Why Africa is much richer than you think

Out-of-date data
According to the African Development Bank (AfDB), there are 19 countries in Africa where the GDP base year is more than a decade old, and at least 10 countries where it is much older still – the Democratic Republic of Congo and Equatorial Guinea have base years that are 30 years old. None of these meets international standards for statistical accuracy, says the AfDB.

Does this matter? It certainly matters if you need to know what is going on in your economy. If a country’s base year is set at a point decades ago, the economic data will all be based on the assumption that the kind of economic activities that go on today are exactly the same as those of 20 or 30 years ago. That means no computers, no mobile phones, no internet, no private airlines, little international trade, little manufacturing, and in many cases, no energy industry. Figures for growth in all these areas will not be included in the GDP results, because they didn’t exist 30 years ago so there is nothing to compare them with in the base year.

It is easy to see how an African economy might end up seriously underestimating the size of its economy – and that is without taking into account the informal or black economy, which is also largely invisible in the statistics (when Mozambique undertook its first comprehensive survey of the informal economy in 2004, the result was a doubling of the annual private expenditure estimate). What is less easy is solving the problem.

Africa’s national statistical offices are often underfunded and understaffed – in fact, in many countries you will be hard pressed to find out even whether there is a statistical office, let alone where it is and what it does.

In fact, these departments should be undertaking enormous data-gathering operations. Consider, for example, the GDP data process in most developed economies, where GDP is estimated using three different measures: the output measure (how much is produced), the expenditure measure (how much is spent) and the income measure (how much is earned).

In theory all three measures should come up with the same answer, but the three sets of data come in at different times, so all three measures are used to provide early quarterly statistics as well as later and more accurate annual statistics.

In the UK, for example, the output measure which provides the earliest data involves at least 46,000 quarterly surveys of companies in manufacturing, services, retail and construction, together with additional figures drawn from government monitoring of agriculture, energy, health and education. That is a lot of work, and many African governments simply do not have the budgets to undertake it.

What happens when such detailed survey data are not available is that statisticians make guesses, based on ‘proxies’ for growth – that is, using measures that they do have to hand, measures which they think will be moving roughly in line with economic growth. One such proxy is taxation, which has the advantage that most governments are willing to spend money on tax gathering so at least there is an annual statistical base to work with.

But taxation is a flawed measure, because it does not include the informal economy, and does not take account of fraud by taxpayers or tax gatherers. Another proxy is population growth, but that is also a primitive proxy: population growth itself may be no more than a guess, depending on how frequent and how accurate the population census is, and it does nothing to fix the problem of the out-of-date base year.

So, the biggest problem is that GDP base years are out of date, and African statisticians know they are out of date, leading to wildly varying estimates of the real value of the economy.

For example, in the case of Ghana, politicians and economists had been arguing about the figures for many years. Back in 2004 the World Bank estimated that Ghana’s per capita GDP implied a per capita income of $380. Then President John Kufuor chipped in and said the real figure was $600. Not to be outdone, the finance minister said it was more like $1,000.

What happened next was a huge effort to update the GDP data and methodology, one that is now being reproduced in several other African countries, with the help of the IMF and the AfDB (which says it has spent $100m over the last decade building up better GDP data gathering across the continent).

Ghana remains the model for this effort. In Ghana it had been clear for a long time that something was wrong, simply because the figures looked wrong. Using a base year of 1993 (which itself had recently been updated from an earlier base year of 1968), the ratios of taxation to GDP, or expenditure to GDP, all looked suspiciously high compared to other countries, implying that the GDP estimate was much too small. This was confirmed by the 2003 Industrial Census, which showed that VAT receipts were far higher than GDP would suggest. The problem was: how to fix it?