World Service: Africa GDP & Royal twins
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Hello and welcome to More or Less on the BBC World Service with me, Tim Harford. We're a numerical guide to life, liberty and the chance of royal twins. But first, in late November, official figures confirmed that the UK economy grew by 1% between July and September. That was a cheery bit of news, but it's not a patch on Ghana, whose gross domestic product, or GDP, grew by 60% overnight back in 2010. So, what's the news? the country was immediately upgraded from low income to lower middle income. Of course, the growth didn't reflect any overnight change in the economy itself, just the fact that the economy had been growing for years and the Ghanaian statistics hadn't kept up. Now Nigeria is planning a similar statistical revision, and again, its measured GDP could increase dramatically.
So what's going on? I spoke to Morton Jervin, an assistant professor at Simon Fraser University in Canada, and the author of Poor Numbers, How We Are Misled by African Development Statistics and What We Do About It. He explained that it all had to do with the way GDP was calculated with reference to a base year, and the calculations had simply got out of date.
The GDP statistics in Ghana had not been updated. In fact, the last time they made a base year estimate for the Ghanaian economy was in the 90s.
So if we imagine, for instance, that in the 1990s, Ghana just makes hot dogs and hot dog buns. But by 2011, it's also making iPhones. I know it doesn't really make iPhones or hot dogs, but just imagine. What is the statistical process by which these GDP numbers get out of whack?
The best way of explaining it is to perhaps to compare it with how GDP statistics is compiled in the UK, where you would think you add up all, as you said, production of hot dogs and iPhones and all other economic activities in every year. And then the next year you do the same thing. And then you compare that. How is the economy doing? In a country like Ghana, you don't have availability of data on all production of all types of food crops, small scale services and so forth. So therefore, you make a base year estimation where you have more complete picture of the economy.
What is the Ghana GDP revision story and why did it matter?
In the following years, when growth is estimated, you rely on certain proxies. You assume that a large part of the economy just grows in line with population. And finally, what happens if the structure of the economy changes radically? That means that a lot of growth may be missed. There is a large technological change between 1993 and 2006. The mobile phone, which did not exist in the 90s, and now we have millions and millions of mobile phone users in Ghana. so that these kind of sectoral changes were missed as time passed.
So Ghana's GDP figures weren't right in the past, but are they right now? Sidney Casely-Hayford is a business and financial analyst from Ghana, and he doesn't think so.
Until we are able to actually go in and do a proper quantification of the informal economy in this country, it is uncertain exactly what degree of variation we have in our GDP figures, I would hazard a guess and say that we're probably out by about plus 10, 15, maybe 20% yet that we should actually include in the number.
Sydney Casely-Hayford. But how much does it matter if GDP estimates aren't always entirely accurate? The truth is that Ghana's getting richer and its statistics are getting better, so what's to dislike? But Morton-Jervin is worried.
Reliable economic statistics are basic to the operation of governments, also in developing countries. These kind of statistics are also vital to international organizations, to non-governmental organizations that, for instance, provide aid to Ghana. So that, for instance, now that Ghana is a middle-income country, it is, according to that statistic, not eligible for concessional lending from the World Bank, for instance.
Todd Moss is a senior fellow at the Center for Global Development in Washington, D.C., and he thinks that the statistics being out isn't such a bad problem.
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