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Africa

GDP Figures: Flawed Indicators for Measuring a Country’s Economy?

 5 min read / 

Gross Domestic Product (GDP) figures are widely considered to be the best indicator of an economy’s health and prospects. GDP growth figures decide elections, influence investor decisions and determine the borrowing capacity of a country. The release of these figures by countries, especially economic powerhouses such as US and China, are closely watched and often regarded as the most important days in the market.

Furthermore, the capital flows and fortunes of developing and frontier markets are heavily influenced by their real GDP growth figures relative to market estimates. However, the measure faces fundamental barriers that prevent it from accurately describing a country’s economic performance and thus begets the question of whether its increasing importance and influence on a country’s future is justified.

Technological Advancements

Innovation is the driver of productivity growth, which in turn drives economic growth along with changes in the labour force. Innovation in the last decade has been concentrated in the technology sector, which has spearheaded the ascendance of The Information Age. However, as Adam Saunders of MIT’s Sloan Review wrote – “You can see the influence of The Information Age everywhere, except in GDP statistics”. Many goods and services that used to be added to GDP as market-based final sales are now available for free or at a significant reduction in price. Examples include newspapers, books and music. Encyclopedia Britannica had annual revenues of $1.2bn, adjusting for inflation, in the 1990s compared to Wikipedia’s current annual revenues of $50mn.

Recorded music sales used to have annual revenues of around $20bn but the online streaming behemoths that currently dominate the music industry, Spotify and Pandora, generate a combined annual revenue of just $7bn. GDP calculations have still not managed to account for these changes and a possible explanation for the subpar economic growth over the past few years could be that they are reflecting these advances in consumer technologies, as opposed to poorer global economic prospects.

Quality and Variety of Goods and Services

GDP, which purely measures expenditure changes, is unable to account for quality improvements and increases in variety – two key factors that are imperative to the growth of an economy. Quality improvements, in particular, have strong effects on a country’s economic health and often serve as a reliable indicator of future demand. A country that constantly improves the quality of its goods and services, while maintaining their price levels, may not immediately see a change in its GDP figures but will undeniably enhance its economic prospects, because an innovation trend is evidently present. Increases in variety are also important as they have been shown to improve the competitiveness of an economy by preventing monopolies and concentration of pricing power, thus encouraging companies to continuously invest in R&D.

Informal Economy

The Informal (or shadow) economy in a country consists of activities that occur “off the books” – they are not officially reported and usually involve cash transactions. These activities range from smuggling, drug trafficking and other illegal work, to babysitting and other harmless household work. While economists are unable to agree on the exact size of the global informal economy, the general estimated size is around 10% in developed countries and a significant 33% in developing countries. Since the government has no official records, they are unable to tax these activities and accurately account for their size or productivity improvements in GDP figures.

Fake Data

The unique trait of the Chinese economy to produce growth in even the darkest of circumstances has made global market watchers sceptical of the legitimacy of their data. Many major economists and research agencies, such as Capital Economics, suspect the Chinese economy is actually growing at a rate between 4–4.5% rather than the 6.7% growth rate published by the Chinese government in 2016. These suspicions are accentuated by the fact that prominent Chinese officials, such as the provincial governors of Lianoning, Jilin and Heilongjiang, admitted to faking data in 2015.

However, concerns of fake data are not limited to the Chinese economy. India’s official economic growth of 7% during October-December 2016, wherein demonetization occurred, has also sparked widespread debate and scepticism over the legitimacy of the data. The disruptive effects of demonetization, which wiped out 86% of the circulating currency notes, has been well documented – the inability for citizens to obtain cash for daily use, cessation of work due to long queues at ATMs and unprecedented business uncertainty. The most surprising aspect of the GDP data released by India’s CSO (Central Statistics Office) was the increase in private consumption by 10.1% over the quarter, as it came at a time when even basic consumption needs were unsatisfied.

Conclusion

Ultimately, the flaws of GDP have been acknowledged before, and those described in the article are by no means exhaustive. Most economists are cognizant of GDP’s many drawbacks but a new, better measure that accurately captures the economy’s health is yet to be proposed. GDP has historically been very useful to shape policy and predict future global trends, especially when utilized in conjunction with other measures. However, with the global economy adapting to The Information Age and the proportion of intangible goods steadily increasing, the current method of measuring GDP needs to be changed and improved. Until that occurs, it would be prudent to reduce the emphasis placed on GDP figures in politics, news and investment decisions as well as its role in shaping the future of the world.

