This piece first appeared in Open Africa, a custom digital publication by Ornico that features interviews, insights and business lessons from some of Africa’s leading CEOs, innovators and decision makers. Download your free digital copy of Open Africa here or go to http://bit.ly/open_africa and share your feedback on social media using the hashtag: #OpenAfricaMag
GIBS’ Centre for Dynamic Markets urges the continent’s policy makers and business leaders to move beyond their obsession with GDP. What’s important, says the centre’s Prof Lyal White, are comprehensive country assessments that reveal why African countries grow, regress or stagnate.
In 2011, when the book of economic historian, Morten Jerven, “Poor Numbers” was released, it revealed an African statistical tragedy. Much of the continent’s narrative is about numbers, but “Poor Numbers – How We Are Misled by African Development Statistics and What To Do About It”, blew the lid on how national income estimates were being compiled by indicating how many of the numbers circulating in Africa’s national statistics are guesswork, or just plain wrong.
“Many economic activities are unrecorded. Thus the numbers, the statistics we produce and which are reproduced through the United Nations, the World Bank and so forth [are] not really fact, but rather guesses, best guesses with a considerable margin of error attached to them. Sometimes we make decisions using this data without knowing exactly how certain we should be of the evidence we are using,” he said.
The critique of Africa’s numbers didn’t win the Vancouver professor praise from politicians on the continent, but policy makers, leaders and academics who understood the importance of accurate, reliable data went to work. At the Gordon Institute of Business Science (GIBS), White and his team at the Centre for Dynamic Markets (CDM) were researching how to put together a benchmark for Africa that didn’t just meter growth but that empirically measured that which drives growth.
“We don’t just look at growth; rather we focus on applied research, which means that we look at the determining factors that shape the market — the social groups and policy makers. By understanding these causes of change, we’ve created an empirical index that measures competitive performance. Called the Dynamic Market Index, this tool measures progress and potential in Africa by measuring institutional change; conditions within countries that enable economic growth, wealth creation, overall socioeconomic development and innovation,” White says. The index is empirical in that it relies upon hard data rather than survey, opinion or sentiment.
The result is a benchmarking tool that measures and compares national institutional structures and economic capabilities, as well their contribution to economic dynamism. What underpins this comparative ranking are the fluctuations in six institutional and societal measures, namely, how open and connected the country is, the degree of red tape, the socio-political stability, the efficacy of the justice system, macroeconomic management, and human capital.
“What sets the Dynamic Markets Index apart from existing tools is that it seeks to understand the inner workings of the countries and their political economies, irrespective of the labels that have been given them. By doing this we’ve found a fresh point of reference on economic performance,” White explains.
“Poor Numbers shows why policy makers and business leaders shouldn’t solely rely on gross domestic product to demonstrate a state’s economic progress. Yes, GDP is useful, but it is limited in that it misses many institutional elements that offer a critical barometer of the health of a country,” the head of GIBS Centre for Dynamic Markets adds. “The Dynamic Market Index addresses these gaps.”
The second, bi-annual Dynamic Market Index considers the period from 2007 to 2014, and divides countries into four categories based upon performance.
- Catchup markets. These are countries where very low levels of institutional development were evidenced during the index’s base year (2007), but that have made considerable progress in improving institutional structures.
- Dynamic markets. These states are notable for their sophisticated institutions in 2007 and for the continued improvement of these institutions through to 2014.
- Adynamic markets. These are typically countries that regressed or stagnated since 2007.
- Static markets. These are countries that had relatively high dynamism in the index’s base year (2007), but that have made little-to-no institutional progress up to 2014, and have thus stagnated.
“The Dynamic Markets Index 2016 reveals that 21.5% of the 144 countries we measured were in fact ‘Dynamic Markets’. Our research shows that these markets predominate in Europe, Asia and Latin America. Only two African countries made it into this esteemed category, and they are Mauritius and Botswana,” says White.
By comparison, catch-up markets accounted for some 29.2% of the total countries indexed. Concentrated in Africa and Eastern Europe, catch-up markets showed a strong improvement in their sociopolitical stability and macroeconomic management. Rwanda falls into this category.
41 static markets
While Rwanda shows progression and improvement, South Africa doesn’t fare as well. A static market, SA demonstrated lacklustre performance in key areas including economic growth and innovation, and struggled with political instability. This contributed significantly to its stasis and decline over the period of analysis. There are 41 static markets in the index of 144 countries.
White says that several African countries were catchup markets in 2014, but were moved into the adynamic category in the second, or 2016, index: “Angola and Ethiopia showed progress when we first did the index in 2014, but this year we’ve had to put those countries in the adynamic category because that progress wasn’t sustained.”
Why should policy makers and business leaders use the index? “It helps to quickly identify the why — the reasons that underpin why countries perform. Just as compelling is that it is empirical. This is based on factual information, data and interviews. Lastly, it is comprehensive,” he says.
“The world seems to be obsessed with GDP as if it is the only number that matters, but states are hinged on being competitive. Which means it is critical to look at what drives economic competitiveness, and to be as comprehensive about this as possible.
“The big lesson”
“The latest data release shows that Africa isn’t performing as well as we thought, that the Africa rising or falling narrative is reductive and can be misleading. The big lesson from this year’s index is the problem with relying on commodities and failing to diversify. Africa is also paying a price for being closed and disconnected from other African states and the rest of the world,” White says.
Institutions play a critical role in advancing the competitiveness of countries, continues White. “Institutions create an enabling environment that not only drives economic growth, but also leads to social and political prosperity,” he says, and then reflects upon Africa’s performance.
“Some African countries have made steady institutional progress, demonstrated by improvement in the areas of sociopolitical stability and macroeconomic management. These results suggest that Africa can realise its true economic potential, but only through ongoing institutional evolution and progressive structural changes. For greater change to take place across the Africa, these structural changes need to be implemented constructively across the entire continent.”
About Professor Lyal White
Prof Lyal White is the director of the Centre for Dynamic Markets (CDM) at the Gordon Institute for Business Science (GIBS), University of Pretoria, where he is also a senior lecturer focusing on political economy and strategy in Africa, Asia and Latin America.
Follow Prof. White on Twitter: @LyaWhite
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