Albertina Nakale
Namibian experts have echoed UN Secretary General António Guterres’ long-standing assertion that Gross Domestic Product as a measure of economic strength should be abandoned. The world leader characterised this form of measurement of an economy as an accounting system that “rewards pollution and waste”.
Gross Domestic Product (GDP) is defined as the total market value of all final goods and services produced within a country in a given period. The figure, relied on by economists and policymakers as a yardstick for economic activity, includes private and public consumption, private and public investment etc.
GDP is also commonly used as an indicator to track the economic health of a country. In an interview with New Era, economist Mally Likukela agreed with Guterres that GDP is not the most appropriate measure of a society’s welfare.
“When we measure the country’s welfare, we must be careful not to look at GDP alone and what it tells us about an economy. Simply because a country appears to be rich does not actually mean that it is, and this means that using national income figures like GDP as a measure of living standards may be inappropriate,” he warned.
Likukela added that an increase in real GDP denotes an increase in the monetary value of the output of goods and services of an economy.
However, he rhetorically asked, “but does this lead to a corresponding increase in welfare?”
The economist contends the biggest weakness of GDP as an economic indicator is that it only count goods that pass through official, organised markets, but it misses home production and black market activities.
This, he said, is a big omission, particularly in developing countries like Namibia, where much of what is consumed is produced at home (or obtained through barter).
Given Namibia’s high gini-coefficient, Likukela pointed out that GDP is far from being an appropriate measure of welfare.
“This is because GDP fails to capture the distribution of income across society – something that is crucial and pertinent in Namibia today, with rising inequality levels. This is what led to Namibia being erroneously classified as an upper-middle income economy by the World Bank,” he reasoned.
Therefore, Likukela agrees with Guterres that in today’s world, where the world has become climate and environmentally sensitive, GDP is the worst measure of welfare for a country simply because GDP isn’t adjusted for pollution costs.
He disputed whether when two economies have the same GDP per capita, but one has polluted air and water while the other doesn’t, the well-being of citizens will be different. But GDP per capita won’t capture this major variance.
With the discovery of large oil deposits in Namibia, Likukela warns that its GDP will triple, but the environmental damage won’t be accounted for.
He thus recommended that nations keep GDP as it is, as a measure of production only – just to enable international comparability of economic size and growth.
Alternative proposals
The other proposal is to construct an income and production measure that has a household base which allows for considerations of individual wellbeing, human capital, poverty, income inequality as well as perhaps “time use” and “time poverty”.
This should be made available along with GDP figures, or a simultaneous release should be made at least once a year.
Meanwhile, mining remains the largest contributor to Namibia’s GDP. Namibia is the fourth-largest exporter of non-fuel minerals in Africa and the world’s fifth-largest producer of uranium, while diamond mining is anticipated to expand by 26.2% in 2022 and by 16.5% in 2023.
The Bank of Namibia (BoN) said in its economic outlook update of February 2022 that Namibia’s economic performance is expected to improve during 2022 and 2023. Real GDP growth is estimated at 0.9% for 2021, and is further expected to accelerate to 3.4% in 2022 and to 3.7% in 2023. The projected improvement is mainly on account of anticipated better growth rates across all industries, with diamond mining expected to register robust growth rates.
The agriculture, forestry and fishing sector is also expected to record positive growth in 2022.
Klaus Schade, an economic analyst and director of the Economic Association of Namibia said it is encouraging that Guterres raises his concerns about GDP as a measure of development.
However, these concerns are not new, and have been raised for a long time.
“We should not focus on the economic growth rate, but on which economic sector growth takes place, and to what extent it contributes to an improvement in the standard of living,” Schade noted.
According to him, GDP growth does not distinguish between economic activities that are harmful to people and those that advance a sustainable standard of living.
Equally, the current form of measuring economic activity does not distinguish between events that reduce inequality and poverty and those that increase inequality, and it does not take into account unpaid activities such as caring for family members and raising children.
Schade also suggested the need to measure the destruction of the environment from economic activities, such as pollution of water and air, or the depletion of natural resources that currently contributes to economic growth.
He proposed that measures such as the human development index which consists of life expectancy and years of schooling should be considered.
Regular statistics on employment, inequality and other social indicators that indicate whether economic growth translates into a rising and sustainable standard of living is another proposal. Hospitality Association of Namibia CEO Gitta Paetzold couldn’t reject the value and purpose of GDP as one of the measures to determine the value and wealth of a person or a nation.
She said it is becoming clearer that measuring wealth today is much more intricate. “Especially since the pandemic, people have become much more aware of the value of the ‘quality of life’, where this quality is not only determined by income, access to amenities and services, but also freedom of speech and movement, space and a healthy environment,” she stressed.
Moreover, Paetzold argued that with clean air and space, a Namibian living on a small income may be better off than someone with a higher income living in a smog-filled over-populated city.
Caption: (GDP)