A drive to address Africa’s lack of financial information is under way, with the continent’s stock exchanges taking the lead


Three years ago, the official size of Ghana’s economy leaped some 60% overnight, vaulting the country into middle-income status.

There was no magic trick – and there hadn’t been a sudden, real economic expansion either. Ghana’s economy, like so many of its African peers, had been rebased, which meant that the new numbers were merely a desktop exercise.

But the bigger figure does correspond more accurately with reality. It is part of a drive towards improved informational efficiency across the continent, driven initially by governments and multilateral organisations, and is a process that has immense practical implications.

Rebasing promises to improve not only national data and accounts but also the functioning of financial systems and national stock exchanges in Africa. But improving informational efficiency is a complicated exercise that requires action in many areas.

Government statistical offices regularly rebase economies – typically every five years – in the developed world. The purpose of a baseline is to provide a constant basis for price comparisons. Without reference to a baseline, numbers can be distorted, especially by inflation as well as currency fluctuations.

Calculating contributions from different economic sectors in national data involves assumptions that can easily become outdated. For example, before its 2014 rebasing, Nigeria’s data did not include the contributions of either the country’s film industry – known as Nollywood – nor the impact of cellular telephony.

As Nigeria’s previous baseline dated back to 1990, it was not surprising that its data was outdated. But the results were nonetheless unexpected when the country was rebased. Informed observers had expected the exercise to lift Nigeria’s official GDP figure by some 40%. What the exercise showed was that its economy had almost doubled.

In the course of a single Sunday afternoon, Nigeria’s official GDP jumped from $323 billion to $509.9 billion. The country leapfrogged SA’s $350 billion and was shown to be the world’s 26th largest economy – up from 33rd place. It was a source of enormous pride for many Nigerians though the main improvement was not that anyone was better off, but that the statistics were better.

African economies that have been rebased this year also include Kenya and Zambia. However, the rebasing exercise, as seen with Ghana, has shown just how poor Africa’s economic data is. Zambia had rebased last in 1994 and Kenya in 2001.

‘The WEF’s 2013 World Competitiveness report rated the JSE close to the top in terms of accountability’


A Statistics South Africa survey conducted about five years ago found that ‘the majority’ of sub-Saharan economies had base years more than a decade old.

Why is Africa’s data so bad? Shantayanan Devarajan, World Bank chief economist for the Middle East and North Africa region says: ‘In many countries, the statistical office is like an orphan. I’ve encountered cases where the minister is not even aware that the statistical office is under his ministry.’

However, global incentives to produce accurate data are misaligned. While stock markets need accurate data, these are mostly underdeveloped in Africa outside of Johannesburg, and governments have a different immediate imperative.

For the last two decades it has served the interests of African governments to understate their GDP so that they could qualify for the best debt relief and concessional finance offers. Multilateral institutions such as the IMF and World Bank have focused on the poorest as well as least-developed countries.

Since its rebasing, Ghana and Nigeria have entered the lower ranks of middle-income countries. They were previously defined as highly indebted poor countries and qualified for full debt relief in terms of initiatives such as the Jubilee Debt Campaign as well as the 2005 Gleneagles Agreement. It has been suggested that Nigeria postponed its 2000 rebasing exercise to retain its status.

In the interim, the IMF generated the most accurate data on the majority of African countries. But as Vancouver-based professor and scholar of Africa’s information gap, Morten Jerven, observes, it had ‘over-predicted GDP growth and under predicated inflation’.

With the notable exception of SA, which rebases every five years or so (the next rebasing is due in November 2014), African countries generally possess neither the census nor survey data to produce accurate numbers.

Commenting on the ‘Africa rising’ theme, Jerven says: ‘How can you be confident about a 7% growth rate when 50% of the economy is missing the official baseline?’

The gap between statistics and reality is not only dysfunctional in developing countries. When Italy rebased in 1987, the exercise counted the country’s formidable underground economy of tax evaders and illegal workers for the first time.

The Italian government was able to announce that the country had overtaken Britain to become the fifth-largest economy in the world.

Nor do big, private-sector institutions always get the numbers right, even when coherent data is available. The Goldman Sachs 2014 publication on SA, titled Two Decades of Freedom, started the myth that the country’s economy had ‘tripled in size’ over two decades.

There are several initiatives across the continent to improve the size and quality of stock markets

The publication stated that the SA economy had grown from $143.8 billion in 1994 to $404.3 billion in 2014 (or ‘2.8 times’). However, it failed to strip out a 50% currency decline over the period nor the compounded 20-year impact of inflation. Properly adjusted, the numbers show the SA economy has instead grown some 30% in 20 years – hardly a stellar performance.

Few institutions are more data-sensitive than stock exchanges. These establishments are part and parcel of the growth process, and the last decade-and-a-half has seen the number of bourses on the continent more or less double to about 23, as recognised by the African Securities Exchanges Association. It also includes one of the world’s few regional stock exchanges, linking eight French-speaking countries in West Africa.

Exchanges are a way of accelerating economic growth by enabling a boost to domestic savings. In particular, they provide an avenue for growing companies to raise capital at a lower cost than offered by banks.

But these markets are tiny, comprising only some 2% of world market capitalisation, with the JSE providing some 75% of that total.

The benchmark of stock market efficiency is the speed and efficiency with which information is incorporated into market prices. Studies about this phenomenon repeatedly find that African stock exchanges are inefficient – again, with the exception of the JSE.

The continent’s markets tend to lack depth and liquidity. In other words, they represent only a small proportion of economic activity in a country – a mere 4% in the case of the Lagos Stock Exchange (again, the exception is the JSE which has a market capitalisation roughly three times the size of SA’s GDP) – and it can be very difficult to actually buy shares. African stock markets can be volatile, which means that their main attraction appeals to those with a short-term gambling mindset. Their shortcomings mean they are not listed on the main equity market indices and therefore they fail to attract global emerging market portfolio funds.

Pierre Marais, portfolio manager at Citadel, points out that the JSE is, in information-efficiency terms, a different animal. ‘Recent studies, like the WEF’s 2013 World Competitiveness Report, rated the JSE close to the top in terms of accountability of private institutions [second out of 148 countries] and financial market efficiency [third],’ he says. To go from where African stock exchanges currently are to where the JSE is would be ‘a massive leap’ he says.

However, there are several initiatives across the continent to improve the size and quality of stock markets. The Nairobi Securities Exchange, widely regarded as the best of the new exchanges, has an arrangement with the Kenyan Receiver of Revenue that newly listed companies pay a lower corporate tax rate (20%) for the first five years.

It is also moving towards the type of complete electronic trading, clearing and settlement technology used by the JSE. Perhaps the most important thing about these nascent stock exchanges, though, is that they will undoubtedly become key drivers of improvements to the continent’s information efficiency.

If growing and increasingly important local institutions – the national stock exchanges – consistently demand such improvements, these are more likely to actually happen and be sustained over time.

By David Christianson
Image: Fredrik Broden/reneerhyner.com