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What exactly does GDP mean and how it affects you

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There are several technical jargons and acronyms peculiar to many professions. In economics, one of the most common acronyms used is GDP, which stands for Gross Domestic Product.

It is often cited in business news across newspapers, radio, television news, and in reports by governments, central banks, and the business community.

It is widely used to measure the health of national and global economies. According to Tim Callen, the Divisional Chief in overseeing IMF’s Middle East and Central Asia Department,”When GDP is growing, especially if inflation is not a problem, workers and businesses are generally better off than when it is not.”

Back story: Recall, on Monday, that Nigeria’s Gross Domestic Product (GDP) in real terms declined by 6.10% (year-on-year) in Q2 2020, thereby ending the 3-year trend of low but positive real growth rates recorded since the 2016/17 recession.

According to the numbers contained in the GDP report, the performance recorded in Q2 2020 represents a drop of 8.22% points when compared to Q2 2019 (2.12%), and 7.97% points decline when compared to Q1 2020 (1.87%).

Apparently, the significant drop reflects the negative impacts of the disruption caused by the COVID-19 pandemic and crash in oil price on the Nigerian economy.

What is GDP?

GDP is the monetary value of final goods and services (i.e those that are bought by the final user), produced in a country in a given period of time; per quarter or year. It counts all the output generated within the borders of a country, and is composed of goods and services produced for sale in the market. It is important to note that it also includes some non-market production like defence or education services provided by the government.

Its twin, Gross National Product (GNP), counts all the output of the residents of a country. For instance, if a German-owned company has a factory in Nigeria, the output of this factory would be included in Nigeria’s GDP, but in Germany’s GNP.

However, not all productive activity is included in GDP. Some of such activities are unpaid work (work performed at home or by volunteers) and black-market. They can’t form part of GDP because they are difficult to quantify or value accurately. For instance, a food vendor that cooks for a customer would contribute to GDP but won’t if he cooks at home for the family.

Also, wear and tear of Capital stock like machines, buildings, which are used in producing the output are not inclusive in GDP. If this depletion of the capital stock, called depreciation, is subtracted from GDP, we get the net domestic product.

How GDP is calculated
Production approach: This adds the value-added, which is the total sales – the value of intermediate inputs into the production process) at each stage of production. What is an intermediate input? Flour would be an intermediate input and bread the final product, or an architect’s services would be an intermediate input and the building the final product.
The expenditure approach adds up the value of purchases made by final users. For example, “The consumption of food, televisions, and medical services by households; the investments in machinery by companies; and the purchases of goods and services by the government and foreigners,” Callen added.

The income approach: This sums the incomes generated by production. According to the expert, this is the compensation paid to employees, rent paid to landowners, interest paid on capital, and profit paid to the company owners.

GDP in a country is usually calculated by national statistical agencies, which is the National Bureau of Statistics in the case of Nigeria. The agency compiles the information from a large number of sources.

In making the calculations, however, most countries follow established international standards. The international standard for measuring GDP is contained in the System of National Accounts, 1993, compiled by the International Monetary Fund, the European Commission, the Organisation for Economic Co-operation and Development, the United Nations, and the World Bank.

Real GDP

Since GDP gives information about the size of the economy and how an economy is performing, one thing people want to know about an economy is whether its total output of goods and services is growing or shrinking.

But because GDP is collected at current, or nominal prices, one cannot compare two periods without making adjustments for inflation.

To determine “real” GDP, its nominal value must be adjusted to take into account price changes to allow us to see whether the value of output has gone up “because more is being produced or simply because prices have increased. A statistical tool called the price deflator is used to adjust GDP from nominal to constant prices.”

The growth rate of real GDP is often used as an indicator of the general health of the economy. In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well.

Callen said, “When real GDP is growing strongly, employment is likely to be increasing as companies hire more workers for their factories and people have more money in their pockets. But real GDP growth does move in cycles over time.

“Economies are sometimes in periods of boom, and sometimes periods of slow growth or even recession (with the latter sometimes defined as two consecutive quarters in which output declines).

What GDP is not

It is also important to understand what GDP cannot tell us.

GDP is not a measure of the overall standard of living or well-being of a country. Why? Although changes in the output of goods and services per person (GDP per capita) are often used as a measure of whether the average citizen in a country is better or worse off, it does not capture things that may be deemed important to general well-being.

GDP is generally not a good measure of economic development. GDP’s preference for tangible goods also means it is insufficient at capturing the value of technology.

Generally, there are five indicators that GDP doesn’t take into account that could help measure national progress more accurately and these include: job quality (underemployment /unemployment), well-being, carbon emissions, inequality, and human health.

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Business

Just-in: Fire guts fuel tankers, vehicles in Lagos

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There is a fire outbreak, which has gutted a fuel tanker, at Anthony inward Gbagada, Lagos State.

