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When numbers lie: Why Ethiopia economy never toppled Kenya's

FINANCIAL STANDARD
By Dominic Omondi | Jan 18th 2022 | 4 min read
By Dominic Omondi | January 18th 2022
FINANCIAL STANDARD

Save for the disruption of the Covid-19 pandemic, Nairobi enjoyed blissful tranquillity compared to Addis Ababa. [Courtesy]

Ethiopia’s economy in 2020 was bigger than Kenya’s.

Save for the disruption of the Covid-19 pandemic, Nairobi enjoyed blissful tranquillity compared to Addis Ababa, which was hit by a double tragedy of the coronavirus outbreak and civil strife. 

If you doubt it, why don’t you just consult Dr Google? Look for the “GDP” (Gross Domestic Product) of Ethiopia and Kenya on the popular search engine.

Ethiopia’s GDP — the total monetary or market value of all the finished goods and services produced within its borders —stood at $107.6 billion (Sh12.2 trillion) in 2020.

This is the period when Addis Ababa was roiled by civil strife, with the federal government forces taking on the Tigray Defense Forces in a clash that has left in its wake a humanitarian crisis.

On the other hand, Kenya’s GDP, or its national cake as President Uhuru Kenyatta would call it, was estimated at $98.84 billion (Sh11.2 trillion), according to the World Bank data.

There! You can’t make up these numbers. Not when they are curated by the reputable Washington-based World Bank, one of the most reliable repositories of economic information on all the countries around the world.

In fact, if you do another Google search of Africa’s biggest economies, Statista, a German company specialising in market and consumer data, ranks Kenya at position seven behind Nigeria, Egypt, South Africa, Algeria, Morocco and Ethiopia.

In 2013, President Kenyatta noted that Kenya was Africa’s 12th wealthiest nation with a GDP of Sh4.74 trillion, a figure that had more than doubled as of last December, according to the President.

“But in just eight years, my administration has multiplied this GDP by a factor of two-plus. Today, our GDP stands at Sh11 trillion, up from Sh4.74 trillion. From being ranked as the 12th wealthiest nation in Africa when I took over, we have moved six ranks to become the sixth wealthiest nation on the continent, on account of the choices we have made,” said Uhuru in his eighth State of the Nation address last month. 

Are the President and World Bank reading from different scripts?       

Well, the World Bank data only tells half the truth. The whole truth is that Kenya’s economic output - the assortment of goods and services produced in the country from the new roads, the cuppa you had at a coffee house to the facemask you wore and the haircut or hairdo you got in 2020 — was more than Ethiopia’s.

In 2020, the real size of Kenya’s economy was valued at $81.8 billion (Sh9.2 trillion) while that of Ethiopia stood at $56.9 billion (Sh6.3 trillion), according to the International Monetary Fund (IMF), a sister institution of the World Bank. You might be wondering what is meant by the “real” size of the economy; does it mean that the one given by the World Bank is fake?

For Kenya, you can get all this information from the Kenya National Bureau of Statistics (KNBS), its national statistician. Ethiopia also has its own statistics body, which is responsible for periodically computing the size of its economy.

However, for comparative purposes, you can easily get this piece of data from the World Bank’s sister Bretton Woods institution - the IMF.

IMF data on GDP for each country is classified into GDP in current market prices and GDP in constant prices.

The truth is that the number of goods and services produced in Ethiopia was not more than those produced in Kenya.

What increased dramatically in Ethiopia more than in Kenya was the price of the few goods and services that were produced within its borders.

GDP that looks at the market price of the products is known as nominal GDP or GDP in current market prices.

Economists, however, try to adjust for the increase in prices - technically known as inflation - for better comparison between countries.

When they adjust for inflation, economists can compute the increase in goods and services rather than just their prices. This results in what is known as real GDP, or GDP in constant prices.   

For example, all things equal, let us assume the price of the paper you are reading right now in Kenya is also sold in Ethiopia.

Now, let us say the paper goes for Sh65 in Kenya and Sh100 in Ethiopia. If three papers are produced in Kenya, this will add up to Sh195. However, if only two papers are produced in Ethiopia, it will add up to Sh200.

Without being told how many papers were produced in Ethiopia, you might be left with the impression that more newspapers were consumed in Addis Ababa than in Nairobi.

A good example of how there can be a huge gulf between nominal GDP and real GDP is Zimbabwe, whose inflation in 2020 was 557.21 per cent. It was perhaps the highest inflation on the continent if not in the world.

Zimbabwe’s GDP, in current market prices in 2020 was $38.4 billion (Sh4.3 trillion). However, when adjusted for inflation, the GDP shrank to $617.9 million (Sh70 billion). 

In 2020, as the fighting raged on in Ethiopia, the supply of basic commodities was disrupted.

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