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The Case Against Incrementalism
The nearly finished monument to the African Renaissance rises above the Dakar skyline in Senegal's capital August 19, 2009. (Finbarr O'Reilly / Courtesy Reuters)
The International Monetary Fund’s 2012 World Economic Outlook provided surprising cause for optimism about economic growth in several African countries. Based on the IMF’s estimates, Business Insider recently profiled 20 countries with the highest projected compounded annual growth rate (CAGR) from 2013 through 2017; ten of them are in sub-Saharan Africa, and two are in North Africa. These statistics have spurred some onlookers to argue that Africa is no longer “the hopeless continent” that The Economist dubbed it in May 2000.
It is true that there have been successes in Africa -- perhaps more than are commonly acknowledged. According to many experts, most African economies have been growing at a steady clip since the 1990s. And some experts believe that several African countries are richer than current GDP per capita estimates indicate. Alwyn Young, a professor at the London School of Economics, has convincingly argued that many African countries underreport their GDP because of poor statistical practices and a failure to capture improvements in health, education, and water safety, or to account for increasing ownership of televisions, mobile phones, and refrigerators. His alternative estimates based on data from 29 African countries suggest that growth in Africa may have been as high as 3.7 percent a year between 1990 and 2006. That is almost four times faster than the commonly accepted rates calculated using international data sets.
It might sound like wishful thinking, but there is reason to believe that Young is right and that the official data has missed some big improvements. In 2010, Ghana’s statistical services rightly found that previous GDP estimates had overlooked about $13 billion worth of economic activity. When that sum was added in, the World Bank upgraded Ghana’s status from a low-income country to a lower-middle-income country in 2011. That was, of course, good news for Ghanaians. But it was also a shocking example of how inaccurate the previous numbers were; the World Bank Chief Economist for Africa declared it a “statistical tragedy.”
How could Ghana’s growth figures have been so wrong? The truth of the matter is that, prior to 2010, Ghana had last revised its methods of measuring economic activity and growth in the 1990s. Vast structural changes -- the introduction of mobile phones, the surge in spending on private education, and a burgeoning small-scale service sector -- were never accounted for. Moreover, while researching for my book, Poor Numbers, I found that Ghana is not alone. Many other countries, including Equatorial Guinea, Guinea-Bissau, Nigeria, Senegal, and Zambia, also use outdated methods to calculate their GDPs. As they start updating their procedures, their economies will look like they are suddenly exploding, but in fact the new numbers will just capture growth that no one realized was happening. Most recently, Nigeria announced that it would upgrade its calculations -- conservative estimates indicate the upward revision will raise GDP by $100 billion to $150 billion. This could raise total sub-Saharan GDP by more than 15 percent.
And herein lies the problem for those who wish to understand Africa’s economic trajectory: to understand the continent’s future, one must rewrite its past. In the case of Ghana, sometime between 1993 and 2006, the country’s GDP essentially doubled without the statisticians noticing. That begs the questions of why it happened, how suddenly it happened, and whether there was already growth missing from the national accounts when they were revised in the 1990s.
It is nearly impossible to answer these questions. Statistical offices and technical advisers have done their best, resorting to adding a bit of growth here and there, to smooth out trend lines over time. To do that, researchers have to make guesses and projections. They also make assumptions about the growth in the informal economy, which, by definition, is not recorded. To do this, they look to more easily verifiable growth in the formal sectors. The problem is that the way the data are presented, it seems that growth accelerated in the 1990s. This evidence has been used to make questionable conclusions about growth in Africa. In Tanzania, for example, some argue that the upward revision of the accounts in the mid-1990s proves that there was a spurt of growth following liberalization earlier in the decade. But this actually might be just a statistical fluke. Many countries’ time series give the misleading impression of growth accelerations in the 1990s, when in reality this economic activity had existed for a long time but was unrecorded.
To be sure, African growth is not all lies, damned lies, and statistics. Some of the large upswings that are included in the recent World Economic Outlook are based on actual, observable change. In 2013, for example, South Sudan’s economy is projected to grow faster than any other, at 69.62 percent. In 2012, its economy was expected to decrease by 54.98 percent (then the worst projected economic decline in the world). It might be tempting to write the fluctuation off as a miscalculation at the world’s youngest national statistical office, but these data are probably more or less right: South Sudanese economic growth depends almost entirely on the extraction and sale of petroleum. In 2012, the pipes were shut off. In 2013, they are expected to flow freely.
This kind of growth is very familiar to many African economies, including Equatorial Guinea and São Tomé and Principe, which also top the World Economic Outlook. Both these countries have very small populations and GDP bases but huge endowments of extractable resources, which make for growth spurts not normally recorded elsewhere. But these developments are not the result of statistical happenstance, as is the case in Ghana and Nigeria. Instead, Equatorial Guinea and São Tomé and Principe’s economic growth mirrors similar success stories in Botswana, Cameroon, Congo, Nigeria, and Zambia, whose mineral sectors grew enough to keep annual economic growth in double digits for several decades.
Growth in Africa is to some extent old news -- profiting from exporting natural resources is a long term pattern -- but the region now depends more than before on external demand for its sustained economic growth. The GDPs of many small countries in Africa are growing, which is partly a statistical fiction and partly genuine progress. Still, GDP numbers tell us too little about what has really happened and whether living conditions on the African continent are improving.