We Have No Idea if Africa Is Rising
The rise of African economies has been a big subject of debate for FP contributors. But where are they getting their numbers?
It’s been fascinating to watch FP‘s recent debate on economic growth in Africa. Some commentators argue that African economies are destined to remain trapped in the bottom billion unless some sort of fundamental change occurs. Others beg to differ, speaking of a continent that’s showing every indication of rapid progress. Yet, despite their wildly different interpretations, what’s striking is that both camps base their arguments on the same set of numbers.
Let’s start by taking a look at the GDP time series evidence (data collected regularly over time) available from the World Bank and other data sources. According to these numbers, African economies have been growing at a rapid pace for more than a decade. Nor is that a new trend, if we trust the numbers. The statistics suggest, indeed, that Africa has experienced recurring periods of growth throughout its recent history.
But what if we aren’t sure about the GDP statistics? In fact, it turns out that these numbers are eminently debatable. Some recent statistical events remind us that African growth and income evidence doesn’t tell us as much as we would like to think.
In November 2010, the statistics office of the government in Ghana announced that it was revising its GDP estimates upwards by over 60 percent, suggesting that previous estimates had left out economic activities worth about $13 billion. After the revision a range of new activities were accounted for, and as a result Ghana was suddenly upgraded from a low-income country to a (lower) middle-income country. In the fall of 2011 Nigeria also announced an upward revision of its GDP. This revision isn’t complete yet, but once it is it’s likely to cause a similarly large jump in growth figures. Several observers have raised the possibility that such a revision could actually double Nigeria’s GDP — which, given the size of Nigeria’s economy, would bump up the size of Sub-Saharan Africa’s economy by more than 15 percent. Just to give some perspective: The value of the increase would be roughly equivalent to 40 Malawi-sized economies.
The revisions have caused confusion and disbelief in the development community. If we know so little about growth and income in Ghana, one of the best studied economies in Africa, how are we supposed to interpret the data from other African economies? Shanta Devarajan, the World Bank’s Chief Economist for Africa, refers to the current state of affairs as "Africa’s statistical tragedy."
In my book, Poor Numbers: How We Are Misled by African Development Statistics and What to Do about It, I studied the measurement problems in African economies. I conducted in-depth analysis of the methods and sources underlying the different GDP estimates that have been made since independence.
Upon achieving statehood, African states moved to expand their statistical capacity. They performed population censuses, business surveys, and agricultural censuses. But their ability to do this was hit hard by the economic crisis of the 1970s. The administrations faced large external imbalances, high rates of inflation and general shortage of funds which weakened government bureaucracies around the region, leaving many of them unable to measure their economies. Moreover, the statistical offices fell into further neglect during liberal policy reform that followed the economic crisis in the 1980s and 1990s (the period of "structural adjustment").
Looking back, it seems odd that the International Monetary Fund (IMF) and the World Bank would have embarked on growth-oriented reforms without ensuring that governments had the tools to reliably determine whether their economies were growing or stagnating. For statistical offices, structural adjustment meant having to account for more with less: Informal and unrecorded markets were growing at the same time as the same reforms curtailed public spending. As a result, our knowledge about the economic effects of structural adjustment is extremely limited. The cumulative record of annual economic growth between 1960 and today, for African economies does not realistically show what happened with economic development.
First, the official data overstated the decline in the 1980s. Second, for many economies, such as Tanzania and Zambia, the same data overstates the upward swing in the 1990s. The marked improvement we see in the GDP time series in the mid-1990s in these countries is caused by expanding the estimates for the informal sector. In other words, the growth recorded was statistical, not real.
Today, due to the uneven application of methods and poor availability of data, any ranking of countries by GDP is misleading. The basic problem is that many countries have been using outmoded data and methods. Nigeria’s astonishing upward revision is due to the fact that, until quite recently, the authorities there were still using data and methods from 1990, and have only recently decided to update them. The new methods are capturing a whole range of fresh numbers, such as data from telecommunications (mobile phones) and the service sector. Needless to say, while we wait for the new figures, any comparison between Nigeria’s GDP and another country’s are meaningless.
In research conducted for Poor Numbers I surveyed methods and data in use in national statistical offices in Sub-Saharan Africa. For many countries no official information was obtainable. The IMF Statistics Department periodically reminds authorities to update their baseline statistics every five years (in accordance with international best practice). But within the past seven years, limited resources and data availability have meant that only seven countries (Burundi, Ghana, Malawi, Mauritius, Niger, Rwanda, and Seychelles) were able to follow suit. Of the 34 countries for which information was available, 21 reported having a base year that is within the last decade, while 13 countries have base years from the 1980s and 1990s. This means that our last reasonably accurate picture of these economies is more than a decade old. By comparison, most Western economies update their base years on an annual basis.
Yet the available figures do suggest one likely finding: Many economies in Africa today may be richer than we think. Some of them, like Nigeria, probably are. That’s the good news. The bad news is that we don’t really know for sure. The African growth and income evidence does not tell us as much as we would like to think — and for some countries it’s seriously misleading. It’s disturbing to think that, as recently as last year, we were still working under the assumption that Ghana was a poor country. Now we’ve discovered that we have to re-examine all our ideas.
For both Nigeria and Ghana, the implications are that a large amount of economic activity has gone missing since the 1990s, making it impossible to write the history of those countries based on the official statistics. Were the estimates made in the 1990s exhaustive? When did the economy grow and at what rate? What policies caused the growth?
A lot of the recent rapid growth we see is, in fact, statistical growth deriving from adding the informal sector and the service sector to the old estimates. Certainly, a great part of the recent growth derives from appropriately recorded growth in external trade, but exactly how this growth relates to the domestic economy, and to economic development more generally (including poverty reduction), remains pure speculation.
Some scholars have suggested looking at alternative measures. We could, for example, compile new estimates based on the ownership of goods such as television sets, fridges, and automobiles — which imply that African economies have been growing three times faster than the official figures. We could even resort to proxy indicators, such as measuring growth from outer space. This entails using satellite imagery to capture changes in the intensity of artificial light over a country at night (measuring electricity consumption directly is not possible because of lack of data). The problem is that such corrections are inconclusive. Competing measures of the same phenomena yield contradictory results.
One of the most urgent challenges in African economic development is thus to devise a strategy for improving statistical capacity. The system currently causes more confusion than enlightenment, yet governments, international organizations, and independent analysts do need development statistics to track and monitor efforts at improving living conditions on the continent. It’s unwise to proclaim that African economies are growing without better insight into the quality of the numbers.
In short, any evaluation of Africa’s rise must begin and end with a careful evaluation of the growth and income evidence. Without such analysis, one runs the risk of reporting statistical fiction.