Africa is clearly a land of extreme poverty. The continent epitomises
destitution, its images commonly used by media and charity organisations
to depict human want and suffering. But precisely, how poor are
One of the most commonly used indicator for expressing the wealth or
poverty of nations is Gross National Product (GNP), which is the sum of
the value of a nation's output of goods and services. This is calculated
by adding up the amount of money spent on a country's final output of
goods and services or by totalling the income of all its citizens,
including the income from factors of production used abroad. The measure
of progress, or lack of it, is indicated by GNP growth rates, i.e., the
percentage change in GNP over a period of time, usually a year. The
average income of a country's citizens is contained in the GNP per capita,
which is the GNP divided by the population.
Structural adjustment programmes of the World Bank and the
International Monetary Fund (IMF) are predicated on the assumption that
progress can be measured in terms of movements in the GNP or the Gross
Domestic Product (GDP), which is similar to GNP but does not include
income from abroad. Governments everywhere judge their performance by
changes in economic growth rates, congratulating themselves when they
achieve or surpass their GDP growth targets.
Using these indices as currently calculated by governments and
international organisations African nations are many decades behind
developed nations. In 1996, the average of GNP per capita in the
industrialised world was $27,086, compared with $528 in Africa. This means
that industrialised countries are roughly 51 times wealthier than African
nations. At an annual growth rate of three percent it would take Africa
about 120 years to reach today's level of wealth of the West. Of course,
western nations are unlikely to stand still in the 21st
century, so, it seems that African societies striving to catch up with the
west have an impossible mission.
How relevant are GNP and GDP data to economic development? Do
improvements in GDP growth rates necessarily reflect greater prosperity
for the general population? Should African governments give weight to
economic growth as presently constructed? These are questions that all who
are concerned with development in Africa should seriously ponder.
In recent decades some people have challenged the importance of
economic growth, the foundation of classical and orthodox economics, with
its roots in the late eighteenth century and early nineteenth century.
Some writers questioned the validity of the system for accounting the size
of economies and asked whether the benefits of growth are wisely
With respect to developing countries, particularly in Africa, there are
a number of flaws in the prevailing method of measuring the size and
growth of economies. Firstly the system reflects the general preoccupation
of orthodox economics with monetary transactions. The obsession is for
what is bought and sold for money, as distinct from the actual output of a
community. It means that in developing nations, where a large proportion
of economic activity takes place outside the market, GDP figures tend to
be understated. Modern conventions of national accounts do not adequately
recognise economic activities in the household and community that do not
involve the exchange of money.
In developed economies virtually every activity has been commercialised.
For instance, the national accounts of any western nation include payments
for personal beauty care, which for the US is around $60 billion a year.
Such an item would hardly feature in the accounts of African nations.
However, this does not mean that African men and women living in villages
do not enjoy 'beauty' treatments - it's simply that such activities are
not commercialised. In 1996 people in Britain spent some $33 billion on
beer, wine and spirits, larger than the GDP of most African countries. But
the consumption of palm wine, local spirits and other indigenous alcoholic
brews in African villages is not valued and incorporated in national
In Western capitalist societies, where everything is priced, virtually
all aspects of culture is monetized and incorporated in the national
accounts. For instance, the total annual expenditure on marriages and
funerals in the US runs into several billions of dollars a year. Yet,
people marry in African societies in elaborate and joyful ceremonies and
the dead are buried with appropriate ritual, but little of these
activities get into the national accounts. Leisure and entertainment
sectors account for a large proportion of the GDP of western nations, but
in the GDP of poor countries these universal components of life hardly
GDP statistics of African nations and other non-western societies do
not adequately reflect their cultural output, whilst cultural output forms
a significant proportion of the GDP of western nations.
Another reason why prevailing accounting conventions underestimate the
national income of developing countries is that a very large proportion of
economic activity in these places takes place outside the recorded sector.
The so-called informal sector is responsible for most economic activity in
African nations but does not appear in the national income sheet because
its transactions are unrecorded. The sector, ranging from illegal black
market activities, to tax evaders and small-scale producers using simple
technology, is essentially defined as economic activity that is
unmeasured, unrecorded and, in varying degrees, illegal.
No one knows the size of this sector, also called the black economy or
the second economy. Some economists have estimated that it may be as much
as two or three times the size of the official GDP. With the rise in
corruption and the alienation of the indigenous business community from
the state, the size of the informal sector has grown. It does not comprise
only of small producers, but includes businesses with large turnovers
which to avoid paying taxes or escape stifling state bureaucracies,
operate outside the formal recorded economy. With the virtual collapse of
the formal sector, tied to external economy, during the past two decades,
many producers in the sector have crashed and others have moved into the
If African policymakers do not know the actual size and dynamics of
their nation's real economy, i.e., the combination of the formal and
informal, they cannot properly assess changes in national output to
determine whether their society is progressing or regressing. It is
possible that an increase in output in the formal sector is more than
offset by a decline in the informal sector, meaning that the real economy
is actually in recession, as opposed to the official increase in GDP
growth. Similarly, when formal sector growth slows, it is possible that
the performance of the informal sector is strong enough to push up the
growth rate of the real economy.
