Addis Fortune (Addis Ababa)

31 August 2014

Africa: Less Truth in Africa Rising Meme

opinion

Before, during and after the US Africa summit, one of the most frequently repeated factoids supporting the Africa Rising meme was that 'seven out of the ten fastest growing economies are in Africa'. In reality, this is both a far less accurate and much less impressive statistic than it sounds. More generally, narratives on African economic development tend to be only loosely connected to facts and driven more by hype.

The 'seven out of ten' meme derives from a data exercise done in 2011 by The Economist. The exercise excluded countries with a population of less than 10 million and also the post-conflict booming Iraq and Afghanistan.

This left 81 countries, 28 of them in Africa (more than 3 out of 10) and, if one takes out the developed rich countries from the sample (which are unlikely to grow at more than seven percent per annum), one can find that every second economy in the sample is in Africa. It might not give the same rhetorical effect to say: 'on average, some African economies are expected to grow slightly faster than other rich developed countries', but that would be more accurate.

And before we get ahead of ourselves, there is a difference between forecasted and actual measured growth. According to some researchers, the only function of economic forecasting is to make astrology look respectable.

So how good is the International Monetary Fund (IMF) at forecasting growth in Low Income Countries?

According to their own evaluation, IMF forecasts "over-predicted gross domestic product (GDP) growth and under-predicted inflation". Another study looked at the difference between the forecasts and the subsequent growth revisions in low income countries, and found that "output data revisions in low-income countries are, on average, larger than in other countries, and that they are much more optimistic". Forecasts are systematically optimistic all over the world, but in Low Income Countries even more so.

Among those on the list of the fastest growers were Nigeria, Ghana and Ethiopia. The news that both Nigerian and Ghanaian GDP doubled following the introduction of new benchmark years for estimating GDP in 2010 and 2014 should remind us that the pinpoint accuracy of these growth estimates is lacking.

How confident should one be about a seven percent growth rate when 50pc of the economy is missing in the official baseline? Recent growth in countries with outdated base years is also overstated.

While Ghana has reportedly had the highest growth rates in the world over the past years, a peer review of the Ghana national accounts noted that "neither a national census of agriculture nor other surveys, such as a crop and live-stock surveys, have been conducted; there is no survey to provide benchmark data for construction, domestic trade and services".

It was recently reported that an economic census is being planned for next year. What we do know is that Ghana has returned to the IMF to seek assistance following their entry into international lending markets.

Most of the time, we simply do not know enough to assert accurate growth rates. There are also known biases and manipulations.

Ethiopia, for example, is notable for having long-standing disagreements with the IMF regarding their growth rates. Whereas the official numbers have been quoted in double digits for the past decade, a thorough analysis suggested that the actual growth rates were around five to six percent per annum. More generally, one study used satellite imaging of night time lights to calculate alternative growth rates, and found that authoritarian regimes overstate reported rates of growth by about 0.5 to 1.5 percentage points. Another recent study argues that inflation is systematically understated in African countries - which, in turn, means that growth and poverty reduction is overstated.

Data bias is carried across from economic growth to other metrics. The pressure on scholars, journalists and other commentators to say something general about 'Africa' is relentless, and so the general rule is to oblige willingly.

When talking about average trends in African politics and opinion, analysis is influence by the availability of survey data, such as Afrobarometer, and the data availability is biased. According to Kim Yi Donne, on the Washington Post's 'Monkey Cage' blog, of the 15 African countries with the lowest Polity IV rankings, only seven have ever been included in the Afrobarometer; whereas all but one African country rated as a democracy by the same index is included.

Any quantitative study that says something about the relationship between growth and trends in inequality and poverty, relies on the availability of household survey data. One paper boldly stated that African poverty is falling much faster than one thinks. The data basis was very sparse and unevenly distributed.

There were no data points for Angola, Congo, Comoros, Cape Verde, D.R. Congo, Eritrea, Equatorial Guinea, the Seychelles, Togo, Sao Tome and Principe, Chad, Liberia and Sudan. In addition, six countries only have one survey. The database included no observations since 2004 - so the trend in poverty was based entirely on conjecture.

Famously, one needs at least two data points to draw a line. Yet the study included a graph of poverty lines in the Democratic Republic of Congo (DRC) from 1970 to 2006 - based on zero data points.

A result of doubts about the accuracy of the official evidence and a dearth of evidence on income distributions, scholars have turned to other measurements. Data on access to education and ownership of goods, such as television sets, from Demographic and Health Surveys were used to compile new asset indices.

In turn, these data were used to proxy economic growth and in place of having a measure of the middle class. In both cases, the data may paint a misleadingly positive picture. While claiming to describe all of Africa over the past two decades, these surveys are only available for some countries sometimes.

The statement 'seven out of ten fastest growing economies are in Africa' carries no real meaning. To utter it is merely stating that you subscribe to the hype.

It is particularly frustrating, and it surely stands in way of objective evaluation, that the narratives in African economic development switches from one extreme to the other so swiftly. The truth lies somewhere between the 'miracles' and 'tragedies'. It is nothing short of stunning that in a matter of three to four years the most famous phrase relating to African economies has turned from 'Bottom Billion' to 'Africa Rising'.

Because of a lack of awareness of historical data on economic growth, it was long claimed that Africa was suffering "a chronic failure of growth", but growth is not new to the African economies; growth has been recurring. There is no doubt that there are more goods leaving and entering the African continent today than fifteen years ago.

More roads and hotels are being built and more capital is flowing in and out of the African continent than before.

But what is the real pace of economic growth? Does the increase in the volume of transactions result in a sustained increase in living standards?

The evidence does not yet readily provide us with an answer. It is the job of scholars to give tempered assessments that navigate between what is make-believe and what passes as plausible evidence.

Morten Jerven Is Associate Professor of International Studies At the Simon Fraser University, Canada.

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