Globally, economic growth is primarily measured by Gross Domestic Product (GDP) or Gross National Product (GNP), both of which are influenced by factors such as investment in capital, technological advancements, infrastructure improvements, productivity gains, and government policies that promote innovation. GDP measures the total economic output of goods and services within a country’s borders, regardless of who produces them, while GNP calculates the total output produced by a country’s residents, including income earned abroad but excluding income earned by foreign residents within the country. In most economic discussions, GDP takes centre stage, particularly for investors who are drawn to countries with rising GDP rates, as these figures signal economic stability and potential returns on investment. However, for ordinary citizens, the critical question is how GDP growth translates into tangible benefits such as job creation, increased purchasing power, and improved living standards. As Kenyan economist James Shikwati aptly noted, “GDP is a useful starting point, but it is not the finish line. True progress lies in improving the lives of people, not just the numbers on a spreadsheet.”
GDP remains a vital tool for measuring economic growth in Africa as it also reflects in the global economy. According to the IMF report (2024), Africa’s GDP stands at $2.8 trillion as of April 2024, down from $3.1 trillion in 2023, with growth projected to rise from 2.6 per cent in 2023 to 3.4 per cent in 2024. However, this growth is unevenly distributed, with five countries—South Africa, Egypt, Algeria, Nigeria, and Ethiopia—contributing nearly half of the continent’s GDP, totalling over $1.4 trillion. South Africa leads with a GDP of over $373 billion, driven by its finance and manufacturing sectors, while Egypt benefits from its strategic location near the Suez Canal, which generates substantial revenue. Nigeria, as Africa’s largest crude oil producer, relies heavily on its energy sector, while Ethiopia and Algeria have made strides in agriculture and natural gas, respectively.
In Africa, GDP has long been a cornerstone of economic measurement, serving as a key performance indicator for assessing economic health, guiding policy decisions, and attracting foreign investment. For a continent with diverse economies—ranging from resource-rich nations like Nigeria and South Africa to emerging economies such as Rwanda and Ghana—GDP provides a standardised metric for comparing economic performance. Countries like Morocco and Egypt have leveraged their GDP growth rates to position themselves as attractive destinations for international investors. Many African nations have aligned their economic policies with global frameworks such as the United Nations Sustainable Development Goals (SDGs) and the African Union’s Agenda 2063, using GDP growth as a proxy for progress in areas like poverty reduction, improved living standards, and economic diversification.
GDP data will also be crucial for economic blocs like AfCFTA, enabling governments to track growth, identify key sectors, and benchmark performance. Africa, with its rapidly growing population of 1.2 billion and the African Continental Free Trade Area (AfCFTA), has the potential to reshape global trade by removing trade barriers, boosting intra-African commerce, and integrating African economies into the world market.
The AfCFTA aims to boost continental production by nurturing regional value chains. By enabling the free flow of materials, components, and finished goods, the agreement seeks to empower African manufacturers, particularly in agro-processing, textiles, and light manufacturing. Stronger value chains seek to diversify African economies, lessen import dependence, and generate employment, accelerating industrialisation and economic transformation. Nevertheless, the impact of GDP on measuring economic metrics and facilitating comparative analysis within AfCFTA remains uncertain until its full operationalisation. Simply because the current infrastructure deficits, non-tariff barriers, and varying levels of economic development among member states poses a potential and greater challenges towards the successful implementation of the African Continental Free Trade Area (AfCFTA). These could hinder the full realisation of its potential to boost the Gross Domestic Product (GDP) of African nations.
Furtherance to the discuss on GDP limitations, particularly in the African context, for instance, Rwanda’s consistent GDP growth has been linked to its efforts to reduce poverty and enhance access to education and healthcare, and this is quite good. However, the big question to ask is: ‘How many African countries can link their GDP growth (if there is growth at all) to programmes directly favouring the citizens’ living standard?’ This is African countries biggest challenge, as their GDP growth report can hardly be trusted, talk less of addressing basic socio-economic challenges faced by the ordinary citizen.
Other challenges such as data quality and reliability, unstable inflation rates, fluctuating exchange rates, economic structure variances, political instability, and delays in reporting distort GDP figures, making them misleading. A significant issue is the inconsistent practice of rebasing economies, which involves updating the base year used to calculate GDP to reflect current economic realities. While countries typically rebase every five to ten years, the timing varies widely across Africa. Several African nations have rebased their economies. Nigeria rebased its economy in 1990, 2000, and notably in 2014, revealing it as Africa’s largest economy. Similarly, South Africa rebased in 2014, Egypt in 2016, Ethiopia (2010 and 2016), Kenya (2014), Ghana (2021), the Republic of Congo (2019), and Algeria in the 1990s and 2014.
These rebasing exercises, aim to provide more accurate GDP figures, reflect growing sectors, and align statistics with current realities. However, the lack of synchronisation in rebasing across countries complicates comparisons, as differing methodologies lead to variations in reported growth rates and economic size. Nigeria’s 2014 economic rebasing, which made it Africa’s largest economy, raises questions. Without rebasing in 2014, South Africa would have remained on top, potentially misleading investors. Furthermore, Nigeria’s economic leadership hasn’t translated to improved living standards or increased job creation for its citizens, prompting the question: what is the true value of GDP calculation and its relevance to socio-economic emancipation of the ordinary citizens?
