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Tuesday, 3 September 2013

Is Zambia's GDP about to get bigger?

Zambia is planning to re-base its GDP later this year. We last rebased our GDP measure in 1994 and a lot has changed since then. The Central Statistics Office (CSO) says, "The mining sector was in disarray at that time..In the last three or four years the mining sector has changed in terms of structure and contribution. There are other sectors that have come on board in the last 10 years or so, and these have also completely changed the structure of the economy".

The CSO will re-base the GDP numbers once it has completed analysis of the economic census. This is expected to be around October. It believes that rebasing will show that the GDP is 20% larger than currently estimated. 

It is customary for countries to rebase their GDP every five years or so to keep up with prices and structure of the economy. More importantly such a rebasing exercise usually includes taking on board new accounting conventions, improved estimation methods and revised statistical classifications. For Zambia this has not happened for nearly 20 years making the GDP and inflation (GDP deflator) figures deeply unreliable.

Two big questions. The first question relates to whether GDP will indeed increase by 20%. I think it will probably be more than 20%! Ghana's rebasing exercise increased its GDP by 60%. The Nigerians are expecting their GDP to double when it rebases later this year.  Zambia's GDP won't be anywhere near that because I believe we are still structurally dependent on similar activities as in 1994. But the change should be more than 20%. Somewhere in the 30% - 40% range. 

The second question relates to what the rise in GDP mean for Zambia.  It practical terms it simply means average GDP per capita (GDP divided by population) is much higher than we thought. Zambia is indeed a proper middle income country - as shocking as that sounds. However, it will also show that we are more unequal than before. More importantly it will even lead to more scratching of heads on why poverty levels are so high in many parts of the country for a 'middle income' country. 

The Government may also decide to borrow more and spend more. A higher GDP will mean the GDP debt ratio is very low. It will also mean the deficit as a proportion of GDP will be very low. This implies that Chikwanda will have more capacity to borrow and is likely to be more inclined to do so. This will be his get out jail card!  And of course for PF it means more pre-2016 spending. 

A higher GDP per person of course means that on average Zambians have more money than we thought (most of it in the top 5%). This is likely to attract interest from investors who may see this as an increase in the purchasing power of Zambians. But it will also mean Government should be doing more to improve collection of tax revenues from the rich. Critical here is tackling informality by lowering taxes to small firms and reducing regulatory costs of doing business. 

In short this is more than a cosmetic change. It will have implications in many areas. And it is a change that is long overdue. The way the CSO is run currently is a complete shambles. The time has surely come to review our statistics and put in place a more independent statistical authority with competent officials. There should also be greater emphasis in producing regional GDP figures and more regular publication of independently verified employment statistics. 


How will positive rebasing of GDP affect the political dynamics of the country? 

Chola Mukanga | Economist
Copyright © Zambian Economist 2013

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