In July 2019, Project Syndicate published an opinion piece by Paulo Gomes, our founder and chairman, titled “Why Investors Should Go Beyond African GDP”. It was later republished by the World Economic Forum and by several African newspapers. We summarise its argument here.
The article starts from a wider debate among economists about whether gross domestic product still measures economic health well. Gomes argues that Africa shows why that debate matters. Forecasts at the time, including one from Fitch Solutions projecting annual GDP growth of about 4.5% over the following decade with stagnant GDP per capita, risked persuading investors to write off the whole continent.
The first problem he identifies is the data itself. Many national statistics offices are underfunded and lack independence. When Nigeria rebased its GDP in 2014, for the first time in more than two decades, the estimate rose from $270 billion to $510 billion and the country overtook South Africa as the continent’s largest economy. The informal economy widens the gap further. It accounts for about two-thirds of employment in sub-Saharan Africa and an estimated 50 to 65% of Nigeria’s output, much of which official figures miss.
Even accurate national averages, he argues, would be a clumsy guide for investors. Economies of very different size can share more important features: Namibia’s diversified economy resembles South Africa’s more than Senegal’s, although South Africa’s GDP is nearly 30 times larger.
Cities offer a better lens. Although around 60% of Africans still lived in rural areas, the article noted forecasts that the world’s ten fastest-growing cities over the next 15 years would all be in Africa, and that Lagos already produces more than Kenya. Multinationals were planning by city, using indicators such as mobile-phone penetration, electricity use and internet bandwidth. Better data, increasingly supplied by private firms and African technology start-ups, would sharpen that picture.
The conclusion is that investors who build an accurate, detailed view of African economies stand to gain, while those who write off the continent on what Gomes calls “simplistic and incomplete GDP data” will lose out.
Read the full article on Project Syndicate.