Africa: underestimating GDP

Men speak on mobile phones at the Adjame market in Abidjan

GDP calling

GDP growth is thought to be correlated to everything from conflict risk to whiskey consumption. And the current slew of positive stories about Africa are driven, in part, by the impressive GDP statistics posted by countries across the continent.

But these numbers are poor estimations of economic development, says Morten Jerven at Simon Fraser University. His argument is not that GDP does not say much about happiness, equality, environmental sustainability. It’s a more technical point: many figures are, well, just wrong. African GDP might actually be growing faster than we think.

His argument revolves around a technical but important question: the base year. Typically, GDP is calculated as a sum of the value added of the production of goods and services in all sectors. To compare one year’s value added with another year, and thus discover whether the economy is expanding or contracting, a new set of sums for all the sectors are computed. In order for the two amounts to be comparable, they are expressed in constant prices. “The easiest way of doing this, particularly if data are sparse, is to generate a ‘base year’ estimate for future level estimates” he says.

But if the base year is too out of date, whole swathes of economic activity are ‘missed’ – there is nothing to compare them to in the base year (such as mobile telephony, which was non-existent in Africa until quite recently). “Sectors that were unimportant or not even existing [in the base year] will barely have an impact on the official GDP statistics,” he says.

The IMF recommends changing the base year every five years, but that has not been the norm in Africa.

Ghana was, until 2010, using a 1993 base year. When its statistical office revised its base year in 2010, GDP estimates rose by over 60 per cent, meaning previous estimates had ‘missed’ about $13bn of economic activity. Nigeria’s base year for national accounts is even older, set at 1990. An upward revision is pending, based on a 2008 base. Recent reports suggests Nigeria’s GDP could increase at least much as Ghana’s.

If that happens, GDP for the whole of sub-Saharan Africa could rise by 15 per cent or more (Nigeria accounts for 18 per cent of the region’s total GDP). “The value of the increase accrues to nothing less than 40 economies roughly the size of Malawi’s. The knowledge that currently there are 40 ‘Malawis’ unaccounted for in the Nigerian economy should raise a few eyebrows,” says Jerven.

He is not the only researcher finding a rosier story behind the official statistics. Work at the London School of Economics argues that over the last 20 years, household consumption in Africa has actually been growing from 3.4 per cent to 3.7 per cent per annum, compared to the 0.9 to 1.1 per cent suggested by income statistics.

But don’t break open the champagne just yet. Even when accurate, GDP may be a dodgy proxy for a country’s overall developmental health. Tunisia and Egypt notched respectable figures in the lead up to their revolutions. Post-Arab Spring, Pollster Gallup wants to promote an entirely new metric for development success, based on what citizens think.

And some of sub-Saharan Africa’s fastest GDP growers – notably Angola, Chad and Congo – are very hard places to do business, with some of the worst human development indicators in the world: reports on education and health in Angola and Chad, two of the world’s ten fastest growing economies between 2001 and 2010, make for sobering reading.

Related reading:
Can EMs forsake growth for happiness?
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Ghana: lies, damn lies and estimates
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Nigeria: No. 1 in Africa by 2014?
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