How Recalculating GDP Can Help App Designers In Nigeria
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.
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