SALIVATING INVESORS BEWARE

INVESTORS NEED FRESH MODELS OF AFRICAN GROWTH

A LETTER TO THE FINANCIAL TIMES (PUBLISHED)

Every Monday the Financial Times publishes a book review. The books chosen usually cover important and controversial issues of the day. On February 25, the title of the review by Andrew Jack was: Africa counts the cost of miscalculations, with the sub-heading: A tendency to issue doubtful data is rooted in colonial days and still creates problems for the continent, according to an important study. On a cautionary note the review begins with “There are lies, damned lies and then there are African statistics.” Read more.... (1)

The important study (the book reviewed) is Poor Numbers – How We Are Misled by African Development Statistics and What to Do about It, by Morten Jerven, an economics historian specialising in Africa. On the controversial question of whether Africa is rising or not, such is the inaccuracy of Africa’s development statistics that Professor Jerven has written elsewhere, "We have no idea". World Bank chief economist, Shantayanan Devarajan, has added to the confusion by talking of "Africa's statistical tragedy".

Measurements, calculations and statistics, and the way they are presented, are fundamental for gauging the levels of economic development. Nowhere is this more important today than in Africa, the least developed but fastest growing continent on which the future of the global economy depends.

The focus of the FT review was on the accuracy of statistical reporting and while this is critical it left many questions unanswered. The gaps prompted me to write the following Letter to the Editor of the FT (2) which was published on March 3 under the title: 

INVESTORS NEED FRESH MODELS OF AFRICAN GROWTH

Sir, Your Monday book reviews always capture the spirit of the day (“Consequences of a continent’s miscalculations”, February 25). The review of Poor Numbers – How We Are Misled by African Development Statistics and What to Do about It could not have a come at a better time. 2013 could be a record year for investment in Africa and, if these investments are to deliver the sustainable growth Africa and the global economy needs, the accuracy of measurements, calculations and statistics is crucial. But just as important as accuracy is content. The systems inherited by Africans at independence, and which still dominate the continent today, are hopelessly inadequate for a correct understanding of sustainability in Africa’s harsh and unpredictable conditions.

The post-colonial mini-booms of the 1970s and 1980s, fuelled by recycled petrodollars and deregulated funds, soon turned into busts because investors had neither the knowledge nor the tools to measure the externalities, or hidden costs, of doing business in the world’s most challenging continent. Gross domestic product as the primary accounting system of the post-colonial model, for example, told us nothing about sustainability.

With the effects of climate change accelerating, populations exploding, inequality escalating, the environment rapidly degrading and biodiversity disappearing all over the continent, investments will have to be very carefully placed otherwise “Africa’s moment” might be just that – Mali's looks like it has already been and gone. Many more could follow if the hundreds of billions of dollars pouring into Africa are not allocated using new measurements, new calculations and new statistics applied by new professions for the 21st century.

Although “this time is different” in Africa, unfortunately so much is still the same. Despite significant progress on green development over the past 20 years, the old unsustainable “brown” economy is still the most powerful force on the continent. Furthermore, the hidden costs today are far higher than 30 years ago, while so much more is at stake. If Africa is to be the new engine of global growth, it will have to be measured in new ways based on some sort of Green GDP, or GDP-plus, designed by Africans with responsible partners. The good news is that African governments with the UN, World Bank and other global institutions are moving in this direction.

Your sister newspaper, The Economist, reports this week that “Global investors are salivating over Africa.” Without new and accurate statistics there is a great danger that many will bite off more than they can chew. The colonials made lots of mistakes but they were right about one thing: “In Africa things are not always as they seem.” Salivating investors beware.

END

On March 10 a response to this was published as a letter in the FT: Africa is on the rise - come and see for yourselves (1) by Dr Mthuli Ncube, Chief Economist and Vice President, African Development Bank, Tunis, Tunisia.

Related letters to the FT (1):

Now is the moment to rethink Ethiopia - August 28, 2012
Green investment in Africa is in the interest of us all - July 1, 2012
An African green deal, phase two - April 16, 2012
Europe's role in unlocking Africa's green economy - March 9, 2012
 

(1) FT copyright rules do not allow the reproduction of material. The paper does, however, allow readers free access to 8 pieces a month for those wishing to locate the review and letters noted above.

(2) The copyright of Letters to the Editor are owned by the writer and mine is therefore legitimately presented here.