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Africa

The Zimbabwean Economy: Can It Recover?

 6 min read / 

Zimbabwe Economy

Before Mugabe resigned, before the military coup, before the 93-year-old man gained independence yet slowly disintegrated the Zimbabwean economy, and before the British colonization, Zimbabwe had an economic structure with massive potential.

Pre-Colonial

Within the country lies the “Great Zimbabwe,” a remarkable ruin built around the 11th century. The size and structures within it could only be achieved with innovation and progressive technology, symbolizing a developed region at the time. This development was enhanced by the depth of architecture within the city, which included the Control Tower, the Reserve Bank and the Lodge in Masvingo, and many more structures.

Furthermore, the country had an abundance of gold, a leading commodity of trade, hence international exports triggered economic activity and consequently economic growth. As well as this, iron, cotton and cloth were also mined locally, further expanding their economy domestically, yet the Mutapa empire held a monopoly on all of this. Even though the state had more control than the free market, Zimbabwe seemed to have a successful economy.

An interesting factor to consider is education at this time, compared to the post-colonial period. While post-colonial education in Zimbabwe was considered “improved”, the pre-colonial system generated a labour force that consisted of engineers, architects, artisans with creative minds and entrepreneurial instinct. The post-colonial labour force had ambitions of being labourers and workers, rather than being employers or managers.

Colonization (1890-1980)

With an appetite for power and wealth, Cecil John Rhodes decided to take his South African Company to Zimbabwe, in 1890, to search for the gold. The land was even renamed to “Southern Rhodesia.” The Ndebele Kingdom was effectively seized, resulting in severe racial segregation between the colonists and the indigenous population. The new settlers occupied the upper class, living with comfort and affluence, while the natives were stripped to obliterating conditions. The Land Apportionment Act, 1930, banned the natives access from any urban areas, as those were solely designated to the whites.

With law enforced, the natives were forced to exploit resources in forests just to survive. Undoubtedly, the result was land and resource degradation. This became increasingly worrying when population growth started to surpass resource availability. Inequality grew exponentially to a point where the colonists (4% of the population) guarded 90% of the economy, with only 10% being held by the locals. Perhaps the empire robbing away Zimbabwe’s natural wealth has been the root cause of the country remaining an underdeveloped LEDC and struggling to find effective leaders to help revive its economy.

Post-Colonization

Robert Gabriel Mugabe. In April 1980, this man, the head of the Zimbabwe African National Union (ZANU), ended almost 100 years of racial segregation. He won the majority and became the prime minister, finally securing independence for this country.

But was Zimbabwe really ready for him to be ruling for 37 years? Mugabe clutched on to a Marxist ideology, which influenced most of his decisions for the country. Being a highly educated individual, he thrived for power and success. This power that he had is justifiable, considering he was later elected as president in 1987. Whether or not his policies were benefitting Zimbabwe in any way, there seemed to be no other leader as influential.

Nevertheless, it is evident that this man made countless decisions that seem to not have been in the best interests of the country itself. Many are becoming more aware that Mugabe really destroyed the country and the economy which many referred to as “the breadbasket of Africa.”

What did Mugabe really do to Zimbabwe?

Once the World Health Organization revoked their decision of appointing Mugabe as the Goodwill Ambassador, the world slowly began to discover who this man truly was. The accusations he had of destroying Zimbabwe’s healthcare system largely contradicted what Mugabe was publicizing on global health issues.

The lack of government expenditure in state-run hospitals led to them running out of essential and basic medications like antibiotics and painkillers. The way Mugabe also ruined agriculture led to a deprivation of nutrition and water for the majority of the population. Consequently, a result has been an outburst of diseases such as the cholera epidemic.

As for the economy, Mugabe really managed to crush it. Crush it to a point where almost 72% Zimbabweans live in absolute poverty. A significant decision he had made was reallocating white-owned farms to black farmers. These farmers were solely chosen due to their relationship with Mugabe and lacked any valuable experience in modern agriculture practice. Consequently, we can observe that the agriculture that had once been the foundation of Zimbabwe’s economic growth has now shattered to an irreversible state. Additionally, a notable era for the country was its hyperinflation, due to the fiscal complication.

Mugabe seemed to direct government spending to other sectors such as Congo’s civil war, higher salaries for the army and government officials as well as for personal use. The central bank had to support the government’s large debt by rapidly printing more money. The supply of Zimbabwean dollars increased exponentially, leading to the inflation rate rising from 7% in 1980 to 231, 000, 000% in 2008. Only once the entire currency was rejected did they adopt American dollar instead.

