Mark Twain once said that facts are stubborn things, but statistics are pliable. This could be the reason behind the raging discussion 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 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 figures 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 challenges 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 international 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 Ksh4.7 trillion ($53.3 billion) up from Ksh3.8 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 five years but Kenya had maintained the same base year for over 13 years. Therefore key among the changes included 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 general 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 collection 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 investors who are likely to seek to align their strategic plans with the expected growth in certain markets.
Second, a higher GDP figure will automatically lower the country’s debt ratios.
Most institutions calculate a country’s leverage 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 connotes 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.