Ethiopia is about to change how it estimates the annual growth of its economy. A federal agency in charge of planning economic activities is set to revise the base year for the estimation of gross domestic product (GDP) and use input and output analysis to measure  the national economy.

In doing this, planners at the Planning & Development Commission hope to decompose sectors and sub-sectors to show the relationship between goods and service value chains. They believe this is a better methodology to get a clearer picture of the value addition process in each sector.

Since 1961 Ethiopia has been using the expenditure method and production approach in combination to calculate the GDP. The expenditure method calculates the GDP by merging the consumption and investment of the private sector and the government, while the production approach assesses the total value of economic output and deducts the cost of intermediate goods that are consumed in the process.

The latest base year set by the two approaches was made in the 2015/2016 fiscal year. During this year with GDP at market price, the final result of units of production stood at 1.6 trillion Br. The real GDP per capita, the inflation-adjusted value of all goods and services, registered 1.5 trillion Br.

Five years later, GDP at market price stood at 2.7 trillion Br, and the real GDP per capita landed at 1.9 trillion Br.

The latest base year does not reflect the economy at all, according to Fitsum Assefa (PhD), head of the Commission, which recently launched a 10-year economic development plan that intends to achieve 10.2pc annual economic growth over the next 10 years.

The combination of expenditures, production and income models will replace the existing system that has been in place for decades, according to the Commission's plan. It balances expenditure and production approaches along with an income approach, which is the sum of all the salaries, wages, rent interest and profits.

"Unfortunately, the upcoming year is also the crisis year and won't give the best picture of the growth of the economy," Fitsum told Fortune.

Within the last two years using the new approach, the Commission redid the GDP estimation for the last base year, which was the 2015/2016 one. This was approved internally, and it is going to be tabled for public consultation to show the new approach they have taken to development partners and the Ethiopian Economist Association.

"We're now contemplating using the supply-use table for the base year of 2015/16 until this crisis ends," said Fitsum.

The Commissioner also added that conducting data collection with the nature of the pandemic is very difficult.

"Regardless, the further the base year," she said, "the harder it is to get the best picture of the economy. "