Before diving into the pecuniary benefits to the Gambian economy that I believe a Regional Infrastructural Developmental model like the one I suggested is likely to deliver- as promised, I’d like to first establish some basic Economics FACTS. This, because some weeks ago, I read an article on the last session of Parliament in which Mr. Halifa Sallah, MP for SerreKunda alerted his colleagues about an impending Budget crisis because the debt owed by the country is D48.3 Billion which is higher than the GDP of the country currently standing at D47.4 Billion. Neither Mr. Sallah nor the papers that covered him indicated what type of GDP he’s talking about. Yet this matter.
See, GDP (Gross Domestic Product,) is what the name implies: a gross measure of the total value of all goods and services in prevailing prices at the time of production in an economy in a one year period. It is undoubtedly the most widely-used measure of economic activity by countries today, but it is also the most misunderstood because at face value, besides indicating the general direction of an economy, it doesn’t tell one much about an economy. Which is why GDP ALMOST ALWAYS requires some type of Adjustment to help policy and or decision makers make sense of what they’re dealing with. GDP simply has several serious weaknesses that those un-schooled in Economics often miss.
However, even taking the high GDP growth rate of a country at face value, we still cannot tell two important things from the figure: how well the citizens of the particular country are doing, and what component of the GDP activity is purely indigenous-driven. That is because Nominal GDP only cares about productivity within a country in a year not WHO owns the factors of production! In most Developing countries, the owners of capital are foreigners who repatriate their profits yearly. As such, high GDP figures and growth rates have little or no impact on the lives of most citizens in the short and medium term. This has happened in Mexico, Ecuador, Indonesia, Angola, and Equatorial Guinea, to list a few countries off head. In all these countries, even as the GDP rates were skyrocketing impressively, the citizens were actually getting poorer! See the paradox of GDP?
In our case, the D48.3 Billion figure cited by Mr. Sallah is called Nominal or Unadjusted GDP. It is the classic GDP in that all it does is measure the value of all goods and services in the prices prevailing at the time of production in The Gambia. In other words, Nominal GDP simply values all final goods and services in current prices without providing any context. To put this in perspective, when Yahya Jammeh took over power, one US Dollar cost less than D9.50. Today, it costs close to D50.00. So, in effect, the Dalasi has depreciated “inflated” over 500% during Yahya Jammeh’s tenure! Naturally, this has an impact on people’s lives, on the economy, and economic comparisons between periods. But you wouldn’t know this going by the raw GDP figures The Gambia’s Central Bank spews out yearly. Again, see why theD48.3 Billion figure doesn’t tell us much?
For the above reason, Economists adjust Nominal GDP to get a realistic number for comparative purposes called Real GDP which measures the value of all final goods and services in constant prices. In other words, Real GDP is Nominal GDP adjusted to account for changes in the price level by removing the effects of inflation with the use of a price index. * Real GDP is the most commonly used measure of economic activity and national output which is the total output of an economy.
(*The price index used to calculate Real GDP is called the GDP Deflator. It is a price index for all goods and services included in GDP. Using the GDP deflator, real GDP is calculated as the ratio of nominal GDP to the GDP deflator times 100.)
There are two methods of calculating GDP: 1. Expenditure approach and 2.e Income approach. If done right, both produce the same result.
On the Adjustments to GDP I alluded to earlier, economists do many to come up with five common typesof metrics to measure an economy’s output and performance: Net Domestic Product (NDP), Gross National Product (GNP), Net National Product (NNP), National Income (NI), Personal Income (PI), and Disposable Income (DI).
1. Net Domestic Product (NDP) is GDP less depreciation (the capital consumption allowance.)
2. Gross National Product (GNP) GNP is defined as the market value of final goods and services produced by residents of a country in each time period. GNP differs from GDP because GNP includes goods and services that are produced overseas by a country’s firms and excludes goods and services that are produced domestically by foreign firms. For example, if Comium produces phonecards in the Gambia, that production is counted as part of Gambia’s GDP, but it is not counted as part of Gambia’s GNP because Comium is a foreign-owned company.
3. Net National Product (NNP) Net national product (NNP) is the total income of a country’s residents minus losses from economic depreciation (i.e., losses in the value of capital goods due to age and wear). Thus, NNP equals GNP minus economic depreciation.
4. National Income (NI) is NNP minus indirect business taxes (e.g., sales tax). It measures the income received by all factors of production within a country.
5. Personal Income (PI) is specifically income received by households and noncorporate businesses.
Gambian policy makers and politicians like Mr. Sallah should be more concerned about NNP. This is the figure that tells one how the average Gambian (Kumba Jobe in SerreKunda, Jubeh Fofana in Soma, Demba Jallow in YBK, Ba-Foday Juwara in Boro Kanda Kasi) are doing. GDP is imposed on the world by the US because it works well for her. Us in the developing world need to tread carefully when it comes to the Briton Woods bodies and how they tout GDP growth as if it’s some panacea.
Saul Saidykhan
https://www.mantankara.com/