REBASING OF KENYA’S GDP

Kenya’s economy set to be the 4th largest in Sub-Saharan Africa after Nigeria, South Africa and Angola.By EMMANUEL ROTICHThe rebasing of Gross Domestic Product (GDP) figures due to be concluded by September 2014 in Kenya should

give a better indication of the contribution by sectors that are relatively new since the last such exercise in 2010.This follows the bid to expand the GDP by about 20 per cent, which will see the economy balloon to Sh4.2 trillion. The development will see Kenya’s economy become the fourth largest in Sub-Saharan Africa behind Nigeria, South Africa and Angola.While such changes are traditionally seen as cosmetic, just making Kenya’s economy appear big, the new figures would have significant consequences, especially on the country’s credit worthiness and more importantly, on the sectoral budget allocations in the short-run. Economists say alongside more accurate weightings of the economic input of new sectors such as telcoms and households, the plan will also encourage better data collection and economic modeling methodologies. This, they say, will go a long way in resolving Kenya’s statistical dilemma of inaccurate and misleading data collection. “You need coherent statistics to formulate policies and evaluate policies,” says Joy Kiiru, an economics’ scholar.The development will see Kenya attain a middle-income status despite the fact that almost half of its population is poor, according to the World Bank.Kenya National Bureau of Statistics says the rebasing of the economy will bring the national accounts in harmony with the changes that have taken place in the past years. It also shifts the base year from 2001 to 2009.Acting Director General Zachary Mwangi said the change will boost coverage in some of the fast growing sectors of the economy, especially mobile money transfer services and internet. Kenya last revised its GDP figures in 2004, which showed that between 1996 and 2002, nominal GDP had been under-estimated by about 14 per cent per year.But as the GDP grows, so is the likelihood that Kenya’s debt levels would appreciate. Analysts say Kenya’s stock of sovereign debt will decrease as a share of the economy. Its annual budget deficit figures will also dip, creating more space for the national government to raise debt. As at December 2013, Kenya’s debt had surpassed the 50 per cent of GDP mark to stand at Sh2.1 trillion. This is about 57 per cent of the GDP.The imminent increase in the GDP will therefore see a fall to 47.5 per cent. There are chances that the improved debt rating will increase the debt burden, ultimately affecting economic growth and employment creation in Kenya. “It might also expand government spending on the strength of the reduced budget deficit and thus push up inflation with all its associated economic malignancies,” said Emmanuel Manyasa of Kenyatta University’s Economics Department.The change may not however affect the per capita debt, the amount of money that each Kenyan owes as his or her share of public debt, which currently stands at Sh44, 111. But there are prospects that in the long run, this will attract foreign investors as Kenya would be given a greater positive outlook in terms of its economic size. Nigeria recently said it would be completing the rebasing of its GDP that could see its economy grow by 89 per cent to become Africa’s largest. With GDP figures expected to increase significantly, Nigeria’s economic weight will rival that of South Africa, while higher per-capita-income figures will likely boost Nigeria’s profile on the radar of global investors.A similar exercise in Ghana three years ago resulted in a significant boost to the country’s economy, increasing its overall GDP by about 67 per cent. While most advanced economies recalibrate their GDP figures and sector weightings every five years, current Nigerian data is based on 1990 production and consumption patterns.Although using a GDP deflator to account for the impact of inflation in the past 22 years can minimise distortions in aggregate numbers, the statistics over-estimate the size of traditionally dominant sectors like agriculture, which accounted for around 40 per cent of GDP in 2012, but underestimate the significance of new sectors like telecoms and formal retail and distribution.