Today, Nigeria’s National Bureau of Statistics (NBS) released the country’s Q2 2018 Gross Domestic Product (GDP) report, but as usual it was a gross distortion of the truth about growth as it measures the quantitative. The problem is not NBS, which rightly calculated the GDP as expected and reports Nigeria’s Q2 real GDP growth at 1.50 percent year on year; it’s the fact that we have continued to swear by this relic called GDP as a measure of economic performance.
Almost everyone agrees that GDP alone is an imperfect metric for growth and prosperity, but it still remains the universally accepted measure of performance of countries. The question we really want GDP to answer is whether Nigeria and Nigerians are better off economically than the last period when ‘growth’ figures were released and if so, by how much? But is GDP really answering this question?
Every quarter, GDP figures are released and government agencies react with policies that will maintain such recorded “growth” or increase it. Many await these figures and accept what it says about the economy, but what does it really say?
GDP measures the monetary value of all goods and services produced over a specific period. GDP is calculated by adding total consumption, government spending, investment and net exports. However, it fails to measure the quality of growth or depletion of resources, neither can it easily measure innovation or degradation of the environment due to extraction of raw materials.
Financial Times’s Africa Editor David Pilling used a perfect example in an article published by the World Economic Forum in January. “Nigeria was busy selling high-priced oil to the world before the price crash, its GDP was soaring. But its wealth was falling,” Pilling wrote. “Oil deposits were used up, but cash was not reinvested in human, physical and technological capacities to ensure future income.”
He noted that if GDP measured wealth, it could have drawn attention to that.
In January, the global lender published a book titled The Changing Wealth of Nations, which explores the wealth of 141 countries from 1995 to 2014. The book argues that using GDP alone as an indicator of economic progress is like a company reporting income but not assets. Wealth— the assets such as infrastructure, forests, minerals, and human capital that produce GDP need to be measured as well.
“Wealth accounts allow countries to take stock of their assets to monitor the sustainability of development, an urgent concern today for all countries., both in the present and the future,” the book states, adding that “A country’s level of economic development is strongly related to the composition of its national wealth.” But GDP does not measure wealth, neither does it measure well-being.
While we continue to debate whether to keep the GDP, tweak how it is calculated or replace it altogether, we need to start paying more attention to indices such as Human Development Index (HDI), Inclusive Development Index, Prosperity Index, among other alternatives to GDP. After all, what is economic growth without improvement in the lives of people?