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How Big Are Africa’s Economies? No One Really Knows

How Big Are Africa’s Economies? No One Really Knows

The problem with economic statistics in Africa is that the majority of economic transactions, whether in the rural agricultural sector or in urban businesses, go unrecorded, said Morten Jerven, author of “Poor Numbers.”

One of the most urgent challenges in African economic development is to improve statistical capacity, Jerven said in a report in SignificanceMagazine.

Gross domestic product is the development indicator with the greatest influence on policy and public debates, Jerven said in a report in SciDev.net. It is used to rank countries’ progress and wealth — but its interpretation and measurement are tricky.

The current way of coming up with gross domestic product causes more confusion than enlightenment, said Jerven, who wrote the book, “Poor Numbers: How We are Misled by African Development Statistics and What to do About it.”

“Poor Number” shows how African economic development statistics are produced and used. Since its publication, a healthy debate on the meaning of development statistics in the African context has ensued, Jerven said. “Predictably the emphasis in the media has been on the politics of the numbers. Inspired by the eternal phrase, lies, damned lies and statistics, commentators and headlines have focused on the dark forces that tamper with numbers and consciously mislead the public discourse on development in Africa.”

However, governments, international organizations and independent analysts do need these development statistics to track and monitor efforts at improving living conditions on the African continent, Jerven said.

“We know less than we would like to think about growth and development in Africa based on the official numbers,” Jerven said. “The problem starts with the basic input – information….the great majority of economic transactions, whether in the rural agricultural sector (or) medium and small-scale urban businesses, (go) unrecorded.”

The reality is that at all gross domestic product measures are an approximation, but in  most African economies, the statistical offices simply do not have all the information needed, Jerven said.

Here’s how most African countries arrive at their GDP: The country’s  statistical office picks a base year when it has more information on the economy than normally available, such as data from household, agricultural or industrial surveys. The information from these surveys is added to other administrative data to form a new GDP estimate. This total is then weighted by sectors. Other indicators and proxies are used to calculate or guess at new annual estimates, Jerven said.

Sectors that were important in the base year will continue to appear important despite structural changes that may have occurred, while sectors that were unimportant or non existent will barely have an impact on GDP. The data sources and the use of proxies are set in the base year. So even when information is becoming available, accountants may be unable to add them. When the base year is out of date, the GDP series is becoming unreliable.

The International Monetary Fund statistical division recommends a change of base year every five years. Ghana updated its base year in 2010. Its previous base year was made in 1993. The economy has changed radically since then. Since 1993 almost half of the Ghanaian economy had gone missing from the official count, Jerven said. Currently, only a handful of countries have a base year within the past five years. The median base year is 2000. Some countries like Nigeria, with a base year from 1990, haven’t had an updated picture of their economy for more than two decades.

It is expected that when Nigeria revises its GDP data, probably in 2014, it may surpass South Africa as sub-Saharan Africa’s largest economy. The problem is that not all countries in the region use a recent base year, Jerven said in an earlier report.