Zimbabwe underestimating its GDP

Zimbabwe underestimating its GDP
Published: 29 July 2018 (1413 Views)
Zimbabwe's gross domestic product (GDP) reached $17, 85 billion last year, which is an all-time high, according to industry and commerce experts TradingEconomics.com

Zimbabwe's GDP averaged $6, 48 billion from 1960 (record low of $1, 05 billion) until 2017 when it reached $17, 85 billion.

The $17, 85 billion, however, represents just 0, 03 percent of the world economy.

The real issue around Zimbabwe's GDP, however, is that the country has not 'rebased' (read as 'updated') the size and strength of its economy. In practice, most governments validate GDP calculations by rebasing periodically, in a bid to reflect structural changes in the economy.

Four years ago, Nigeria did it, as did several other African countries.

After having not updated the constituents of its GDP base year since 1990, Nigeria rebased its economy in 2014 to include previously uncounted industries like telecommunications, information technology, music, online sales, airlines, and film production.

And it became Africa's biggest economy for at least two years before South Africa reclaimed the position.

Following the rebasing, Nigeria's GDP for 2013 amounted to 80, 3 trillion naira (or $509, 9 billion), according to the country's National Bureau of Statistics. This compared to South Africa's GDP of $370, 3 billion at the close of the same year.

A basic rule of thumb in national economics is that countries require at least three years for a rebasing exercise, that is, update the measure of the size of their economies.

Well, Zimbabwe's goal wouldn't be to try and compete with Nigeria and South Africa. Or simply to play around with figures.

But the benefits can be immense, not least the attraction of foreign investors, which Zimbabwe urgently requires at this present time.

Or, at the very least, an accurate representation of the size of the local economy.

In an earlier analytical article, economic analyst Perry Munzwembiri put forward that African countries can benefit from re-benchmarking their GDP statistics.

He wrote:

When Ghana revised its Gross Domestic Product figures in 2010, the resultant 60 percent jump in its GDP estimates saw it being upgraded from low-income country to a lower-middle income country. Similarly, Guinea Bissau and The Gambia also discovered that their economies were more than double the size of what had previously been reported after embarking on exercises to recalculate their GDP statistics. Perhaps more pronounced was the giant 89 per cent leap by Nigeria to the title of Africa's biggest economy (with a GDP of around $510 billion) after rebasing its GDP figures in April of this year.

The numerous examples of economy re-basing on the continent point to possible benefits for the country.

But let's look at the merits for Zimbabwe.

The telling figures

Zimbabwe's current GDP estimate is even lower than that of Zambia, a country that is historically economically smaller than Zimbabwe. (For instance, according to global economic indicators provider TradingEconomics, Zambia hit a record GDP low of $0, 68 billion in 1960, while Zimbabwe's all-time GDP low came in 1961 at $1, 05 billion).

As at the close of 2015, Zimbabwe's GDP stood at $14, 42 billion, while that of Zambia for the same period stood at $21, 15 billion, according to World Bank statistics.

Notable is also the fact that as at the end of June 2017, Zambia's stock exchange, the Lusaka Securities Exchange had a slightly higher market capitalisation of around $6, 5 billion, compared to the Zimbabwe Stock Exchange's circa $5, 6 billion same period.

But more empirically, local economists say judging from the revenue buoyancy that may be inferred from current local GDP figures, Zimbabwe's economy may be understated.

Revenue buoyancy is the ratio of revenue to GDP, while 'GDP' represents the total market value of all final goods and services produced in a country in a given year.

On current available GDP figures for Zimbabwe, the country's revenue buoyancy is estimated to be around 30 percent.

Such a figure is rather too high for the country considering the extensive 'informalisation' of its economy.

Analysts at ZB Financial Holdings in an earlier report projected that the number of workers going into informal employment will continue to rise and the tax base will resultantly shrink (although the Government is earmarking to increase its tax base by taxing the informal sector).

With the economy almost being driven by the informal sector, Zimbabwe's revenue buoyancy should be much lower.

And this veritably points to our GDP being understated.

