The African Development Bank (AfDB) has presented its African Economic Outlook 2014, which covers for the first time all 54 countries in the continent, at its annual meeting in Kigali, Rwanda’s capital. The document shed some uplifting observations starting with the fact that growth is expected to pick up to 4.8% this year and 5.7% in 2015, returning to the path it was on before the 2009 global recession. The report highlights that the economic growth is more broad-based and is driven by domestic demand, infrastructure and increased continental trade in manufactured goods. Meanwhile financial flows headed into the continent are expected to surpass $200 billion in 2014, four times their 2000 level and foreign investment — direct and portfolio – is projected to reach a record $80 billion in 2014, with manufacturing and services attracting an increasing share of the continent’s greenfield projects.
Indeed these are good signs for the continent that has shown resilience to global and regional headwinds. Yet there are some concerning issues raised by the AfDB. The first one is a problem with the accuracy of the growth domestic product numbers in the continent. Official statistics may put Africa’s GDP as a whole at about $1.5 trillion but the real amount is higher than that. In fact it’s closer to $2 trillion, “if not higher,” according to Mthuli Ncube, chief economist at the multilateral organization. The explanation why this mismatch takes place is simple: countries are using old metrics to measure their economic output – GDP – which leads many African nations to publish underrepresented data.
The need to rebase their GDP – as Nigeria recently did, a move that bumped it up to be the continent’s largest economy – in order to encompass sectors that aren’t currently included and that have taken a predominant spot in the countries economic structures’ in recent years – such as the banking and telecommunications industries or Nollywood in Nigeria’s case –, is pressing. “Rebasing is producing [on average] a 30% increase,” Ncube reportedly said at the meeting. According to the AfDB, only ten African countries out of 54 use a base year in their GDP calculations that was five or fewer years ago – the international standard – while as many as of 19 nations use a base year that is at least a decade old. Seven countries use base years that are over 20 years old and the Democratic Republic of Congo and Equatorial Guinea use base years from the 1980s.
Another issue that was raised in the Bank’s meeting and in the AEO is the need to participate more effectively in the global production of goods and services, as a platform for the continent to transform its economy and achieve a development breakthrough. “In the medium-to-long-term, the opportunity for participating in global value chains should be viewed as part of the strategy for achieving strong, sustained and inclusive growth,” said the AfDB’s Mthuli Ncube. By having a greater participation in the global value chains – defined as the range of activities in different countries that bring a product from conception to delivery to the consumer – Africa could boost its economic diversification, domestic resource mobilization and investments in critical infrastructure. In order to do just that the main challenge African nations face is to shy away from low-value-added activities. “Although Africa exported about $100 billion worth of services in 2012, its total share in world service exports remains low, particularly in high value-added services. At around 2.2%, Africa’s share of world service exports has remained relatively stable since the 1990s,” the report said.
The Bank’s Board of Governors and Board of Directors, African policy-makers and the private sector and non-state actors, target audience of the economic forecast were taking note of these and other realities at the meeting and when reading the paper. The AEO is the only resource on Africa which employs a cross-country, macro-economic framework, allowing for comparative analysis both over time and across countries. As the world’s economy picks up and Africa regains the growth pace it had before the global meltdown, the moment is perfect for the continent to make its points clear. Developed economies and other multilateral organizations should accept and adapt to a level playing field.