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The East African : Oct 6th 2014
8 ECONOMIC GROWTH States to rebase their economic data by 2015 end Kenya last week ≥eviewed its economic statistics to become the ninth la≥gest economy in Af≥ica BY ALLAN OLINGO The EastAfrican E ast African member states have agreed to revalue their econo- mies by the end of next year in order to obtain accurate data for planning. Kenya rebased its economic data last week to enter the lower middle income economy category despite vast social disparities that have left 46 per cent of the population — 18 million people — living in absolute poverty. “We have agreed that all member states in the EAC update their GDP base by the end of 2015. This will help assess the economic activities in the region,” said Peter Mangiti, the Principal Secretary in Kenya’s Ministry of Devolution and Planning said. Assessing the economic activities in a country enables state agencies to identify potential areas for intervention and tax measures. In the Kenyan case, the leap in the value of economic activities by a quarter also showed that real estate now contributes 10 per cent of the country’s wealth despite striking below its weight with about 1 per cent of total taxes. The government has already introduced the capital gains tax, which will see all property transfers, including shares, charged 5 per cent of the net gain. “Policymaking and statistics are inseparable. There is a need to capture a better picture of the economy and help realise the full potential of the economy,” Mr Mangiti said. The World Bank warned that the lower-middle income tag would not translate to an immediate improvement in the wellbeing of citizens because of entrenched inequalities. “Let us remember that even as Kenya becomes a lower-middle income country, an estimated four in 10 Kenyans are living below the poverty line. Moreover, income distribution varies widely across the country and population groups,” Diarietou Gaye, World Bank Country Director for Kenya said. Nic Cheeseman, a professor of public policy and international relations at Oxford University, said an increase in the collective wealth did Christmas shoppers at the TRM , which is one of the high-end malls in Nairobi. Kenya’s GDP has grown to $53b. Pic: File not necessarily mean that Kenyans would be better off. “No one will wake up in the morning and find an extra dollar in their pocket. Rather, ordinary Kenyans will be just as poor — or just as wealthy — as they were a year ago. All that the new GDP figure tells us is that the economy is worth more than we thought. It tells us nothing about how this is distributed,” Prof Cheeseman said. Mr Gaye, however, added that im- provements in data quality, accessibility and dissemination standards have been linked to better governance, higher levels of private investment and reduced borrowing costs in international capital markets. Kenya will also continue to enjoy concessionary lending from the World Bank because its gross national income (GNI) per capita — $1,060 — still falls below $1,215 after the rebasing. To be ranked as a lower income economy the GNI — wealth generated within and outside the country — should be above $1045. “While the results show that Kenya in fact attained lower-middle in- come country status in 2012, Kenya remains eligible for concessional financing from the Bank’s International Development Association (IDA) window,” said Mr Gaye. Kenya’s GDP has increased to Ksh4.76 trillion ($53.3 billion) in 2013 after rebasing from Ksh3.8 trillion ($42.6 billion) making it Africa’s ninth largest economy after Nigeria, South Africa, Egypt, Algeria, Angola, Morroco, Libya and Sudan. Nigeria became Africa’s biggest economy in April after a rebasing that yielded a 20 per cent growth in income. “Kenya’s gross domestic product was assessed to be 25 per cent bigger in 2013 after we changed the base calculation year to 2009 from 2001. After rebasing, we have recalculated our growth to 5.7 per cent, up from the previous estimate of 4.7 $53.3b ark Twain once said that facts are stubborn things, but statistics are pliable. This could be the reason behind the raging discus- COMMENTARY MACHARIA KIHURO per cent,” Devolution and Planning Secretary Anne Waiguru said. Kenya’s GDP per capita — the wealth generated within borders — now stands at $1,246, from $999 before. While the recalculation is expect- ed to lower debt levels and increase foreign investor confidence, little will change for much of the population as the 2013 World Bank report puts the poverty level in the country at 45.9 per cent and life expectancy at 61 years. This is the sixth time that Kenya has revised its National Account Statistics with agriculture, manufacturing and the real estate sectors accounting for most of the change in the level of GDP. The agriculture sector was the biggest contributor to the growth at 19.9 per cent, manufacturing contributed 11.4 per cent while the real estate sector contributed 5.9 per cent. One