Nigeria overtook South Africa on Sunday to become Africa’s largest economy after the government nearly doubled estimates for gross domestic product.’
Financial Times, April 6
And I’m the Queen of Sheba. How can a country like Nigeria just “find” $163bn worth of GDP?
The wealth of nations has never been easy to agree on. Like beauty, value lies in the eye of the beholder – in this case the statistician attempting to measure it.
If GDP figures are so subjective, why do we care about them so much?
It is generally believed that if we can agree on some common metrics, the data produced will be meaningful.
And are they?
It’s the best technique we have for putting a figure on the size of the economy. But what we consider valuable can change over time.
How do you mean?
Look at women’s work – for many years overlooked by national statistics. Only when women traded housework for salaried employment did their labour begin to have a meaningful impact on measured GDP. But that doesn’t mean the work they did before had no value.
Still, if you keep calculating the figures in the same way, they’ll tell you whether things are getting better or worse.
Exactly. To come up with a growth rate, statisticians compare one snapshot of the economy with another. They do this by looking at what’s spent in the economy in two different periods.
Sounds simple.
The trouble is inflation. If prices and wages go up, then the amount of money spent can also increase even though living standards stay the same. It’s no good just counting beans if what you really care about is value, and the value of a bean changes from year to year. So the statisticians have to make adjustments.
And how do they do that?
Diane Coyle explains it all in GDP, A brief but affectionate history. The trick is to pick a base year – which might be, say, 2010 – and pretend that prices were frozen in time at that point. When you calculate GDP in subsequent years, you in effect go through each sector of the economy and estimate how much its output would have sold for if prices had not moved since 2010. That way, GDP measurements reflect increases in output, but when prices change GDP doesn’t budge.
That still doesn’t explain Nigeria’s hidden GDP.
The trouble is that you need to change the base year every once in a while. Imagine you were still calculating GDP using 1990 prices. Then you’d be baffled by products such as iPhone apps, e-cigarettes and George Foreman grills, which didn’t have a price in 1990 because they hadn’t been invented yet.
What’s this got to do with Nigeria?
Until last week Nigeria was in fact using 1990 as its base year. It’s now brought it up to date – well, to 2010. This has allowed government statisticians to start measuring activities that previously went unrecorded or didn’t exist. For example, there are now 46 activities included in the GDP compilation instead of 33.
Such as?
A lot of the growth has come from the telecoms and information sector, which are now thought to account for 8.7 per cent of economic activity instead of 0.9 per cent. “Nollywood” – Nigeria’s answer to Hollywood – has also found the limelight. Together with the music and recording industry it has made an entry at 1.4 per cent when previously it was totally overlooked. Services in general have prospered; other sectors, such as agriculture, have declined.
How come no one updated the numbers before now?
There are many reasons why politicians might want to delay this kind of change. For example, developing countries might not want to look richer if it diminishes their eligibility for foreign aid.
So is anyone else planning to rebase?
Actually, yes. Kenya is expected to add about $50bn to measured GDP when it conducts a statistical review next month. Ghana ran a similar exercise in 2010, raising its estimate of economic activity by $13bn. The UK plans to overhaul its national accounts this autumn, which could add significantly to its measuredsavings level. US output figures jumped 3 per cent last July when it changed its treatment of intangibles.
This has made me question the point of statistics.
When Nigeria’s GDP numbers nearly double overnight, you should certainly ask questions. But GDP growth is still our best barometer of economic prosperity. It isn’t perfect – but it isn’t pointless, either.
Izabella Kaminska
Fonte: FT
