African Insights
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Africa: Emerging Markets Demand a New Measure
Writer Shoks Mnisi Mzolo
In 2010, noted author Diane Coyle in her book, GDP: A Brief but Affectionate History (Princeton University Press), saw Ghana’s GDP rise by 60% overnight when its statistical service changed measurement conventions. Nigeria did the same in 2013 with its rebasing, which lifted GDP from US$270 billion to US$510 billion. Yes, GDP is the most widely used measure of economic activity, but does it give an accurate of picture of Africa’s economic development?
In 2011, in response to Ghana’s upgrade to a lower-middle income country, the World Bank’s Shanta Devarajan described GDP as “Africa’s statistical tragedy”. Africa and many emerging market nations in other parts of the world, he argued, are caught in a cycle of poor statistical capacity, politics regarding poverty estimates, and donors and investors who rely heavily on quick and easy data.
With a renewed interest in emerging-market investing, the inadequacies of GDP are becoming increasingly evident, leading the likes of Coyle to believe that in time, a different approach might emerge. What that might be is still up for debate, but some are looking to the likes of the Social Progress Index (SPI), due to its ability to track prosperity and wellness in any economy. Others find favour in the World Happiness Index, the Human Development Index, the Genuine Progress Indicator or the Kingdom of Bhutan’s preferred choice: Gross National Happiness.
• GDP is the most widely used measure of economic activity, but does it give an accurate of picture of Africa’s economic development?
• Africa and other emerging market nations are caught in a cycle of poor statistical capacity, political interference and investors who rely heavily on quick and easy data.
• About 90% of commerce in Africa occurs at informal retailers, with formal retail still emerging.
• Economists are largely guessing when it comes to the real economic value generated by about 600 million Africans. But the question many are now asking is: how do you measure this potential?
Whatever new measure emerges, it must find better ways of reflecting progress. As Coyle told the Financial Times in a 2014 interview: “[GDP has] no sense of the trade-off between present and future.” Yet that is exactly where the world is going. How, after all, does one measure the potential in Rwanda or Uganda’s verdant sprawl, with sweeping views of cultivated hectares? How about the subsistence farms, alongside commercial agriculture, that abounds in these East African countries and large parts of the developing world?
Measuring the unmeasurable
Similarly abundant, and difficult to quantify, is Africa’s informal economy, which pervades the continent as it does other emerging markets around the world. This so-called second economy is typified by roadside hawkers and open-air markets like Maputo’s Xiquelene, that sells anything from vegetables to clothes and, occasionally, electronics and car parts. Global consultancy AT Kearney estimates that 90% of
commerce in Africa occurs at informal retailers, with formal retail – such as shopping malls and other defined retail spaces – still emerging in countries such as the Democratic Republic of Congo (DRC), Sudan and Nigeria.
Accounting firm KPMG puts Nigeria’s formal retail space in single digits. Finweek contrasts the 100 000m² of formal retail space across Lagos and that of Durban’s huge Gateway Mall (120 000m²). Yet the teeming Nigerian city is home to 18 million people – almost five times larger than Durban’s modest population.
Given this background, the vast majority of transactions by Lagosian shoppers, as with subsistence farmers in the mountainous Rwanda and elsewhere, remain uncounted in traditional GDP measures, despite the significant role they play as economic engines in these markets. Such gaps necessitate a new approach to calculating the contribution made by these informal channels, with many pundits citing the likes of the Social Progress Index (SPI) as a likely contender.
Computing progress
The measurement index gets a thumbs-up from Deloitte’s Emerging Markets & Africa MD, Dr Martyn Davies. “The SPI is a winner. Without it, we can tinker with the edges of the problem instead of transforming [societies] or even monitoring development: education, health, housing, electricity,” he explains. “It puts all of us on the same page and tells us that if growth is inclusive, [then] societies develop.”
The SPI gauges outcomes like wellness and health. It spans a wide range of non-monetary wealth, including personal rights and basic needs. The latter includes water and sanitation. Although they represent economic output and social progress, respectively, the relationship between Gross Domestic Product (GDP) and SPI is not always linear. For instance, despite their higher GDPs per capita in Kuwait (SPI of 42nd States (18th
) and the United ), these markets lag behind the likes
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