of the greatest benefits for Kenya’s GDP last year after rebasing the country is the decline in Kenya’s debt to GDP ratio from nearly 50 per cent of GDP-to-42 per cent. As at March this year, Kenya’s national debt was Ksh2.172 trillion ($24 bil- sion on the government statistics that indicate Kenya is now the ninth biggest economy in Africa. The statistics also indicate that Kenyan economy is not only bigger but has also joined the middle-income nation status. One reality that these figures confirm is Facts a≥e stubbo≥n things, but statistics a≥e pliable M five years but Kenya had maintained the same base year for over 13 years. Therefore key among the changes included “Rebasing of the GDP means replacing the old base year used for compiling the constant price estimates to a recent base year.” that Africa as an economy is on an upward trajectory. Indeed, many pundits have always argued that the real size of many African economies is hugely understated, which effectively underrates the role of the continent in the global economy. The rebased Nigerian GDP, estimated at $509 billion, makes the nation the biggest economy in Africa, ahead of South Africa’s $350 billion. The Nigerian GDP jumped 89 per cent from the old figure with the main contributors being telecommunications, music and Nollywood. But while it is likely that the rebased fig- ures will help the economy in general, the truth is that rebasing the economy has not directly translated into more Nairas in the pockets of the merchants in the Balogun Market of Lagos. However, there are a lot of benefits for a country that seeks to rebase its economy. Many African nations have always faced chal- lenges in accurately estimating the actual sizes of their economies. In fact, estimated GDP sizes in many countries are said to be far from accurate largely due to missing or omitted data, antiquated base years, disputed population data and the size of the unrecorded informal economy. These inconsistencies mean that interna- tional ranking of countries in terms of GDP and per capita are misunderstanding. The government has announced that as per the rebased figures, Kenya’s economy has expanded by 25 per cent and is currently estimated at Kshs. 4.7 trillion ($53.3 billion) up from Kshs. 3.8 trillion ($42.6 billion) in 2013. Rebasing of the GDP means replacing the old base year used for compiling the constant price estimates to a recent base year in order to reflect a “true and fair” estimate of the GDP size. The International Monetary Fund requires the exercise to be done after every the change of the base year of the figures to 2009 from 2001. But will the rebased figures mean anything to the common citizen’s pocket? In the short run, this will have a minimal effect. However, the expected benefits to the gen- eral economy may have a trickledown effect that may eventually benefit all and sundry. So like the trader in the Balogun market who insisted there was no impact from the revised figures, the same sentiment is likely to be heard from the trader in our Gikomba market. It is not an instant-coffee solution to our social challenges. However, there are a host of advantages that a country that is properly managed can take leverage the economy. Income translates into higher tax collec- tion to fund infrastructural growth, create employment opportunities, and improve the education and health systems among other benefits. A rebased economy is a plus to a country for a number of reasons. First, foreign investors usually take great interest in the size of an economy as well as its growth rates. Statistics that show growth in the economy are likely to whet the appetite of the foreign The EastAfrican NEWS OCTOBER 4-10,2014 investors who are likely to seek to align their strategic plans with the expected growth in certain markets. Second, a higher GDP figure will automati- cally lower the country’s debt ratios. Most institutions calculate a country’s lev- erage using the proportion of the total borrowing to the GDP. According to the figures from the IMF, Kenya’s total surpassed the psychological 50 per cent of GDP barrier in 2013 with the total debt standing at 57 per cent of GDP. With the increased GDP size, the ratio will obviously go down, improving Kenya’s ability to borrow. This applies to all the key economic indicators that are pegged to the size of the GDP such as budget deficit to GDP etc. Third, the improved GDP per capita con- notes an increased purchasing power. It is assumed that more foreign direct investors will extrapolate this to mean higher domestic spending power thereby encouraging more investment into the economy. Lastly, the biggest relief came from the World Bank’s country director who indicated that the new status will not deny Kenya the window to enjoy cheaper concessionary credit facilities from these key multilateral financial institutions. Macharia Kihuro is a financial risk management practitioner based in Nairobi.
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