The limits of Gross Domestic Product (GDP)

In a series of blog posts at The Huffington Post I explored the limits of Gross Domestic Product (GDP) as an indicator of well-being. The debate emerged in the context of the economic crisis, growing social inequalities, and the debate on the 2030 Sustainable Development Goals (SDGs).

Is GDP cheating West Africa?

The spectacular GDP growth recorded by some West African countries in the past 5 years is all of a sudden undermined by the spread of the Ebola virus. The epidemic has put under the spotlight the poor conditions of health systems in the region, but also the fragility of economic models measured only by Gross Domestic Product.

Looking at the economic and social indicators of countries affected by the Ebola outbreak (Guinea, Liberia, Sierra Leone, Nigeria and Senegal in West Africa and the Democratic Republic of Congo in Central Africa), two different stories emerge.

On one hand, in the past few years these countries have enthused markets with reforms to promote foreign investments and high GDP growth rates driven by mining, infrastructure construction and agriculture. Sierra Leone, in particular, has progressed consistently after the civil war and its economy grew by 20% in 2013 thanks to large iron ore projects. Liberia, the DRC and Nigeria followed with GDP growth rates of 11%, 8% and 7%, also pushed by the extractive sector.

West Africa “remains the fastest growing region on the continent”, said the African Development Bank, the OECD and the United Nations Development Programme in the African Economic Outlook 2014.

Social indicators, however, have not kept the pace. Despite some progress, a dramatic lack of basic services including health care persists and women and children more than others have borne the consequences.

For 8 years Sierra Leone and the DRC have featured in the bottom 10 countries of Save the Children’s index on maternal health. This year the DRC was 2nd and Sierra Leone 7th from last in the organisation’s ranking of 178 countries. Nigeria, Liberia and Guinea were within the last 15. Sierra Leone, Guinea and Nigeria also remain among the worst 10 countries in the world for infant mortality (children who do not make the first year of life), according to data collected by the World Bank. Another figure that often falls below the radars is about cervical cancer. African countries have the highest incidence in the world, and Guinea and Senegal feature among the worst 20, says the World Cancer Research Fund.

A lot of this could be avoided with increased prevention, more and better health facilities and skilled personnel. Precisely these principles would have helped contain the deadly hemorrhagic fever which has now killed more than 2,600 people. And the same applies to diseases such as malaria, diarrhea and tuberculosis, which in these countries make even more victims than Ebola.

Now with the epidemic’s death toll increasing, borders being closed, flights suspended and businesses shut down, investors and financial institutions are counting the costs. The International Monetary Fund estimates that GDP will fall sharply. Sierra Leone and Liberia, being especially affected, could face a decline by 3.5% this year. At the same time, large amounts of public funds will be channeled to the emergency, which is currently absorbing most of the medical capacity. In the tragedy, there is hope that the health infrastructures built at this time will remain for the future.

Besides causing a terrible loss of lives, Ebola is demonstrating that there isn’t a linear relation between results achieved in terms of Gross Domestic Product and Millennium Development Goals, that economic growth without social wellbeing creates a fragile development model and that GDP alone is not enough to measure the real progress of a country.

Alternative and more comprehensive metrics exist. The Social Progress Index, for example, combines basic human needs such as nutrition and shelter with personal opportunities and wellbeing. The Prosperity Index by the Legatum Institute links economic performance with 7 other indices including health, education, governance, security and personal freedom. The Happy Planet Index by the New Economics Foundation considers life expectancy, experienced wellbeing and ecological footprint.

The current discussion at the UN on the Sustainable Development Goals offers the opportunity to redefine the foundations of development. But perhaps more importantly, it should connect this debate with a review of the GDP concept, so that people are not cheated by the idea that the GDP growth of a country is a solution to all its problems.

The full list of posts:

Is GDP cheating West Africa? 24 September 2014

Are You up for a Data Revolution? 2 December 2014

Davos 2016: One Year to Solve The Case, 27 January 2015

This Is What GDP Is Not Telling You, 9 April 2015

Is This the Dawn of an Economic Revolution? 29 April 2015

The views and opinions expressed in these posts are solely those of the author and do not represent current or past employers.

Photo: European Commission, DG ECHO ©EC/ECHO/Cyprien Fabre. Photo available under a Creative Commons licence.

Leave a Reply

Your email address will not be published. Required fields are marked *