http://nehandaradio.com/2014/07/05/african-countries-must-re-benchmark-gdp-statistics/
African countries must re-benchmark their GDP statistics
Jul 05, 2014 Business <
http://nehandaradio.com/category/business/>,
By Perry Munzwembiri
*When Ghana revised its Gross Domestic Product (GDP) figures in 2010, the
resultant 60 per cent jump in its GDP estimates saw it being upgraded from
low-income country to a lower-middle income country.*
Similarly, Guinea Bissau and The Gambia also discovered that their
economies were more than double the size of what had previously been
reported after embarking on exercises to recalculate their GDP
statistics. Perhaps more pronounced was the giant 89 per cent leap by
Nigeria to the title of Africa`s biggest economy (with a GDP of around $510
billion) after rebasing its GDP figures in April of this year.
While the ordinary person walking the streets of Accra, Lagos and Abuja did
not immediately have more money in their pockets after their respective
rebasing exercises, there are benefits to updating national income
statistics. Kudakwashe Kadungure, Senior sub-Saharan Africa Equities
Analyst at Imara Africa Securities, a division of Imara SP Reid said:
"I think it is generally a positive thing to work with numbers that better
reflect the true state of affairs," in an emailed response to questions on
the benefits of revising National Income statistics.
"With regards to fiscal planning, especially where taxes are concerned, I
think it is definitely in everyone`s interest that governments implement
tax policies that are as efficient as possible," Kudakwashe further added,
underlining the importance of governments using tools that are accurate in
determining their policies.
In explaining how the updating of national income statistics could
potentially lure investors and boost private sector activity, Kudakwashe
said,
"For an investor interested in a recently rebased economy, one can already
see how an understatement in metrics that compares that particular market
to a global or regional benchmark (such as consumption per capita vs. GDP
per capita) can suggest greater growth prospects than previously thought.
The net effect becomes that overall, positive perceptions of the local
economy ensue and investors are attracted to such countries after the
revision of GDP figures.
"With the Nigerian example, we find that some Africa facing emerging market
funds immediately increased their holdings in Nigeria since their asset
allocation was also dependent on GDP weighting," Kudakwashe added.
It would appear then, that the case for more African economies to update
their national income statistics has merit. Especially when one considers
the exclusion of key sectors that have become more dominant now than in the
past like Entertainment, Information and Communication Technologies (ICTs),
Banking, and the informal sector, it would be in the best interests of
African countries to revise their GDP statistics to better reflect economic
activity.
Yet at the recently concluded African Development Bank (AfDB) Annual
Meetings in Kigali, Rwanda, AfDB Vice-President and Chief Economist,
Professor Mthuli Ncube indicated that Africa`s GDP could be underestimated
by as much as 30 per cent due to out of date GDP bases and informal sector
activity that is unaccounted for.
At present Africa`s GDP stands at around $1,5 trillion, but Professor Ncube
reckons this figure could be somewhere north of $2 trillion, if national
income statistics of all African countries were up to date.
Data shows that after a rebasing exercise, on average, GDP figures of
African countries increased by nearly 30 per cent. However, a major cause
for concern is the fact that only 10 out of 54 African countries comply
with the internationally accepted standards of using a base year for their
GDP calculations which is 5 years of fewer old. Currently, 19 countries use
a base year that is at least a decade old, with 7 using base years that are
20 years old and the Democratic Republic of Congo (DRC) being the extreme
case using a base year from the 1980s.
Given the potential benefits of using current GDP statistics, African
countries have displayed a reluctance to revise their national income
figures. Granted, re-benchmarking GDP figures does not always imply an
increase in GDP. For instance, when Botswana rebased its GDP statistics,
adopting 2006 as the new base year whilst abandoning the old base year of
1993, it witnessed a 10 per cent decline in its GDP statistics.
Such was the case with Ethiopia and Lesotho which both recorded marginal
declines of 1 per cent and 4.4 per cent respectively, after their GDP
rebasing. The importance however, of using current data which better
portrays the state of economic activities is essential. For countries like
Zimbabwe which are trying to attract Foreign Direct Investment (FDI)
inflows, rebasing should be prioritised.
Obviously, a GDP rebasing exercise requires a tour de force to implement.
Looking at Nigeria, preparatory work for its rebasing exercise started in
the last quarter of 2011 according to the country`s National Bureau of
Statistics. The process would involve surveys of economic activities that
were not previously captured, validation of data with sector experts and
assistance from international development partners.
For most African countries, the financial and technical capacity to conduct
such an exercise of enormous proportions could be a hindrance. This could
in part explain why there has been a rather slow uptake of GDP rebasing,
with some continental heavyweights like Kenya still to rebase.
However, some feel that African governments deliberately ignore rebasing
exercises, as doing so would reveal flaws in economies such as growing
income inequalities, lower spending on key areas like education and health
as well high incidences of institutionalised corruption and leakages.
Some analysts have even gone to the extent of suggesting that countries
deliberately understate their GDP figures so they can be eligible for debt
relief from international finance institutions under the Heavily Indebted
Poor Countries (HIPC) initiative.
If the continent is to remain in its growth trajectory, it is critical that
African economies update their GDP figures to show a truer reflection of
economic activities, such that policy makers make evidence based decisions.
Furthermore, as the informal sector on the continent has rapidly grown over
the years, it is necessary that this sector is formalised and included in
the national income statistics. Changes in weightings used in GDP
calculation could also increase the diversity of the economies, especially
when sectors higher up the value chain such as manufacturing and services
are considered.
Going forward, it is important for African economies, especially those in
need of significant FDI flows to re-benchmark their GDP. This could likely
improve investor sentiment and lure potential investors. For Africa, higher
GDP figures may enhance the continent`s role in the global economy, and see
it become a more dominant force.
A mere GDP rebasing without complimentary policy and regulatory reforms
however, would come out to nought as investors would shun countries without
favourable policies. On the whole, it is in the continent`s best interests
to use up to date statistics, and policy makers should seriously consider
rebasing in their individual countries.
Received on Fri Jul 04 2014 - 21:34:57 EDT