Ghana one day went to bed as a poor African country, only to wake up the following morning as a shiny new middle-income nation.
A trick by the government? No, the country recalculated the size of its economy in 2010 for the first time in more than a decade, taking into account new growth industries such as telecommunications, and in the process boosted its gross domestic product by 62 per cent overnight.
Nigeria is about to do the same, in a rebasing that could boost its gross domestic product by about 40 per cent, challenging South Africa for the crown as Africa’s largest economy.
Until recently, the experience of Ghana, and soon Nigeria, would have attracted the interest of just a few in the ivory towers of academia. But with Africa firmly on the radar of international investors, not least as growth among bigger emerging economies stutters, the quality of the continent’s economic statistics increasingly mattersto people, from US pension funds to Japanese commodities executives.
“This is not a Mexico or a Brazil where every day you have data releases and you can track the developments in those countries very intensively,” said Francesc Balcells, head of emerging markets at Pimco, the world’s biggest fixed income investor. “Data [in Africa] comes out with huge lags.”
The African Development Bank has acknowledged that the large revisions had “understandably alarmed many observers”. But the (AfDB) said this year that there was not a “general, widespread problem”. Others are more worried, however. The International Monetary Fund this month organised a seminar to debate the problem, warning that “the quality of basic economic statistics in sub-Saharan Africa . . . is often so poor that it can lead to serious misdiagnosis”.
The revisions can be huge. When Guinea-Bissau and The Gambia, two tiny west African nations, recalculated the size of their economies a few years ago, they discovered they were more than double what they had previously assumed.
Investors have for years battled with similar problems in other regions that experienced rapid economic growth and fast integrated in the global financial market, including southeast Asia in the late 1980s and early 1990s. But Morten Jerven, an associated professor of the Simon Fraser University in Vancouver and author of the Poor Numbers book, said the statistical problems were “more severe” in sub-Saharan Africa than in other regions, such asLatin America.
The AfDB said it had spent about $100m over the past decade building up data capacity across Africa. Pierre Ndiaye, director of forecasting at the Ministry of Finance in Senegal said African countries struggled to retain qualified statisticians. “We need to have more competitive wages to avoid staff turnover,” he said.
The new African data, as in the case of Ghana, can only be good for investors needing as accurate a picture of an economy as possible. And analysts believe it could encourage new money. But they also provide a sharp reality check. Although the size of the economy balloons, annual growth tends to slow.
When Nigeria publishes its new estimates early next year, the size of its economy could increase by up to 40 per cent as it includes booming sectors such as telecoms and the “Nollywood” film industry. Overnight, it would be a much richer country; the ratio of debt to GDP will drop, as will the fiscal deficit. But other economic ratios, including tax collection as a share of the economy, would also fall, a worry for investors.
Africa’s “increased integration in the global economy” compounds the problem as more and more investors need quality data, the IMF said. Africa attracted $50bn in foreign direct investment last year, more than double the level of a decade ago, from companies such as IBM, Glencore Xstrata, Coca-Cola and Nissan. African countries have also issued a record $8bn of US dollar-denominated sovereign debt so far this year, up from about $1bn a decade ago. And foreign investors are pouring billions of dollars in local stock markets from Nairobi to Lagos. Nigerian stocks have gained 37 per cent over the past year.
While some African countries have been at the forefront of improving their national statistics to meet international standards, including rebasing their economies every five years, most of the continent’s nations have a very long way to go.
According to the AfDB, only nine African countries are using a base year that meets international standards. Another group of 19 countries base their GDP figures in a baseline that is at least a decade old, and eight countries, including heavyweights Nigeria, and 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.
Even if the statistics are imperfect, most investors believe that Africa’s recent period of strong economic growth – dubbed by many observers as “Africa Rising” – is real. Yet, until data improve, some naysayers will have reasons for distrust.
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