Africa's GDP ‘much bigger’ than thought—and Egypt's economy could be larger than Nigeria's

Sudan's economy would streak past Angola, while Tanzania would also just pip Kenya as East Africa’s largest economy

THE impending exit of UK bank Barclays from Africa is raising lots of dust, as theories fly over why a transnational that has a reputation as an emerging markets specialist of sorts pulled the plug on $70 billion in continental assets.

The analyses have swung from internal bank permutations following battles with regulators back in the West, to the growth forecasts for Africa. The latter view is now gaining currency, helped by the conflation with the uncertain international trading environment, an off-balance China and falling commodity prices.

Despite this, the bank’s African division performed almost twice as better as the lender’s overall in 2015, a year that was one of the toughest for most developing economies. Additionally, Barclays is also scaling down on operations in Asia, but this has not stopped the legions of  Africa worst-case scenario painters from being emboldened. 

The bank’s new chief executive Jes Staley fuelled the speculation when he said the phased departure was meant to “de-risk” the bank, even as the lender said it could retain a minority stake.

The African unit has been quick to bat back against claims that its operating climate is blame, playing up the case for a long-term view.

“We remain committed to Africa, where we continue to be optimistic about our growth prospects and to operate in the normal course of business,” Barclays Africa chief executive officer Maria Ramos said in a statement, seeking to reassure clients.

The view of a continent about to fall through the floor following two decades of runaway growth is perverse, but it is significant to note that it has tended to be coloured by  high-risk but short-term investors, think portfolio managers of off-shore funds.

As such, the rebalancing of China to a services-heavy economy has been cast as spelling doom to Africa, it’s largest trading partner, the bulk of the bilateral relationship being exports of resources.

But such outlooks only play to the tired stereotypes of the continent, Carlos Lopes, the executive secretary of the United Nations Economic Commission (UNECA) for Africa said.

“Africa’s narrative is changing. There is no doubt the continent has stepped into a new and higher growth projector. However, we are currently writing Africa’s story,”  he said at the annual David H. Miller lecture at the George Washington University last week.

Strong showing

The numbers back up his assertion. In the last decade the gross domestic product (GDP) of the largest 11 countries in sub-Saharan Africa have grown 51%—more than double the world’s 23% and four times that of the US,  according to figures from financial data company Bloomberg.

The continent’s average consumer price index has kept at less than 8% since 2013, from more than 13% in 2008, a combination of rapid economic expansion and low inflation that has enticed investors, as other once-favoured emerging markets struggle.

The major drivers were consumer-focused industries that are taking advantage of the burgeoning population, materials (think construction) and the financial services industry—which outpaced emerging markets by 11%.

Only energy was the main loser. Yet the struggles of major exporters such as Angola and Nigeria have been conflated with the reduced demand by China for commodities to paint a dire outlook for the continent.

The picture is nowhere as bad as persistently advanced, Dr Lopes said. Most African countries are not important exporters of commodities, and it is also difficult to predict just how the downturn will actually hurt Africa’s growth.

The upside

And there is actually a benefit to it: the current market volatility could accelerate the drive to turn the continent’s attention towards seeking internal—and more sustainable—growth.

A counter-argument to the rapid expansion of GDP has been that data on Africa’s growth is weak. It definitely is, but it presents a different “problem”: that of undercounting.

Compelling data from the international economics analysis organisation World Economics shows how in four ways:

1:  No resources to count

Have you ever wondered why UN, World Bank and IMF economic data on Africa vary so much even when they are describing the exact same thing such as per capita income? 

The problem starts at country level: national statistics offices have low capacity to collect data due to insufficient resources. Data is also lost or distorted due to conflict, political instability or even corruption—such numbers determine how resources are shared out and as such attract undue attention, including from politicians seeking to reward their power bases. 

The structure of economies and nature of property rights means the informal, or shadow, economy is not captured, leading to guesswork and data filling, including through econometric methods. But given the weakness of the base data is it still groping in the dark, compounding the original problem to the international level.

Read: Let’s face it folks, Africa is flying data blind, but a big revolution could be coming

2: Outdated base years

The rebasing of Nigeria’s GDP catapulted it to the top position as the largest African economy, as the base year changed from 1990 to 2010 to capture the strength of new sectors in the economy such as services. The recalculation saw its GDP grow an eye-popping 59.5%, and  set off a spate of rebasing around the continent.

It gets even better: the data show if most African countries updated their base years to 2013, the GDP uplift over one year would be 3.24%. In other words, using that year’s figures, the continent’s GDP when exchange rate variations are accounted for would rise from $5.21 trillion to about $6.3 trillion!

This would also have the effect of shifting the economic “order”: Egypt would become Africa’s biggest economy, pushing Nigeria into second place. Sudan would streak past Angola, while Tanzania would also just pip Kenya as East Africa’s largest economy: 

Annotated. Source: WorldEconomics

3: Old standards

A harmonized System of National Accounts (SNA) guides international comparison of economic data. Approved by the UN, there have been three revisions to it: in 1968, 1993 and 2008. Most African countries—41—are using the 1993 “version”, while five use SNA 1968. While the standards are not mandatory, they help in comparability of those countries within the same SNA year, but not across the three revisions, as they each treat data and information differently. It could be an economic Tower of Babel.

4: The ‘shadow’ economy

Because the informal economy in Africa is such a major player, failing to capture it, either accurately or at all, leaves big data chasms. One cited study shows that in 2007, the size of the shadow economies on the continent ranged from 21.9% of GDP in Mauritius to 62.7% in Zimbabwe. Just five countries—Kenya, Lesotho, Namibia, South Africa and Mauritius—had informal economies that were less than 30% of GDP.

Annotated. Source: WorldEconomics

The import of all this is that Africa’s economy is made of diverse markets, and each country responds differently to external events, meaning there are different opportunities to be had in each.

Last year, private-equity companies  amassed a $4.3 billion war chest for investment opportunities in Africa, the highest since 2010, as they seek to take advantage of the lowered valuations of target companies caused by the global commodity rout and weakening local currencies.

The market will give the highest returns to those who take the long-term view of a continent where all the ingredients from reforms to rising populations are in place, as these contrarian investors know.

In other words, Africa is far more attractive beyond what is currently thought to be.

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