This was disclosed by the Federal Fire Service via its Twitter handle on Friday evening. The incident, which occurred around 10 pm, has razed at least two vehicles.

The agency urged road users to avoid the area and take alternative routes.

Also, the Director-General of the Lagos State Emergency Agency, Dr Olufemi Oke-Osanyintolu, confirmed the incident.

He said, “The Agency responded to distress calls and upon arrival at the scene of incident, it was discovered that a tanker with unknown registration number conveying PMS lost control while in motion and subsequently fell sideways.

“This led to an explosion in which two unidentified vehicles were burnt.”

A joint team of responders led by the Federal Fire Service, LASEMA, LASG fire service, LRU fire unit, Nigeria Police and LASTMA are working together to curb the inferno from escalating further.

Details soon …

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Business

Arik Air’s operation shut by Aviation unions

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Arik Air operation has been shut down by Aviation unions over the airline’s alleged failure to pay seven months’ salary arrears of workers.

This was disclosed by a source in the airline, who claimed anonymity because he is not permitted to speak on behalf of Arik Air.

According to him, aggrieved unions, the National Union of Air Transport Employees and the Air Transport Services Senior Staff Association of Nigeria decided to withdraw their services due to an alleged increment of Terminal levy by Bi- Courtney and other anti-labour practice.

Details later …

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Business

How to curb corruption at the port

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Former President, Lagos Chamber of Commerce and Industry (LCCI), Mr Babatunde Ruwase, says the issues of corruption at the nation’s ports can be checked by automation.

Ruwase made his view known at a webinar organised by the Maritime Anti-Corruption Network (MACN), with support from Siemens AG and in partnership with the Convention on Business Integrity (CBI) on Thursday.

The topic of the webinar was,’Corruption in the Cargo Clearance Process at the Nigerian Port’.

He said that what should be done to address the problem was to automate the system, have a single window that would ensure checks on what one was doing.

“Presently in the port, the system is so structured that you cannot do something without paying your way out and the various reforms put in place have not gotten the required impact.

“We need to get out of this manual inspection, have timelines, an ombudsman system, and ground rules that are clear to eliminate corruption in the port,” he said.

In his contribution, Dr Kayode Opeifa, Vice-Chairman, Presidential Task Force on Restoration of Law and Order in Apapa, said there was a need to know those involved in cargo clearance at the ports.

“There are people called ‘Movers’ in the port and also some calling themselves stakeholders who do not have business at the port, but their activities have led to corruption and this needs to be checked.

“All stakeholders must show interest if we want to remove corruption at the ports, we should not allow touts to take over,” he said.

He said that the standard operating procedure of all involved in cargo clearance should be looked into, as some organisations have the policy, but on paper and not implemented.

Mr Olayiwola Shittu, former president, Association of Licensed Customs Agent (ANLCA) said discretionary powers of officials who run cargo processes and unwillingness to tackle issues fuel corruption at the nation’s ports.

Shittu, also the Managing Director, Borderless Alliance, said that the unwillingness to tackle issues arising from cargo clearance and the delay which led to extra cost made some people to cut corners.

“I have been in the port business since 1969 and there have been issues of corruption in the port, it is a very difficult issue that has been tackled by various stakeholders, all to no avail.

“It is so unfortunate because there are so many determinants to corruption in the port, such as the shippers and their agents, terminal operators, security agencies, transport and haulage companies and government agencies.

“All these determinants have their various functions and powers, and as long as they have discretionary powers and no way of being challenged, it becomes a problem and leads to facilitating of corruption in the port,” he said.

Shittu said that there was need for a Central Ministerial Intervention Agency to harmonise decisions in the port, as time wasted in the supply of cargo was the fertile ground that created and facilitated corruption.

Mr Muda Yusuf, Director General, LCCI, said that service system and systemic issues made it difficult to tame corruption in the ports.

According to him, there is problem of impunity and there are no structured, reliable and dependable processes of redress.

He said that in the chamber of commerce, it had been a very frustrating experience trying to intervene in some matters, and they had approached the authorities most times without making headway.

Yusuf said that trade facilitation with a form of measurement should be the Key Performance Index (KPI) for all involved in cargo clearance, rather than revenue.

Mr Vivek Menon of the MACN said that they had embarked on a project with the Federal Government to achieve port efficiency and address challenges.

“We did a Corruption Risk Assessment and came out with a Standard Operating Procedure of the various agencies such as the Customs, Port Health that come on board for inspection and decided on best way to harmonise them to reduce time.

“Also, there is a Grievance Report Mechanism whereby one can lay complaints to be addressed and we have been able to successfully tackle eight cases last year,” he said.

The News Agency of Nigeria reports that MACN is a global business network working towards the vision of a maritime industry free of corruption that enables fair trade to the benefit of society at large.

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