How could one man make such powerful, yet devastating, decisions for a country and still guard his role and influence for so many years?

End of Zimbabwe?

The end of Mugabe’s era was bound to happen someday with the way Zimbabwe’s population suffered. The president finally resigned after a military coup had taken place on the 14th of November 2017. An event like this would leave any country in a pool of uncertainty, and the population still remains unsure of what to expect next. With change lies opportunity, and perhaps this event will enable Zimbabwe to rekindle the successful spark they once had.

On one hand, the new president Emmerson Mnangagwa seems to be controversial due to his previous actions in the country. On the other hand, there may be strategies to unlock Zimbabwe’s potential. Effective government policies to combat and reduce inequality via an improved tax system could be the first step.

Moreover, rebuilding the agricultural sector to boost exports, as well as cracking Zimbabwe’s investment potential. Instead of Zimbabwe being stuck in the natural resources trap, successful governance could ensure Zimbabwe’s resources are used for investment rather than exploitation. This success is not guaranteed, as, after all, Zimbabwe remains a developing LEDC, which evidently means it will not be easy for sudden growth. However, maybe a drastic change is all the country needs to drive them back to success.

Keep reading |  6 min read

Africa

Oscar Pistorius’ Sentence Extended to 15 Years

 1 min read / 

Pistorius Sentence

The former South African athlete’s sentence has been increased to 15 years for the murder of girlfriend Reeva Steenkamp on Valentine’s Day 2013. The athlete has served a year and 7 months and has 13 years and 5 months remaining.

The South African appeals court ruled that High Court Judge Thokozile Masipa’s decision to reduced the sentence to 6 years, based on the athlete’s state of mind, was wrong. Two of Judge Masipa’s rulings during the trials of Oscar Pistorius has been overturned by the appeals court. While gaining fame during the trials, she has been the subject of significant criticism on this topic. 

Other famous sports figures charged with murdering their partners include former NFL player O.J. Simpson and boxer Rubin “Hurricane” Carter.

Pistorius's

Photo By Jim Thurston [CC BY-SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

Keep reading |  1 min read

Africa

Zimbabwe: Life After Robert Mugabe

 7 min read / 

Robert Mugabe

It has finally happened. After 37 years, the regime of Robert Mugabe has come to an end. Amidst the pressure from the military in the aftermath of the coup, followed by the decision of ZANU-PF to cut ties with their former leader, it took the threat of impeachment and an inglorious exit for the nonagenarian to call it a day to save what is left of his tattered legacy.

In Harare and other major centres in Zimbabwe, there is euphoria. For the first time since the end of minority rule and true independence, Zimbabwe will have a new ruler. But amidst the joy come the following questions.

Will Zimbabwe Emerge as a Democratic Nation?

This is the million-dollar question. It should be mentioned that Zimbabwe, even under white-minority rule (despite what others might say) has never experienced a truly democratic system of government. In colonial times and the UDI period, the franchise was limited to whites and a few select blacks. Under the government, power – despite being split 80:20 between the blacks and whites respectively – was dominated by ZANU-PF, with the orchestration of Gukurahundi and the hounding out of Mugabe’s rival Joshua Nkomo, followed by the merger of ZANU-PF with Nkomo’s ZAPU, setting the stage for de-facto one-party rule. After 2000 and the formation of the MDC, Mugabe has resorted to every undemocratic act to manipulate the system in his favour. Democracy has often just been wallpapering over the cracks.

That’s not to say that this is an opportunity for change. The masses have come out in support for the removal of Mugabe, the allies that kept him in office for so long have deserted him, even his Chinese allies have reportedly said in private they have had enough. But this does not suggest democracy is inevitable.

First, both ZANU-PF and the opposition are in disarray. The rivalry between Emmerson Mnangagwa and Mugabe’s wife, Grace, has led to a bitter factional rivalry that has weakened the party. As for the opposition, with former Mugabe supporters such as Joice Mujuru ending up forced out, there lacks a unified direction. While Morgan Tsvangirai, the head of the MDC, is the clear favourite to challenge, his recent cancer treatment, as well as leadership style, makes his hold on power a lot weaker than in previous years.

Then there are the backstage factors. Naturally, when a country suffers sudden political turmoil, those with the means do what they can to salvage power, wealth and influence. Zimbabwe will most likely be the same. Since Zimbabwe has seen democracy used more as an excuse to legitimise Mugabe, people with these three means will be disinclined to see its introduction immediately, let they lose it all. Rather, a period of provisional governance, such as the one Reuters speculates will emerge, could emerge as a stepping stone to a stable democracy.