According to official figures, Nigeria's GDP grew by an average 2.5
percent between 1994-1998, largely reflecting movements in the country's
oil export earnings, said to account for about 40 percent of the national
output. But no one really knows how Nigeria's real economy fared during
this period of heightened corruption and economic demoralisation. Many
private sector operators believe that the economy was in recession. In
reality, we do not know the truth because a reliable measure of Nigeria's
real economy does not exist.
The World Bank and IMF frequently produce GDP data showing that nations
that follow SAP prescriptions perform better than those who do not, but
these claims are made without information on the output of the informal
sector. GDP growth based on the building of new restaurants in urban areas
and destruction of indigenous industries hardly amounts to progress.
By arguing that African economies are larger than official GDP
statistics suggest, we are not denying the existence of severe poverty in
the continent. However, Africa's poverty is so glaring that it does not
need to be overstated. To say that Nigeria's GDP per capita is $250 and
Mozambique's is $80 as stated in official data is clearly absurd. Given
the unequal distribution of income, where the richest 20 percent of the
population gulp half or more of the national income, official GDP per
income would give an income for the majority of Africans on which it would
be impossible to survive. Anyone visiting Nigeria will see evidence of
intense poverty, but they will not see millions of people dying of
To account for differences in the purchasing power of the dollar in
different countries, economic agencies publish national income figures
that have been adjusted for purchasing power parity (PPP). This is a
method of measuring the relative purchasing power of different countries'
currencies in order to compare living standards. Using PPP results in
substantial increases in the GNP per capita of African countries. For
instance, according to World Bank date standard GNP per capita and GNP per
capita PPP adjusted for Nigeria was $260 and $1,220 respectively in 1995
and $80 and $810 respectively for Mozambique. On PPP basis, the US per
capita income is 24 times Nigeria's, compared with 116 times when standard
GDP per capita is used.
Though using PPP allows more accurate comparisons of standards of
living across countries, it does not address the question of the under
accounting of national economies in Africa and elsewhere in the developing
world. It could be argued that it makes no difference whether Britain's
GDP per capita income is 78 times bigger than Nigeria's or 17 times larger
when GDP is adjusted for PPP, or perhaps only fives times larger when
Nigeria's informal sector and cultural output are incorporated into its
national income. But it can make a difference.
Getting a more accurate picture of the size of African economies will
give us a better perspective on the challenge facing African governments
and development agencies. The exaggeration of the wealth gap between
Africa and the West has the effect of making the prospect of Africans
achieving a standard of living comparable to what exist in the West seem
almost impossible. When faced with GDP data that suggest that their
nations are a century behind developed countries, Africans understandably
feel overwhelmed or defeated by the enormity of the task of catching up,
and some opt for personal short-cuts to the higher living standards.
We may find that after the formal and informal sectors are integrated
into one measured real economy, and financial value is ascribed to non-monetized
cultural output of the population, the actual size of African economies
are significantly larger than indicated by current GDP data. Furthermore,
if the cost of industrial growth, such as environmental degradation, were
deducted from the GDP figures of western economies, the prosperity gap
between developing and developed nations will narrow further. The GDP of
industrialised nations could be discounted for waste of world resources
due to over-development, i.e., producing beyond the needs of society.
When considering the material conditions of people in Africa, a
distinction should be made between absolute poverty and relative poverty.
The former relates to the absence of basic social facilities, such as
access to safe water, education, health services and reasonable nutrition.
While the latter relates to the lack of access to living standards that
are available in modern industrialised societies.
Though abject poverty is widespread in Africa, it does not require
decades or a century to eradicate it. With political will and increased
investment in human development, within a generation it can be drastically
reduced if not eliminated. The costs will be substantial, but not beyond
the means African countries. According to the World Bank, in 1988 the
estimated cost of providing safe water supplies in Nigeria's rural and
urban areas within 20 years was $4.3 billion. This was a piffling amount
compared with the more than $200 billion of public funds that has been
stolen or squandered on inessential projects since the 1970s, including
more than $8 billion spend on a steel industry that has produced little or
Rather than follow GDP statistics that tell us little about the real
economy, African governments should concern themselves with the quality
and structure of the growth they pursue. We should focus on those aspects
of human existence that define our poverty and ignore those aspects of
wealth in the west that are cultural. Africans are not poor because they
do not eat beef-burgers, have private cars or attend beauty saloons. They
are poor because they lack access to basic social utilities. This requires
channelling resources into human development, especially improving the
health, education and skill levels of the people as well as expanding job
In presenting Africa's poverty relative to the rich west, we should be
careful not to devalue the culture of African people. By using GDP
statistics which give little or no recognition to the everyday toil and
output of ordinary Africans, both the friends and enemies of the continent
present Africans as hapless, lazy and unproductive people. Africa's
poverty does not need to be overstated or the output of its people ignored
to make a case for debt relief or aid for the continent.
Tunde Obadina is director of Africa Business