Let statistics not fool you; rebasing GDP doesn’t improve the economy

Opinion and Analysis

 

Vegetable vendor Sally Ndegwa waits for customers at her stall in Wakulima Market in Nairobi. Rebasing GDP is not an actual reflection of growth on the ground. Photo/JEFF ANGOTE 

By MARVIN SISSEY

In Summary

• The only positive aspect of this exercise is that it weans us from the poverty mentality.

Mark Twain couldn’t have expressed it more succinctly. There are three types of lies, he said. These are lies, damned lies and statistics. Two events in the last fortnight woke me up to the truism of this statement.

The first one occurred in Nigeria. The Nigeria National Bureau of Statistics let us know that contrary to the facts we had all long held to be true, Nigeria had for some time been a much larger economy than South Africa — and by a good distance!

Think about it, in 2012 World Bank figures placed Nigeria’s GDP at $262.2 billion (Sh22.5 trillion) against a South African total of $384.3 billion (Sh33 trillion).

Turns out, those numbers were slightly off the mark. The 2013 figures show that the Nigerian economy expanded, on paper at least, to an estimated $488 billion (Sh41 trillion).

In fact, thanks to the new statistics, it had not only become the largest economy in Africa, it was also an enviable 26th largest in the world — now that is a feat!

Positive

The second event occurred closer home. I woke up on Monday this week to headlines screaming that Kenya will become a middle-income state in September.

The sub-headline in the Business Daily was even more intriguing, “Country to realise Vision 2030 development blueprint’s goal 16 years ahead of time.”

I should be happy, as a Kenyan, for this development. But my heart and mind find it hard to interpret the news as a positive development.

Maybe it is because the news elicited more questions than answers. To understand my discomfort, a quick lesson on what rebasing GDP means is important.

Gross Domestic Product (GDP) is the market value of all officially recognised goods and services produced within a country in given period of time.

One of the ways economists use to get this value is the consumption or expenditure approach. The assumption is that most things are produced for sale, and old. Therefore, measuring the total amount of money used to buy things is a way of measuring production and hence GDP.

In this regard, GDP becomes the sum total of household consumption expenditure, investments, total government expenditure and net exports.

Hence the popular formula is GDP= Consumption (C) + Investments (I) + Government spending + (Exports (X)-Imports (M).

To measure this the gross economy is subdivided into sectors, also referred to as national accounts. For example, the national farm would represent the whole agricultural economy of a country.