How poor are Africans? part 2: The poorest country in Africa or…

According to the way we measure the size of one’s economy which is comparing countries GDP per capita (gross domestic product), Malawi is the poorest country in Africa.

Yes, it might be to your surprise to learn that the poorest countries in the world are not in Africa.

More than half of the population in Malawi lives below the nation stated poverty line and over 80% live in the countryside and rural areas. Exact numbers are hard to estimate; the population grows fast, and the urbanization rate is also growing. Many families now have relatives which live in town, (mainly young adults) and they are often sending money to their families and younger siblings in villages. However, despite Malawi apparently being the poorest I still managed to send many postcards, buy some things from supermarket, get root canal treatment after my tooth was infected and get some delicious Nepalis curry with garlic naan for dinner. Just because we label something the poorest, it doesn’t mean that you will find starving children on every corner nor does it mean that there must be high crime rates or war going on. None of this you will find in Malawi.

I therefore decided to explain a bit the way in which we measure the size on states ‘economies and why it stigmatizes countries with weak law enforcement or with simply missing structures.  

Undervalued GDP

GDP is the agreed method used to compare and measure world and states’ economies, it measures the size, growth and change in the economies. Not everyone is crazy about economy or understands how GDP is measured (or what it measures for the matter). Even less people then understands, what problems and weaknesses this method has when used to measure the economy of countries with large shadow economies (which most of the so called developing countries do).

I am not intending to give you an economy lecture, but just to give you a rough idea why it does not always make sense to judge the economy of a country based on GDP figures I tried to explain some weaknesses of the method.

There are about three ways in which the GDP can be measured. Gross domestic product measures the total value of all the products and services created in given period in given country. That includes transactions from individuals, firm and businesses and the government. In general, the more value given country creates the bigger is its economy.

The total sum  is then divided between the population to calculate the GDP per capita and thus create a comparable value across nations.

Now, where is the problem? In most of the European countries we have established efficient structures which minimise the amount of shadow economy in those countries. Basically, all the transactions are being recorded; the fruit being sold at your organic farmers market? Yes, the farmers most likely had to fill in how much they earn and submit that with taxes or that plumber who fixed your shower? The same story. All the services, transactions and thus the productivity of the country is recorded.

This is, however, not the same in the so-called developing countries. In some countries, it can be as little as 10-20% of population who are paying taxes. This does not mean, that the rest is not working, this simply means they are not officially part of the trade network: This includes most farmers selling their corn or potatoes, all the ladies sitting by the side of the road with avocados, people who fix bicycles or those selling snacks on the streets. Basically, population from the villages is still trading, however their transactions are not recorded and therefore it is near to impossible to estimate the total value of produce and services (= size of the economy) of some countries.

It is true, that the number of registered businesses and employees is rapidly growing, however the GDP of many countries is still undervalued: For example, Malawi, where over 80% of the population lives in the rural areas and clear majority of the production and trading those people do stays unrecorded. Even in villages, however, people buy soap, salt, oil, clothes, pencils…

I am not trying to say, that if everything was counted, then Malawi would reach European average GDP. The fact that those countries are unable to record those transactions might be part of the whole development issue. Nevertheless, one must keep in mind that the GDP of majority of poorer countries is not representative of the reality and thus should be only used as a reference and not be compared against. If Malawi has 50 times smaller GDPpc than your country, it does not mean their economy only produce 50 times smaller value. The number only summarizes those transactions which were recorded and cannot reliably represent the progress in given country. This means, that even if an NGO helps some farmers to increase their yields, the increased productivity (and thus success story of the impact of the NGO) might not be reflected in economy if the farmer keeps on using informal trade to sell his produce.

So no, money are not always being wasted on development in Africa, just because we are unable to transform every spent or invested dollar in an increase in the GDP it does not mean that the dollar did not improve someone’s livelihood.

 The poverty in Europe vs poverty in Africa

I have written something on this topic already in Life in Zambian village and so I won’t be explaining it all again here. However, even though people here have 1 USD per day (or the adjusted value of 1 USD if adjusted by purchase parity), keep in mind that most of the people have their free accommodation and fields with the staple food. That means that the 1USD is used mainly for things like soap, clothes, additional ingredients, and things that can improve one’s livelihood. I am not trying to make it look better than it is. People can indeed be poor in those villages, I just wanted to point out that just because people live with ‘less than a dollar a day’ it does not mean they are starving, have no food and are therefore criminals living under trees. They have houses, jobs, food, clothes…

Compare this to European, who, if he has one dollar per day, will most likely not be able to afford his rent, food, healthcare, water or any basic things. On top of that, nowadays less and less people own a house and the regulation and law enforcement in Europe is much stronger and so you cannot just go to a field and build a house. In this hypothetical funny example, people would be better off in Africa with this budget, then they would be in Europe.