called Danfo, after the buses.
These guys think they can make a lot of money for some savvy foreign investors. But one of the biggest challenges they face is that on paper, Nigeria's economy doesn't look as good as it should. The reason: For more than two decades, Nigeria has been estimating its gross domestic product using data collected in 1990. A lot has changed in the world since then (hello, cellphones), but Nigeria's GDP calculation hasn't kept up.
Nigeria has plans to fix this problem by using data from a more recent and relevant year, what economists call rebasing. And this change could make Nigeria's economy No. 1 in sub-Saharan Africa — surpassing South Africa. That could mean a lot more investment for the team at Pledge 51.
"Let's say that there's a company in Silicon Valley, which has to buy some app in another country to expand. All of a sudden when they go to their board meeting and they're looking at the top 10 economies in the world, Nigeria will be up there with Brazil, India and China," says emerging markets analyst Sebastian Spio-Garbrah. "It puts them in the big league."
Spio-Garbrah has seen this happen. When his home country Ghana updated its GDP in 2010, the country moved from what investors consider a low-income country to a middle-income country in one day. It had a dramatic effect. Ghana could start borrowing a lot of foreign money at low cost by selling bonds.
But there's a flip side: Now Ghana can't get the international aid reserved for low-income countries.
"People at the bottom of society who actually need health care and education and other things which foreign aid often supports become even more vulnerable," says Spio-Garbrah.
A lot depends on what you do with the investment you attract, says economist John Page of the Brookings Institution. If Ghana sells bond after bond so it can build a string of gold-plated palaces, not so helpful. But if, after Nigeria updates its GDP, foreign investors fly to Lagos to meet up with the app designers at Pledge 51, that's clearly a good thing.
"That's one of the good examples of where this can have a positive impact," Page says.
RENEE MONTAGNE, HOST:
When a country's economic growth improves, that would seem to be all good. It certainly has the potential for changing the way a country is viewed by the world. And that can happen when the government changes the way it calculates the Gross Domestic Product, or GDP. Marianne McCune of Planet Money and WNYC brings us the story of a few countries in Africa doing just that.
MARIANNE MCCUNE, BYLINE: Best case scenario: This GDP trick will help people like these two guys, Bayo Puddicombe and Zubair Abubakar. To get better phone reception, they're standing on the roof of the office where they invent cool applications for Nigeria's low tech cellphones. This one is a game where players pretend to drive the notoriously wild buses that these two can see from where they're standing, criss-crossing Nigeria's capital.
ZUBAIR ABUBAKAR: Yeah. Because the drivers are aggressive, they drive rough.
UNIDENTIFIED MAN: (Foreign language spoken)
ABUBAKAR: And they can be very unfriendly.
MCCUNE: The goal is to pick up as many passengers as you can while weaving through traffic and evading cops.
UNIDENTIFIED MAN: (Foreign language spoken)
MCCUNE: These guys think they can make a lot of money for some savvy foreign investors. But one of the many challenges they face? On paper Nigeria's economy doesn't look as dazzling as it could. For more than two decades, Nigeria has been estimating its Gross Domestic Product - basically the value of everything the country produces — using data collected in 1990.
And a lot has changed since then. Like - just for example - now people have cell phones. So Nigeria plans to update its GDP. It's called rebasing: they'll use data from a more recent and more relevant year. And this could make Nigeria's economy number one in sub-Saharan Africa - surpassing South Africa.
SEBASTIAN SPIO-GABRAH: Absolutely.
MCCUNE: Across the Atlantic, emerging markets analyst Sebastian Spio-Garbrah says that new number could do a lot for Abubakar and Puddicombe. Picture a Silicon Valley firm looking to invest in a foreign video game start-up.
SPIO-GABRAH: All of a sudden, when they go to their board meeting and they're looking at the top 10 economies in the world, Nigeria will be up there with Brazil, India and China. It puts them in the big leagues.
MCCUNE: The funny thing is - all that potential movement of capital, if it happens, it will all be based on a new number, not a new reality. So I have a sort of silly question. Aren't international investors smarter than that? I mean don't they recognize this is just a number that's changed, not any reality on the ground?
SPIO-GABRAH: No, they are not.
SPIO-GABRAH: No, they are not.
MCCUNE: Investors are busy, he says. And they need numbers to compare one country to another. Sebastian Spio-Garbrah is originally from Ghana, three countries to the west of Nigeria. And when Ghana updated its GDP in 2010, in one single day it moved from low income to middle income in the eyes of the world.
And soon after, Spio-Garbrah says, the government was able to start borrowing a lot more foreign money at low cost by selling bonds. But there's a flip side. With its higher GDP, Ghana can no longer get the international aid reserved for low income countries.
SPIO-GABRAH: People at the bottom of society who actually need health care and education and other things which foreign aid often supports become even more vulnerable.
MCCUNE: Basically a lot depends on what you do with the investment you attract, says economist John Page of the Brookings Institution. If Ghana borrows a bunch of money to build a string of gold-plated palaces, not so helpful. But if, after Nigeria updates its GDP, foreign investors fly to Lagos to meet up with those guys making cell phone games?
JOHN PAGE: That's one of the really good examples of where this can have a positive impact. I certainly would prefer that some of my nearest and dearest didn't spend as much time on video games as they do.
MCCUNE: Well, they also did a whole app that allows you to carry the Nigerian constitution in your phone and access it...
PAGE: There you go. So, you know, this is a terrifically good example of how this can really be of help.
MCCUNE: What you want is for your higher GDP to lead to more jobs and less poverty. The problem is it often doesn't. Some of the fastest growing economies in Africa are creating very few jobs. Marianne McCune, NPR News, New York. Transcript provided by NPR, Copyright NPR.