http://blogs.ft.com/beyond-brics/2014/05/19/afdb-says-africas-gdp-is-a-third-larger-than-thought/
Africa’s GDP is vastly understated. AfDB says Africa’s GDP is a third larger than thought
Official statistics put Africa’s GDP at about $1.5tn. But Mthuli Ncube, chief economist at the African Development Bank (AfDB), told delegates at the bank’s annual meeting that in reality the figure is a third larger: $2trn, “if not higher”.
The reason? African countries are revising their economic statistics, measuring for the first time in decades booming sectors such as banking and telecommunications. When earlier this year Nigeria updated its statistics, it nearly doubled its GDP estimate. Ghana found its GDP to be 60 per cent larger than thought in a similar update in 2010.
Ncube says many other African countries, including regional heavyweights such as Kenya, have yet to rebase their GDP, leaving plenty of room for much higher figures.
“Rebasing is producing [on average] a 30 per cent increase,” he said. “From the work we are doing in rebasing [the GDP], we think the final figure [for Africa’s economic size] will be closer to $2tr, if not higher,” he said.
Although upward revisions of the size of Africa’s GDP will not put more money in the pockets of consumers, it could well have a “feelgood” effect on perceptions about the region. With Africa firmly on the radar of multinational companies and global institutional investors, upward revisions could lure considerable inflows of capital.
Stuart Culverhouse, chief economist at Exotix, a frontier markets specialist in London, said the revision would have a positive impact in the psychology of foreign investors. “If countries are bigger, investors are more likely to look at them”.
According to the AfDB, only ten African countries out of 54 meet the international standard of using a base year in their GDP calculations that was five or fewer years ago. Another group of 19 countries use a base year that is at least a decade old and seven countries – including heavyweights such as Sudan – use base years that are more than 20 years old. Worse, commodities-rich Democratic Republic of Congo and Equatorial Guinea use base years from the 1980s.
One method of measuring GDP is to multiply the quantity of all goods and services purchased in a given year by their prices in the base year. Thus, if prices have risen sharply over the past decade, then using a base year from a decade ago will significantly understate the value created, and thus the GDP.
The reality check inherent in rebasing can be huge. When Guinea-Bissau and The Gambia, two tiny west African nations, recalculated the size of their GDP a few years ago, they discovered their economies were more than double the size of what had been reported.
But African officials are not rushing for the champagne. True, the continent’s GDP may be much higher than currently estimated. But the re-calculation will show some of the problems blighting the region, in particular growing income inequality. Africa maybe richer, but so far only a minority is benefiting from the growth.
And higher GDP figures will also highlight other problems, such as a lower tax base compared to the size of the economy, and low spending on health and education.
