GDP made simple (A mentor of mine Dr Yemi Kale inspired this)
Hi,
So….right to it. When the National bureau of statistics rebased the National GDP of Nigeria a few years ago, there was a birth of inquisitiveness borne by technical terms in the public space about the national economy. Central to this was the term GDP which was valued in dollars (From $270b to $510b).
The recurring question on my twitter timeline was “…but we can’t see the money”. Dr Kale took his time to explain quite a few technical terms to those who engaged him and others within the space did the same most especially @ugodre.
I’m guessing quite a few got the concept in relation to their everyday lives. Truth be told, lots of people got to understand the concept better firsthand as recession hit and inflation kicked in addition to exchange rate “crisis” (this depends on analytical reasoning) like a migraine on a Sunday afternoon. It stung rich, middle-class and poor in varying capacities of perceived venom. Pain is a noxious stimuli.
I have the feeling the recession inspired Runtown to declare “if she follow me go na enjoyment go kill am o….” lol….I kid around.
Simply put, money is a means of exchange. So how is money different from Alibaba? Jack Ma owns no product. Not quite a perfect fit since Alibaba is more or less a conduit of exchange. Let’s stay on focus by imagining an alternate verse where the only difference was that money did not evolve and humans still relied solely on the barter system.
Stay with me, I’m a certified weirdo.
The UK has one of the strictest banking systems in Europe. Banks evolved from Oligarchs who had a lot of money directly or indirectly. Some of them controlled certain industries with their abundant wealth and profited through price fixing (Relax Nigerians, Cabals didn’t start in Abuja neither did “Bigmanism”).
Let’s say a Northern Oligarch’s Grandpa started out as a landowner upon which his Papa became a rice farmer as the land was a large swampy expanse and not useful for anything else in relation to the skill, manpower and savings locally available. Over time, there is development of road network to the populated and commodity hungry south. This prompts the Oligarch to visit Lagos during which he stays at the Federal Palace Hotel. The Kanuri notices to his displeasure that despite a hospitable stay, every meal with rice was overpriced in relation to his hometown of Kazaure by 1000% and the pieces of meat were so small. On his next trip, sharp guy switches hotels to a cheaper less fanciful guesthouse only to discover that a cheaper variety of rice was cooked which was 1800% more expensive than what his father used to produce 18yrs ago before they sought better varieties to cultivate. In his anger, the fresh prince figures, “I can make money in this Lagos fa”
Hes educated, so he puts pen to paper and draws a plan to haul his fathers unmilled rice to lagos weekly. His family is rich but not as wealthy as other Oligarchs so he keeps his plan to himself so he doesn’t become a laughingstock if he fails. He gets a quotation from Mandilas for a pickup truck, speaks to his Fathers bossom friend who is a Regional manager at FirstBank who advices him to open an alternate account in Bank of the North as there is no FirstBank branch at Kazaure.
The business is set in motion by 1990 and Fresh prince makes 5,000naira profit per trip running to and fro Kazaure-Lagos with Papa’s rice as the commodity of trade. By 1992, Fresh prince realizes there are a few more players in the game who locked in as they noticed his success. He then hires a manager who is his half-brother (Fresh prince Jnr-JR for short) who just returned from his Master’s degree in Logistics and supply chain analytics at Imperial College. Fresh prince JR attended imperial while he was a Major in the army. His father had spoken to his classmate from Kings College Lagos who was at the time Chief of Defense staff to ensure JR be promoted to the rank of Lt Colonel a week before discharge from the Army on account of a rumor of an impending Coup Detat that may result in dishonorable discharge for JR on grounds of ethnicity.
Fresh Prince JR explains to Fresh Prince that he hasn’t utilized full potential of his business all along. He goes ahead with a transformation agenda by setting up a milling factory in Kazaure for Papa’s rice, gets a bank loan from Bank of the North (where fresh prince was just appointed non-executive Director) to purchase 4 energy-cost efficient 18-wheeler Volvo trucks, hires an accountant to do a monthly audit in-house, opens an office in Apapa with warehouse at Ijora.
Business booms some more with positive cash flow at an impressive rate. Papa’s farm easily makes $6k/week revenue while the logistics arm makes $30k/week revenue by leveraging on the North-West value chain. They hone on trade demand/supply since fresh prince Jr is an expert in logistics and supply chain.
Soon they own 85 trucks and have opened a Volvo heavy machinery dealership at apapa. They also begin to expand into logistics for the North-South supply chain of Livestock (Borno/Katsina to Lagos), fish (Argungu/Lake Chad to Lagos), eggs (Oyo/Ekiti to Kano), Textile (Kano to Lagos).
In addition to this, Papa’s little brother ensures annual renewal of their lucrative Nipost Contract to haul parcels within 4 geopolitical zones. In the wake of democracy, Papa ran for Senate and easily won via financial backing from Fresh Prince.
At this point, they are easily doing $1mill/week revenue.
During the bank reconsolidation exercise AKA Soludo-Solution, Fresh Prince has amassed so much physical cash from logistics (now a $1.8m/week in revenues business) and the Oil and Gas gas industry through the Oil and Gas Logistics coy (Easily doing $3m/month in revenues) that Fresh Prince JR set up in 2002 in partnership with Luca (His Swiss classmate from Imperial) with whom he attends Ascot annually.
Fresh Prince JR then informs Luca (who is from a small Swiss Banking Family) of the Nigerian opportunity to bring in some hot money. Informs him of the reconsolidation opportunity. They could easily double $100m if it goes well. They float $400m SPV registered in the Cayman Islands…..blah blah blah(*technicalities*) acquire majority shares in 2 banks, short their own stock and repatriate $680m back to the Cayman of investors/banks money(*Fantasy/Fa ta si*) while still owning the banks. At this point, Fresh Prince is easily a dollar billionaire in cash terms. At this point, Sanusi kick hard but nobody returns any money or goes to jail.
Basically, Fresh Prince is Oligarch of a Billionaire family with $2.1b in cash (Domiciled in a local bank and the Cayman) due to their frugal lifestyle and owns a logistics company valued at $720m.
There are quite a handful Fresh Prince’s/Fresh Prince JR’s in Nigeria with local cash, active performing assets generating revenue and paying salaries valued in dollar terms, passive assets that pop up in the value chain, professional industries, producers, traders, artisans etc. the best way to conceive it is to imagine the GDP space as everywhere that money changes hands.
Transactions could also take place without physical cash changing hands and yet it’s valued and added as part of the GDP eg Mortgages, Loans, Futures contracts like LPO’s, Commodity futures etc. Services are also valued because they are the drivers of the economy.
There are lots of uses of the data used to compute the GDP of an economy, chief of which excites me is planning. This can ensure efficient allocation of resources on a need basis with a priority for essential products and services.
Money is a store of value, but not all value/product in an economy is stored as money. Also realize that the more informal an economy is, the less likely it is to hit computable full potential.