Zimbabwe’s Defence Force

Despite the euphoria, people are at the same time concerned about the defence force in power. Former Singaporean Prime Minister Lee Kuan Yew, on discussing repression, remarked “I am told it is like making love – it is always easier the second time”. The same can be said about military coups. It must be remembered that history has not been kind to nations where the military has seized power.

Often or not, the difference between nations which have never had a coup and those which have had many is, as Paul Nugent puts it when talking about Cote D’Ivoires first coup in 1999, the ‘military genie in the bottle’. Armies which have never led a coup often are apprehensive of the blowback, often preferring to sit back and watch. However, those that have often seize power multiple times. They gain experience in governing a nation and, despite oppressive means of governance, often find support for a return among some sectors of the masses when democracy fails to live up to expectations.

In Zimbabwe’s case, it is impossible to tell how this is going to pan out. If one took General Constantino Chiwenga at his word, this is just a neccessary transition of power to rebuild an ailing nation from ‘treasonous’ forces inside government. Early signs would support this argument, with the army more or less allowing all political and democratic procedures to run their course. But the whole idea of forcing regime change is not so cut and dry. Their motive, responding to the dismissal of Mnangagwa, contrasts with this theory.

Zimbabwe’s Economy

Whoever ends up in control has to sort out the disaster that has become the Zimbabwean economy. Famously dubbed the ‘breadbasket of Africa’ once upon a time, the nation has seen its fortunes tumble. It might as well be argued that a Zimbabwean optimist is one that thinks things cannot get any worse. Decades of kleptocracy, poor policy and ideological point scoring has depleted the treasury. Unemployment, though hard to measure, sits around the 60-95% mark, depending on who is telling the story. Furthermore, Hyperinflation forced the abandonment of the Zimbabwean dollar in favour of using foreign currency. Hyperinflation returned not long after the Zimbabwean government began using bond notes as a form of currency. These are serious issues where there is no easy fix.

However, if we assume that Mnangagwa is likely to assume power, there are some likely policy changes that will be of some benefit. First and foremost, unlike the teacher/career politician Mugabe, Mnangagwa is said to be Zimbabwe’s richest man. Having served as Mugabe’s spymaster in the 1980’s (for which his role in the Gukurahundi massacres means he is still reviled amongst the Matabele population), Mnangagwa has used every opportunity (much like Mujuru and other high ranking officials) to enrich himself, with speculation he even profited from Zimbabwe’s incursion into the Congo during the late 90’s.

Despite this dubiousness, Mnangagwa has shown he more than willing to work with persons Mugabe would consider ideological enemies. Mnangagwa has previously stated the need for a strong agricultural sector, something non-existent since the forced acquisition of white-owned farms begun in the early 2000s. Both he and Tsvangirai want the return of white farmers to boost the economy. Whether they will come back or, alternatively, cause friction among those who took ownership of the land in the aftermath of their expulsion is yet to be seen.However, more will need to be done.

Indigenisation policies orchestrated by Mugabe, whilst redistributing power to native Zimbabweans, has been a spectacular failure, with foreign investment drying up. Likewise, the nation’s penchant for state-ownership instead of private enterprise, particularly with the nations bountiful diamond mines, will be something that needs review. This may seem a simple fix, but it is a complicated issue, one that needs serious reform just to stem the tide of economic disaster.

Mugabe’s Legacy

It is safe to say whatever positives that have come from Robert Mugabe’s rule, be it education or health-wise, has been completely forgotten in the shadow of the misrule and repression that he openly endorsed. His role as a freedom fighter has brought admiration and affection for him in the past, but these days it is hard to reconcile that image with that of the tyrant whom many see as worse than their white oppressors. He will be remembered as one of Africa’s self-centred dictators, and the man who broke Zimbabwe’s heart.

Conclusion

Zimbabwe is in for a period of uncertainty. How long it lasts and how well the country recovers is yet to be seen. But right now, any prediction of how this transpires is just that. Zimbabweans may celebrate the removal of a tyrant, but there is an old saying – ‘meet the new boss, same as the old boss’. If the best-case scenario prevails, Zimbabwe may return to its mantle as the ‘breadbasket of Africa’. If it’s the worst-case scenario, people may well start reminiscing about the Mugabe years.

Keep reading |  7 min read

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