Chang­ing African statis­tics make in­vestors ques­tion the re­li­a­bil­ity of data

RISKAFRICA Magazine - - CONTENTS - Bianca Wright

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

num­bers chang­ing?

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.”

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