The implications of non-rebased GDP are significant. Without regular updates, GDP figures may not accurately reflect a country’s economic performance, potentially misleading investors and policymakers. For instance, if an economy has shifted from agriculture to technology-driven industries but continues to use an old base year, its GDP growth may be understated. This inaccuracy can hinder the identification of emerging sectors and the formulation of effective policies. Moreover, the annual GDP reports for African countries may not be entirely reliable due to differing rebasing years, which can distort comparability and complicate assessments of economic performance across the continent.
Again, the lack of synchronisation in rebasing across countries complicates comparisons, as differing methodologies lead to variations in reported growth rates and economic size.
GDP’s limitations are especially evident in Africa, where a large informal sector – encompassing small-scale agriculture, street vending, and unregistered businesses – is largely unmeasured by its focus on formal economic activity.
It often underestimates the true scale of economic contributions from these sectors. For example, in countries like Tanzania and Uganda, the informal economy accounts for a substantial share of employment and income but remains largely invisible in GDP calculations. Additionally, GDP fails to account for social and environmental factors that impact quality of life. In many African nations, rapid GDP growth driven by resource extraction has led to environmental degradation and social inequality. For instance, oil-rich countries like Nigeria and Algeria have experienced significant GDP growth, but this has not translated into improved living standards for their populations.
Moreover, GDP growth does not necessarily reflect equitable wealth distribution. In several African countries, high GDP growth rates have coexisted with rising income inequality. South Africa, for example, has one of the highest GDPs on the continent but also ranks among the most unequal societies. This disparity underscores the need for complementary indicators that measure inclusive growth and social welfare. Many African economies are also heavily reliant on commodity exports, making their GDP figures susceptible to global price fluctuations. For instance, a drop in oil prices can significantly impact the GDP of countries like Nigeria and Algeria highlighting the importance of diversifying economies to ensure more stable and sustainable growth.
A notable economic metric, among others, released yearly alongside the GDP growth report is GDP per capita. This less obvious yet misleading economic metric often goes unnoticed.
GDP per capita, calculated by dividing a country’s GDP by its population, is an economic metric often used to assess a nation’s standard of living. However, this measure is a simplified economic assumption that does not necessarily reflect the economic realities for average citizen, particularly those facing unemployment, limited access to healthcare, or functioning education system. Furthermore, it fails to accurately represent purchasing power of the average citizen and can pose the challenges of accessing goods and services due to a high cost of living.
GDP per capita does not account for income distribution, environmental quality, social factors, or the informal sector, which plays a substantial role in many economies. In reality, a small percentage of the population often controls the majority of wealth, leaving the average citizen with little to no benefit. For example, in Nigeria, the GDP per capita in 2022 was $5,450, suggesting that each citizen had an economic output of that amount. However, this is far from the truth, as many Nigerians struggle with unemployment especially in this dispensation that many companies are exiting the country. Similarly, South Africa’s GDP per capita in 2022 was $15,331, indicating a higher standard of living. Yet, the average South African faces significant challenges due to high unemployment rates and the high cost of living, making survival difficult.
Ultimately, GDP per capita is a metric that primarily serves economists, capitalists, and investors, offering little value to the average citizen. Therefore, it is crucial to recognise that GDP per capita is an incomplete measure of economic well-being and does not capture the true quality of life or the aspirations of ordinary people.
To address these limitations, African nations are increasingly exploring alternative metrics to provide a more comprehensive view of economic progress. Indicators such as the Human Development Index (HDI), the Genuine Progress Indicator (GPI), and the Multidimensional Poverty Index (MPI) are gaining traction. These metrics incorporate factors like education, health, and environmental sustainability, offering a more nuanced understanding of development. For example, Botswana has complemented its GDP data with efforts to measure social progress and environmental sustainability, while Ghana has integrated the SDGs into its national development plans.
In conclusion, while GDP remains a vital tool for measuring economic growth in Africa, its limitations—particularly its inability to capture informal economies, social welfare, and environmental sustainability—highlight the need for a more balanced approach, which emphasises the importance of moving beyond traditional metrics. In other words, by combining GDP with complementary indicators, African countries can ensure that economic growth is not only robust but also inclusive, sustainable, and reflective of the true well-being of their populations. This nuanced understanding is essential for policymakers to design strategies that translate GDP growth into tangible benefits for citizens, addressing the pressing challenges of job creation, income inequality, and environmental sustainability. GDP favours only the investors or the western world more than it favours ordinary citizens of African countries. African nations should, therefore, prioritise knowledge economy metrics and leverage indigenous economies to directly benefit citizens, beyond traditional GDP indicators.
*Dr Akinbinu, a business consultant, entrepreneur and researcher, writes from South Africa via akinbinubolarinde@gmail.com
By BOLA AKINBINU @Independent.
