Changing African statistics make investors question the reliability of data
Number fiddling has been rife across countries as GDP figures change and are adjusted to reflect more favourable growth. Africa is undeniably an investment destination with high growth prospects, but why are the
Questions of accuracy
In 2010, Ghana announced that it would adjust its GDP estimates upwards by over 60 per cent, suggesting that about $13 billion worth of economic activity had been missed in previous estimates. Author Morten Jerven warned in 2012 that African national GDP statistics might not be as reliable as initially thought.
“This is not just a matter of technical accuracy – the arbitrariness of the quantification process produces observations with large errors and levels of uncertainty. This ‘numbers game’ has taken on a dangerously misleading air of accuracy, and the resulting figures are used to make critical decisions that allocate scarce resources. International development actors are making judgments based on erroneous statistics,” he said. “Governments are not able to make informed decisions because existing data is too weak or the data they need does not exist.”
Kay Walsh, executive lead in economics advisory for Deloitte and Touche, explains that this is in part due to the large amount of informal trade that takes place unrecorded in many African economies.
Ghana’s revision of its GDP is centred on its choice of a base year for the calculation. Jerven explained that GDP is typically calculated as a sum of the value added of the production of goods and services in all sectors of the economy. “In order to compare one year’s value add with another, and thus get an idea of whether the economy is expanding or contracting, a new set of sums for all the sectors is computed. In order for these two amounts to be comparable, they are expressed in constant prices. The easiest way of doing this, particularly if data is sparse, which they are at most African statistical offices, is to generate ‘base year’ estimates for future level estimates.”
A good base
National accounts should be rebased every five years, according to International Monetary Fund (IMF) Recommendations, Walsh explains. Ghana’s initial base year was 1993. The change in base year impacted the figures, resulting in the rosier picture that has been presented. The result was that what had previously been one of the poorest nations in the world suddenly became a middle income country. Similarly, Nigeria announced in 2012 that it would be revising its GDP figures upwards, changing its base year from 1990 to 2008; a massive jump that will have significant impact on growth figures. Jerven’s own survey found that only 10 of the sub-Saharan countries surveyed had a base year that is less than a decade old. “There was an alarming level of discrepancy when I compared statistics available from the World Bank and those published by the national statistical agencies that compile the GDP statistics,” he said.
According to The Economist Nigeria, leading economists have argued that in the future, Nigeria may experience a slower rate of economic growth because of the larger GDP base as a result of the country’s rebased GDP. In an interview with Business Day, referring to Nigeria, analyst at Consolidated Discount Limited Jimi Ogbobine said, “When the GDP is finally rebased, the GDP growth rate of the country could drop from the current six to seven per cent range, to around 3.5 to five per cent. On the other hand, if Nigeria is to continue to achieve the six to seven per cent growth rate after the rebasing, it means that the country will have to post a much higher level of economic output per quarter than it is currently doing.”
Political analyst and lecturer, Samuel Nzioki argues that the prevailing predictions on Africa’s economic rise need more sobriety in terms of rhetoric, critical assessment and pragmatic evaluations of tangible economic indicators on the ground by Africans themselves. “The rhetorical debate driven by the media in the past 10 months, and particularly in terms of Ghana and Nigeria, calls for critical debate, irrespective of whether the growth forecast numbers are adjusted positively or negatively. The trend has been labelled one of exaggerated optimism and by others as ‘the myth of Africa’s rising’,” he says.
Setting the agenda for Africa
Nzioki notes that the parameters to public discussion on Africa’s growth across the globe seems to be set by stories run in highly regarded publications such as The Economist and The Times magazine. The articles, which run almost in synchrony, neatly spell out the theme of Africa rising, linked to indicators such as:
The high use of mobile phone technology. Recent discoveries or explorations of value commodities such as gas and oil in the southern to east and central African belt. Appetite for massive direct investment from China.
“The reliance on such indicators for future predictions especially in countries considered by Western powers as being favourable for trade, like Nigeria and Ghana, has been a push factor for some of the adjustments in economic forecasts in these countries, with all likelihood that the statistical data provided from domestic analyses attempts to align itself to some of these predictions,” he cautions.
A case can be made, Nzioki says, for deeper introspection in the manner in which Africans are attempting to make their case for the continent as the new destination for investment, by looking at some of the realities and basic mechanics of growing economies in the present, heavily industrialised, globalised world.
“For instance, there are concerns that some of these upward adjustments do not base their optimistic predictions on the basics, such as the level of manufacturing which is the anchor for industrialisation and sustainable modern economies, the little resources that have been set aside for research and development, cheap imports that cause reluctance and increased consumerism of heavily corporate products like those of the mobile phone industry.” As such, Nzioki says, the balance of trade – imports versus exports remains skewed – and therefore the statistical analyses need to take these domestic realities into consideration while taking in the rhetoric.
With experts including the IMF recently increasing 2014 growth projections for the continent from 5.7 per cent to 6.1 per cent, there is little doubt that Africa’s growth is not simply a numbers trick. However, it is clear that the revision of statistics among investment-hungry nations may be a cause for concern.
“Overall, I wouldn’t say this is cause for investor panic. If anything it should boost investor confidence in fast growing African economies that are likely much larger than official estimates currently suggest’ Walsh concludes. “It does however suggest that there is significant room for improvement and that multilateral institutions such as the World Bank and IMF can play a greater role in assisting developing countries to build capacity in their statistical institutions.”