In 2010, Botswana-based financial services company Imara raised similar concerns around the International Monetary Fund's projections of Zimbabwe's GDP of $5 billion at the time.

"We remain totally unconvinced and further don't believe that the underlying number used for the economy, being $5 billion, is correct," then Imara Asset Management (Zimbabwe) chief executive Mr John Legat had said at the time.

Zimbabwean fiscal authorities seem to confirm a lack of conviction on their part on GDP figures that have been thrown around as this has shifted over the years without adequate justification.

For example, in the 2011 national budget, the Government revised upward the size of the economy from $3, 5 billion to $5, 1 billion but with barely a corresponding uplift in the growth rate.

Furthermore, in the 2012 national budget, the then Minister of Finance, Mr Tendai Biti gave a re-rating of the GDP of up to $8 billion.

The simple reason for this is that our GDP base may be simply outdated, and re-basing may be of some value to us.

And specifically for Zimbabwe?

BancABC Zimbabwe group economist, Mr James Wadi says a re-jig of the country's GDP stats will give potential investors a more accurate picture of the local economy.

"In broad terms, it is important to rebase GDP regularly, to reflect the new measuring techniques, changing consumer patterns and changing economic conditions. Internationally, it is recommended that rebasing be done every five years.

"The rebasing of GDP shows a more representative changes in the structure of the economy and may reflect introduction of new products or sectors. Over time, some sectors that may not be fully captured may finally be accounted for by the new measuring techniques," said Wadi.

"Rebasing Zimbabwe's GDP may influence certain investment decisions - for instance, there is a possibility that Zimbabwe is underestimating its GDP size. So investors may think that it's a small market, yet it's huge."

And with the Government making inroads to clear its arrears to the international financial institutions, notably the IMF, the World Bank (WB), and the African Development Bank (AfDB), the economist says rebasing the local GDP may influence debt ratios.

"This may influence the classification of the country in the eyes of international creditors - whether it is a heavily indebted country or not. Hence it may also influence the country's risk profile," said Wadi.

Presently, Zimbabwe's debt ratios are very high. Official figures show Zimbabwe Government debt equivalent to 77, 60 percent of the country's GDP as at the end of last year.

Government debt to GDP in the country averaged 72, 78 percent from 1990 until 2017, reaching an all-time high of 147, 70 percent in 2008 and a record low of 31, 40 percent in 2001, TradingEconomics figures show.

Since 2014, a number of African countries, including Zambia, Nigeria, Kenya and Uganda, among others, have rebased their GDPs and experienced rises in the sizes of their economies.

But Munzwembiri - a respected economic analyst with an interest in African economies - is a bit more circumspect about a rebase of the Zimbabwean economy.

He says a bump in the size of the economy is not always an automatic outcome of the rebasing process.

"African countries differ in their economic structures and it would be overly simplistic to assume that the experiences of one country would mirror another.

''For Nigeria and Kenya for instance, the rise in the size of their economies was on the back of a rising middle class as well as more developed services sectors in their economies.

''For Nigeria, for example, the prices of oil had rose sharply since the last rebasing in 1990 and its film industry had become a more active contributor to the economy," he said.

"For a country such as Zimbabwe, its economic structure hasn't really changed that much as mining and agriculture continue to underpin the economy and the services sector has not really grown that much. So even after a rebasing, there might not be an appreciable change in the size of the economy."

However, Munzwembiri said a case might be made of the rise of the informal economy and the need to account for this.

He adds:

"Also the effect of factors such as increased mobile phone usage by Zimbabweans would need to be accounted for.

''Statistics show that rebasing the GDP may increase the size of an economy by at least 25 percent."

But whether or not the size of Zimbabwe's economy will rise on the basis of a GDP rebase, other key benefits are that it will enable policy makers, analysts and investors to obtain a more accurate picture of the economic structure; assist authorities to make appropriate policy decisions and programme design, and in some cases when GDP is revised, certain ratios - such as the debt/GDP ratio - may actually improve.

So the question remains: to rebase or not to rebase?

- zimpapers

Tags: GDP, Zimbabwe, High,
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