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South Africa has rebased its GDP …

The how and the why.
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Statistics South Africa recently rebased South Africa’s GDP.

Does it matter?

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To start with, let’s unpack what rebasing is – and what it is not – and then put this statistical exercise in the context of the changes that economies go through.

First things first.

What is the GDP of an economy? There are three definitions. All are equivalent. GDP can be measured:

  • as the value of the final goods and services produced by an economy in a particular period (a year, or a quarter); or
  • as the sum of value added in an economy in a particular period; or
  • the sum of incomes in the economy in a particular period.

So why the need to periodically rebase an economy’s GDP? Because economies change over time, in particular developing ones. How often rebasing is done in a country like South Africa depends on resources and priorities. Statistics South Africa used to do rebasing exercises every five years. Rebasing was done in 1999, 2004, 2009 and 2014. It has taken a bit longer for the latest one because of the pandemic.

The frequency matters because of the structural transformation in an economy, inflation and technological progress. For instance, during the process of economic development, or of structural transformation, economies go through a process of urbanisation, where more and more people live, study, work and produce goods and services in cities. This leads to the growth of certain sectors, such as services and manufacturing which are more productive and demand more human capital compared with sectors like agriculture. The effect of this is that the relative importance of the agricultural sector diminishes as services and manufacturing increase.

This process of structural transformation is general. Countries like the US and the UK have all gone through it. South Africa is going through it right now.

The change means that the weight of particular sectors changes in the measurement of GDP. For example, if there are less and less people working in agriculture, wages in that sector will be different than five years ago. If general prices are increasing inflation has to be taken into account and fast technological progress affects prices and wages – and demand and supply of human capital – as well.

Other things change too.

Governments need to periodically know how and where the GDP is being produced, so that better policies can be implemented (accompanied by fairer taxation as well). In addition, prospective investors need to know what sectors of an economy are growing, which tend to be the most profitable ones, so that better investment choices are made.

In all, the weights matter.

Rebasing the GDP every five years is important for more updated data, but we do not expect to see dramatic changes. This means that, overall, in relative terms nothing has really changed much in, say, how South Africa fares in relation to other African countries. South Africa still has the third largest GDP in Africa. That was true before the rebasing too.

Nevertheless it’s worth unpacking what major changes were made this time round.

How it’s done

Government agencies that calculate GDPs use a base year. For instance, Statistics South Africa, before the latest rebasing, was using 2010 prices to get the real South African GDP. To get to the real GDP in 2018, the South African nominal GDP in 2018 was being multiplied by a 2010 price index.

And prices change, not only because of inflation, but also because of changes in quality. Think of an intel processor and how it has changed its speed over time, or how banking used to be done in 2010 – in the branch – and how it was done in 2018 – on the smart phone.

Nominal and real changes happen in an economy over time. Therefore the need for periodical rebasing so that the data are always accurate.

We do not expect dramatic changes attached to rebasing exercises happening every five years. South Africa is a developing economy, which has been changing and growing over time, but its growth rates are not as dramatic as say, a country like China. So, we expect some changes, but not dramatic ones.

For example, services have had substantial (but not dramatic) positive changes with the rebasing – in other words it has increased in relative size to other sectors.

To make sense of that, just think in terms of the massive developments around the city in areas such as Rosebank and Sandton. All those new buildings are being occupied by people providing services, and with human capital. In two words, structural transformation.

Agriculture, on the other hand, has barely changed with the rebasing.

Perhaps more worrying in terms of policy, or public goods provision, is the reduction of general government services. It is perhaps too early for conclusions, but worth investigating why.

Furthermore, gross fixed capital formation, or investment for short, has barely changed. From first principles, this is not necessarily bad, investment is not one of the main drivers of economic growth. Technological progress is, as well as human capital.

What it’s not about

Rebasing is not about making economies richer by decree, and South Africa’s relative economic position in Africa illustrates that well. Rebasing is about providing updated data, in this case, rising importance of the services sectors, little change in agriculture, stagnation of general government services, so that better policies (and fairer taxation) can be implemented.

So, rebasing of the GDP matters, so that more updated data are made available. With more and better data available, better analysis and estimates are obtained, better policies are designed and hopefully welfare improves.The Conversation

Manoel Bittencourt, Professor of Economics, University of Pretoria

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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If you do not like the answer then change the way the question is formulated until it gives you the result you want.
Simple ne !!

@casper1, spot on!
Your statement is very simple yet profound, the truth is that politicians do not want the real truth from being heard so they give their version of the truth, something which suites their needs, they pick and choose which statistics are most beneficial to them and use it at every possible chance

Politicians are in for the short term, 5 years at best, in other words make as much as you can whilst you can and then get the hell out without being caught.

Good points PurgeCoin (and casper)

You can paint it any colour, sugar coat it but R1 stays R1 and stealing 30c is built somewhere into the collage

The ANC master manipulators who seek to create an imbalance to take advantage of our taxes to then find creative ways for new ones to fill the 30c void

ie: Sugar Tax, Sins Tax, Emissions Tax and more, all this on top of VAT.

