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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

Nigeria signs MoU with Niger Republic on petroleum products transportation, storage

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The Federal Government has signed a Memorandum of Understanding (MoU) with Niger Republic on the transportation and storage of petroleum products.

This was disclosed by the Ministry of Petroleum Resources via its Twitter handle on Thursday.

It tweeted, “Nigeria, Niger Republic Sign MoU on Petroleum Products Transportation, Storage. NNPC Pledges to Support SONIDEP on Capacity Building.”

The MoU was signed by the GMD NNPC, Mallam Mele Kyari and the Director General of SONIDEP, Mr. Alio Toune under the supervision of the two countries’ Ministers of State for Petroleum, Çhief Timipre Sylva and Mr. Foumakoye Gado, respectively with the Secretary General of the African Petroleum Producers Organisation (APPO), Dr. Omar Farouk Ibrahim in attendance.

Sylva explained that the development is another huge step in developing trade relations between both countries.

He said, “This is a major step forward. Niger Republic has some excess products which needs to be evacuated. Nigeria has the market for these products. Therefore, this is going to be a win-win relation for both countries.”

What you should know

Following bilateral agreements between Nigeria’s President Muhammadu Buhari and President Mahamadou Issoufou, talks have been on-going between two countries for over four months – through the Nigerian National Petroleum Corporation and Niger Republic’s National Oil Company, Societe Nigerienne De Petrole (SONIDEP), on petroleum products transportation and storage.

Niger Republic’s Soraz Refinery in Zinder, some 260km from the Nigerian border, has an installed refining capacity of 20,000 barrels per day. Niger’s total domestic requirement is about 5,000bpd, thus leaving a huge surplus of about 15,000 bpd, mostly for export.

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House of Reps to support full aviation reform

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The House of Representatives has promised to support total reforms in the aviation industry through legislation, as it appeals for active participation of stakeholders in public hearings.

This was disclosed by the Speaker of the House of Representatives, Femi Gbajabiamila, via his Twitter handle on Tuesday.

According to him, the House has identified that the aviation industry is a key contributor to the growth of the country’s economy and through legislation it would do all it can to develop the industry.

During the opening of a 3-day public hearing session on six aviation-sector bills by the Committee on Aviation, he explained that the draft legislation would make the sector more effective and efficient.

He said, “It is imperative to note that the development of our aviation industry is an added advantage to the growth of our economy. It is in this vein that the House of Representatives will continue to support total rehabilitation and upgrading of our airports and allied services.

“The consideration of these Bills during this Public Hearing is a testament to our commitment to give new life to the aviation sector and make our airports to be a better non-oil revenue-generating sector as is witnessed in other advanced economies.”

The Speaker appealed to the public and interested parties to honour invitations to House committee public hearings so that they can share ideas on how to make critical sectors deliver optimally.

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Business

Hoodlums loot Shoprite store in Ilorin, stole iPhone 11 mobile sets, others

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Some suspected hoodlums l allegedly looted the Palms Mall on Fate road, Ilorin, Kwara State capital. The mall hosts stores of Shoprite, and Lifemate Furniture among other stores including Mobile phones retailers.

This was revealed by an eye witness.

He said, “They allegedly stole iPhone 11 mobile sets, other mobile sets brands, Refrigerators, and households items among others.”

According to him, the suspected hoodlums forced their way into the Mall after they have stormed and allegedly looted Kwara Agro Hall, an agro resettlement centre, where they carted away Aluminium roofing sheets, mattresses, bags of cement and bags of flour among others.

Back story: Similarly, similar incidents had occured in Lagos when suspected hoodlums looted at Shoprite Malls across Surulere, Sangotedo.

According to reports, suspected thugs from Orile have invaded the mall and the neighbourhoods.

The alleged looters were seen with a cartload of goods on the streets along Ajah Road.

An eyewitness account also submitted that the hoodlums were looting shops around Bode Thomas and Adeniran Ogunsanya.

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