ECONOMY - 06 NOV 2015

The Wealth of States

The Wealth of States
Local Construction

The National Bureau of Statistics (NBS) has undergone a face-lift in recent years. Information dissemination has improved through the use of infographics, social media has permitted productive engagement with the polity, and a new website and streamlined data portal have made secondary research much easier. At the same time, a number of their recent reports have captured public imagination – the Gross Domestic Product (GDP) rebasing of last year and this year’s unemployment redefinition spring easily to mind. One scheme that flew under the radar is the compilation of (GDP) figures in 7 pilot states, each one representing a geopolitical zone.

In most countries, economic data is primarily collected and reported at the national level. And although this makes sense politically, it is a more arbitrary economic decision. Regions within a country are sufficiently different to warrant their independent statistics, yet these are rarely provided. GDP figures are broken down into sectors, but why not by states? There are some notable exceptions of course. The NBS already looks at state data when it comes to Internally Generated Revenue (IGR) and Premium Motor Spirit prices. This State Gross Domestic Product (SGDP) scheme could prove just as significant as the GDP rebasing exercise.

 

More data is better data

Jane Jacobs argues that the most natural unit of macroeconomic analysis is a city and its surrounding regions. Nation-states are simply too constituently diverse and this introduces predictable problems for policy-makers. Uneven growth is prevalent in many countries, Nigeria included. Meanwhile, the European Union is still grappling with the difficulties of managing an economic unit consisting of many sovereign states. Truthfully, political expediency means that nation-states will remain the primary unit of macroeconomic analysis but there is a clear argument for more state-level analysis and policy.

William Easterly (of Happiness Economics folklore) has co-authored a paper called “A Long History of a Short Block”, a history of the economic development of a single block in downturn Manhattan in New York City. The paper maps out the complexity and unpredictability of the economic development of this single block and in doing so, demonstrates the hubris in trying to explain and manipulate economies at the national level. This means that considering economic growth at the national level can easily mislead us. Economic growth is often the aggregation of many localised stories of development and SGDPs allows us zoom more closely into these stories.

For Nigeria, it may also disrupt the current structure of Fiscal Federalism and shift more resources and policy-making responsibility on to state governments. The large disparities in state IGR figures has already concentrated the spotlight here and SGDPs would further intensify that. This should encourage healthy interstate competition.

Finally, SGDPs would naturally give more guidance to those formulating policies and making investment decisions by shedding light on the strengths and weaknesses of regions and towns within states. This could better direct government and development efforts and facilitate the sort of inclusive growth being pursued by the Buhari administration.

 

Stubborn data problems

The elephant in the room here is measurement error. The concern is that for difficult states, statistics will be too unreliable to use. After all, if the United States has to sometimes significantly revise GDP estimates, how reliable can the estimated GDP of crisis-stricken states in Nigeria be? Attributing GDP to specific states is not a straightforward task. National estimates only concern themselves about what sectors generate GDP, state estimates must go further and establish the geographical origin too. Sorting out overlaps, interstate highways for example, is crucial.

And of course, SGDPs don’t solve the underlying problems with GDP or GDP per capita estimates. SGDPs will still fail to discriminate between harmful and non-harmful products, ignore productive activity where money does not change hands, and exclude the large informal sectors of certain regions. The problem may be exacerbated at the state level if certain states have higher levels of informal economic activity. In this sense, a lot of work still needs to be done to bolster GDP estimates while policy-makers must also look beyond crude metrics and complement them with more multi-faceted measures of prosperity.

 

The data revolution continues

Efforts to compile SGDPs are likely to have teething problems even beyond the pilot phase but these efforts clearly show that the NBS is building capacity and capability. However, responsibility does not lie solely with them as the National Planning Commission will provide the funding and help coordination efforts. 

The data revolution can only be good for Nigeria as robust, reliable and varied data is needed to lubricate our development efforts. Meanwhile, the prospective inclusion of SGDPs might just spark a shift towards more bottoms-up models of development in Nigeria.

 

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Kitan Williams

Kitan Williams

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