Viewpoints | Oct 12,2019
July 13 , 2019
By Paulo Gomes ( Paulo Gomes, founder of Constelor Investment and a co-founder of New African Capital Partners. )
Gross domestic product has been the ultimate measure of an economy’s welfare for over 80 years. But as the world’s economies become increasingly complex and technology-focused, economists are increasingly questioning GDP’s usefulness as a gauge of an economy’s health, with some arguing for a radically new approach. Africa’s experience shows why such an approach is badly needed.
Africa has long suffered as a result of GDP’s shortcomings. In January, the global credit-ratings agency Fitch Solutions forecast that while Africa’s GDP growth will average 4.5pc annually over the next decade, its average GDP per capita will stagnate. But such bleak projections are misleading – and threaten to drive away investors.
The first problem with GDP projections for Africa is that they are based on scarce data. The majority of the continent’s national statistics services are underdeveloped. They lack sufficient funding and independence to acquire comprehensive data and calculate benchmark economic indicators. In other words, official GDP figures may be very wrong.
Consider Nigeria, which in 2014 overhauled its GDP data for the first time in over two decades. Such “rebasing” – needed to capture structural changes to the economy – should take place every five years or so. But Nigeria’s national statistical agency had lacked the funding, data and political will to rebase regularly. When it finally did, GDP skyrocketed to 510 billion dollars, nearly double the previous estimate of 270 billion dollars. With that, Nigeria overtook South Africa as the continent’s largest economy.
The fact that much of economic activity in Africa occurs in the informal sector further undermines the reliability of GDP statistics. In Sub-Saharan Africa, the informal economy accounts for two-thirds of all employment; in cities such as Kampala and Dakar, that figure reaches or even exceeds 80pc.
In Nigeria, the informal sector represents 50-65pc of total economic output. A metric that fails to measure so much economic activity can’t possibly be a sound basis for investment decisions.
Even if country and continent-level GDP averages were more reliable, they would amount to a cumbersome guide for investors, especially given how large and diverse Africa is. In fact, African countries with vastly different GDPs may share more – and more important – features than countries with similar GDPs.
For example, Namibia’s diversified economy has more in common with South Africa, a country with nearly 30 times the GDP, than it does with Senegal, a country of similar economic size when measured by GDP. Nigeria’s GDP is far larger than Chad’s, yet their economies are often compared to each other because of the dynamics of their oil sectors. Such structural commonalities provide more nuanced insights for investors than ungainly GDP averages ever could.
But perhaps the best way to gain an appropriately nuanced understanding of African economies’ health and prospects is by focusing on their cities – the continent’s main engines of economic development. While 60pc of Africans still live in rural areas, the continent is undergoing rapid urbanisation. In the next 15 years, the world’s ten fastest-growing cities will all be in Africa. The economic output of Lagos, Nigeria’s largest city, is larger than that of Kenya, one of the continent’s most promising economies.
Already, some multinationals are using city-based models to guide their African investment strategies. They know that dismal national GDP averages can obscure pockets of increasingly prosperous consumers who are eager to purchase high-quality goods and services from abroad. Thus, when determining a market’s viability, they often focus on cities, considering diverse indicators like mobile-phone penetration, electricity usage and internet bandwidth.
One global packaged-food manufacturer, for example, has focused its Africa strategy on 15 cities that collectively represent about 25% of the total growth in packaged-food sales expected across Africa in the next five years. More broadly, foreign direct investment has been flowing primarily toward Africa’s four main mega cities: Cairo, Johannesburg, Nairobi and Lagos.
Of course, whether at the city or country level, comprehensive and reliable data are needed to provide a strong foundation for investment strategies. Private companies – including African tech startups – can take advantage of new technologies to help deliver this. For example, Terragon, a Nigerian data analytics firm, pulls data on mobile-phone usage and matches it against data provided by its business clients to produce insights about African consumers.
PUBLISHED ON Jul 13,2019 [ VOL 20 , NO 1002]
Viewpoints | Oct 12,2019
Sunday with Eden | Mar 13,2021
Radar | Apr 26,2019
Radar | Jun 14,2020
Commentaries | Dec 14,2019
Viewpoints | Jul 13,2019
Featured | Oct 03,2020
View From Arada | Nov 29,2020
Radar | Sep 27,2020
Viewpoints | Dec 07,2019
Fortune News | 37039 Views | Jul 18,2020
Fortune News | 16451 Views | Oct 12,2019
Exclusive Interviews | 15257 Views | Aug 10,2019
Fortune News | 15240 Views | Mar 19,2020
March 27 , 2021 . By BAMLAK FIKADU
An application developer who has recently taken up hiking to get some exercise, Migno...
February 13 , 2021 . By TADESSE TSEGAYE
In Arada, I stopped over by a hotel in front of Cinema Empire. I sat alone inside wit...
January 30 , 2021 . By FASIKA TADESSE
The Council of Ministers approved a regulation that will establish the Liability &...
January 16 , 2021
It was a sunny day on September 12, 1974. A machine gun mounted on top of a tank was...
Economic and political development go hand in hand with a good educational system. Th...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country’s most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or tw...
April 10 , 2021
It is not often the case for regional states' leaders to swallow their vanity and dec...
April 3 , 2021
As an Auditor General, he was not the most conspicous of officials in the mainstream...
March 27 , 2021
In an unprecedented turn of irony, just as Ethiopia began an attempt to open up to th...
March 20 , 2021
There is never a dull moment in the tense and combative relationship between regulato...
PM Abiy Ahmed (PhD) at a Gala Dinner Called for the Awarding of the Félix Houphouët-Boigny Peace Prize
May 6 , 2019
Do not judge a book by its cover, we say. But we still judge all the same. It is much worse when it comes to a living, breathing person. We...
April 10 , 2021
Jemal Ahmed (left), CEO of MIDROC Investment Group, hands Adanech Abiebie (centre), deputy mayor of Addis Abeba, the city that is home to a...
April 10 , 2021 . By NEJAT AHMED
Ethiopia is spending 27.2 billion Br (over 660 million dollars in the current exchange rate) on importing...
Companies operating in the country's industrial parks have raised concerns with the central bank's recent...
April 10 , 2021 . By NEJAT AHMED
Half-a-dozen private higher learning institutions have been subject to regulatory action from the federal...
Or see contact page