The sense and nonsense of adjusting your GDP

Uganda, East Africa’s third-largest economy, this week joined a club of mostly African nations that have revised their GDP figures upwards. After the revision, the GDP stands 13 per cent higher than before, at 68.4 trillion shillings ($24.6 billion), or about $788 per capita.

Who else has revised their GDP? Why are they doing so? And is it justified and credible?

At least three more African nations revised their GDP in recent times, MG Africa reported in early October, and one more – Tanzania – is set to follow suit.

Kenya is now a middle-income status country, revised national statistics show. […] The 25% revision in fortune is not without precedent. Ghana rebased its economy in 2010, [and] saw the size of its economy surge 62% while Nigeria rebased earlier this year, [and] saw its GDP revised upward by 89% becoming Africa’s largest economy at US$510billion. […]Tanzania has also rebased its accounts to the year 2007 up from the year 2001 and its GDP is expected to rise to $40bn up from $32bn on account of the growing extractives sector.

Why these revisions are necessary and how they work, was explained in The Economist when Nigeria presented its new figures:

The upgrade is the outcome of a process known as “rebasing”. GDP is typically measured by reference to the shape of the economy in a “base” year. Statisticians sample businesses in different industries to see how fast they are growing. […] As time passes the figures become less and less accurate. Nigeria’s old GDP data relied on a hopelessly dated snapshot of its economy in 1990.

When Kenya adjusted its GDP, Forbes explained that the process was not only acceptable, but recommended by the United Nations:

The United Nations Statistical Commission (UNSC) recommends that countries rebase their GDP every five years to minimize the huge fluctuations that may result from using very old base years […] this is because economies are dynamic in nature: they grow, they shrink, they add new sectors, new products and new technologies, and consumer behavior and tastes change over time.

Matt Mossman from African Arguments told Bloomberg that revisions are important, but also problematic:

[GDP rebasings] provide a clearer look at an economy, and in particular they capture where the most growth is coming from. But they also highlight the problem with GDP as a statistic – it’s never accurate, and often, in developing countries, it’s not even close.

The Financial Times’s Javier Blas has a dual message, as well:

Although upward revisions of the size of Africa’s GDP will not put any more money in the pockets of consumers, it could well have a “feelgood” effect on perceptions about the region. With Africa firmly on the radar of foreign companies and investors, upward revisions could lure considerable inflows of capital. But they also magnify problems blighting the region, in particular growing income inequality.

But not everyone is happy with Uganda’s revision of GDP. In the Ugandan newspaper The Observer, Jeff Mbanga says the nation might have benefited more from revising different figures:

Uganda needs to improve its data to deal with all the speculation that is rampant all over the economy, and has left many of us paying unfair fees. Coming up with a property, fuel and electricity index – areas many of us are closely connected to – would have more credible data for the public and investors than the rebased figures.

Author: Peter Vanham, Senior Media Manager, World Economic Forum.

Image: A customer conducts a mobile money transfer in the central business district of Kenya’s capital Nairobi July 15, 2013. REUTERS/Thomas Mukoya