Why Investors Should Go Beyond African GDP
Amid bleak GDP-based forecasts of Africa's economic performance, some investors are tempted to write off the entire continent. But those who seize opportunities to gain an accurate and nuanced picture of Africa’s economic performance and prospects could reap vast rewards.
WASHINGTON, DC – Gross domestic product has been the ultimate measure of an economy’s welfare for over 80 years. But, as the world’s economies become increasingly complex and technology-focused, economists are increasingly questioning GDP’s usefulness as a gauge of an economy’s health, with some arguing for a radically new approach. Africa’s experience shows why such an approach is badly needed.
Africa has long suffered as a result of GDP’s shortcomings. In January, the global credit-ratings agency Fitch Solutions forecast that while Africa’s GDP growth will average 4.5% annually over the next decade, its average GDP per capita will stagnate. But such bleak projections are misleading – and threaten to drive away investors.
The first problem with GDP projections for Africa is that they are based on scarce data. The majority of the continent’s national statistics services are underdeveloped. They lack sufficient funding and independence to acquire comprehensive data and calculate benchmark economic indicators. In other words, official GDP figures may be very wrong.