Undercounting Africa, And Why Egypt’s Economy Could Be Larger Than Nigeria’s

Undercounting Africa, And Why Egypt’s Economy Could Be Larger Than Nigeria’s

From Mail&GuardianAfrica. Story by Lee Mwiti.


In the last decade the gross domestic product of the 11 largest countries in sub-Saharan Africa has grown 51 percent — more than double the world average of 23 percent and four times that of the U.S., according to Bloomberg.

The continent’s average consumer price index has stayed at 8 percent since 2013 compared to 13 percent plus in 2008 — a combination of rapid economic expansion and low inflation that has enticed investors as other once-favored emerging markets struggle.

The major drivers in Africa were consumer-focused industries that are taking advantage of the burgeoning population, materials (construction) and financial services, which outpaced emerging markets by 11 percent.

Only energy was the main loser. Yet the struggles of major exporters such as Angola and Nigeria have been conflated with the reduced demand by China for commodities to paint a dire outlook for the continent.

The picture is nowhere as bad as persistently advanced, says Carlos Lopes, executive secretary of the U.N. Economic Commission for Africa. Most African countries are not important exporters of commodities, and it is difficult to predict just how the downturn will actually hurt Africa’s growth.

There is actually a benefit to the downturn: the current market volatility could accelerate the drive to turn the continent’s attention towards seeking internal and more sustainable growth.

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A counter-argument to the rapid expansion of GDP has been that data on Africa’s growth is weak. It definitely is, but it presents a different “problem”: that of undercounting.

Compelling data from the international economics analysis organisation World Economics shows how in four ways:

1. No resources to count

Have you ever wondered why U.N., World Bank and IMF economic data on Africa vary so much even when they are describing the exact same thing such as per capita income?

The problem starts at country level: national statistics offices have low capacity to collect data due to insufficient resources. Data is also lost or distorted due to conflict, political instability or even corruption. Such numbers determine how resources are shared out and as such attract undue attention, including from politicians seeking to reward their power bases.

The structure of economies and nature of property rights means the informal, or shadow, economy is not captured, leading to guesswork and data filling, including through econometric methods. But given the weakness of the base data it is still groping in the dark, compounding the original problem to the international level.

2. Outdated base years

The rebasing of Nigeria’s GDP catapulted it to the top position as the largest African economy, as the base year changed from 1990 to 2010 to capture the strength of new sectors in the economy such as services. The recalculation saw its GDP grow an eye-popping 59.5 percent, and set off a spate of rebasing around the continent.

It gets even better: the data show if most African countries updated their base years to 2013, the GDP uplift over one year would be 3.24 percent. In other words, using that year’s figures, the continent’s GDP when exchange rate variations are accounted for would rise from $5.21 trillion to about $6.3 trillion!

This would also have the effect of shifting the economic “order”: Egypt would become Africa’s biggest economy, pushing Nigeria into second place. Sudan would streak past Angola, while Tanzania would also just pip Kenya as East Africa’s largest economy:

3. Old standards

A harmonized System of National Accounts (SNA) guides international comparison of economic data. Approved by the U.N., there have been three revisions to it: in 1968, 1993 and 2008. Most African countries — 41 — are using the 1993 version, while five use SNA 1968. While the standards are not mandatory, they help in comparability for those countries within the same SNA year, but not across the three revisions, as they each treat data and information differently. It could be an economic Tower of Babel.

4. The ‘shadow’ economy

Because the informal economy in Africa is such a major player, failing to capture it either accurately or at all, leaves big data chasms. One cited study shows that in 2007, the size of the shadow economies on the continent ranged from 21.9 percent of GDP in Mauritius to 62.7 percent in Zimbabwe. Just five countries—Kenya, Lesotho, Namibia, South Africa and Mauritius—had informal economies that were less than 30 percent of GDP.

In other words, Africa is far more attractive beyond what is currently thought.