Control is the name of the game, they are the masters, we the puppets with NO say

In a way, everyone can manipulate others to get what they want, but we’re not privy to this luxury, only the ruling thieving ANC led Government is!

As ek moet raai sou ek sê inflasie word minstens met 50% onder bereken vanaf 2009. (Finansiële krisis en die Jakob krisis)

Don’t mistake it as a Jacob crisis.

The ANC allowed it to happen all the way. If they didn’t like it, they would have gotten rid of Jacob.

The same ANC is still running the country into the ground. It started in the Mandela era and is simply continuing now.

The only difference between the earlier presidents and now is that previously, the money hadn’t started to run out so the looting was fun.

The money is now running out so it has become dog-eat-dog.

The problem is a South African crisis. The people on the ground need to get rid of the ANC (and its EFF child) to recover from near death. If not, it will die.

Intermediate demand price changes in USA is currently at 20% these are price changes that are in the pipeline according to the Bureau of Labor Statistics, and will hit the consumer in the next few months. Serious inflation seems on the way. Life is going to become extremely difficult. I think these lockdowns will be used as the excuse, but they are actually the means of destroying the middle class to facilitate the reset and New Normal that one reads so much of.
I see no other explanation for the Aus and New Zealand governments actions draconian reactions to this SARS scare. Both countries have serious issues with mortgage debt, these lockdowns will be blamed when people are unable to repay mortgages on over valued properties. In the meantime a police state is put in place under the guise of a medical emergency to manage any social unrest that may occur when the population realizes how badly they have shafted by two decades of Central Bank financial manipulation.

Why don’t they simply rebase the data for SAA then? No need for bankruptcy procedures or bailouts! Steinhoff tried this trick and see where it got them! The mere fact that you have to rebase the data shows the severity of your predicament.

@Sensei, do you think we are going to get a global reset? Possibly a Brenton Woods 2.0

As much as well call it democracy, it is everything but democratic as there is a serious lack of accountability, transparency and good faith…

The reset is happening as we speak. Some describe the process as a debt jubilee, others as a global reset. Call it what you may, the process is already running its course. Resets or debt jubilees come in different forms, depending on the monetary system at the time. The nation was on the gold standard when the king defaulted on his loan from wealthy families during Biblical times. The king simply enforced a debt-jubilee to free himself from the chains of debt. In effect, the king nationalized the assets of lenders to cancel the debt of every debtor. He justified this theft as being in the interest of poor citizens of course, while he is the biggest beneficiary by far.

Place the government in the position of the king, and replace the gold standard with a fiat currency system and it is clear that exactly the same process is transpiring at the moment. Deficit spending supported by money printing(bond yields lower than the rate of inflation) nationalizes the assets of lenders to pay down the debts of borrowers. Keep in mind that the king(government) is the largest borrower by far. The reset is unavoidable because it is impossible to repay the debt. Again, they will tell you that the process is for the benefit of average people, while the resulting inflation harms the average people the most.

“There is nothing new in the world except the history you do not know.” – Harry S Truman

Now, the challenge is to put oneself in a position to benefit from the process. This is the core challenge for investors.

And here I thought South Africa has a math’s problem. Now proven!! Just keep lowering the grades and see what you produce.

Proven government ineptitude, cadre deployment, sky rocketing unemployment, SOE failures, load shedding, exploding corruption and then the ever convenient “COVID 19” excuse.

Now this “rebased GDP”. Seems just too easy and just too opportune.

This sounds like manipulative “self fulfilling prophecy”. Cadper1 said it all.

It would help if the statistics are realistic, the interpretation thereof is scientifically sound so that the GDP rebasing is economically objective.

With the presence of somewhere between 5m and 10m illegal immigrants in SA (economic migrants), there is bound to a hell of a lot more informal sector, but with this presence of illegal immigrants comes a lot more negative, like having imported a lot of crime and desperation and a burden on sectors such as health care.

The other negative is the loss of job opportunities for local South Africans and a dumbing down of pay for the unskilled labor sectors.

The historical reliance on people from Lesotho, Mozambique and Zimbabwe in the mining sector as well as the agricultural sector is well documented, but this importation of unskilled labor is hurting our economy more than it is helping – rebasement or not.

This migration to SA from the north gets my goat as, effectively, the ANC have encouraged it by supporting leaders like them; incompetent and corrupt. Clearest example is the Mbeki ANC’s gleeful support of Mugabe and ZANU PF destroying the Zim economy. SA cannot compete in the real world but it has a small chance to be a services hub for southern Africa. Sad thing is that, due to SA’s complicity in the looting and destruction of most African states, there is no real economy in them. Eish.

GDP is a tool of politics not economics. An increasing GDP will allow a country to continue indebting itself into servitude to the world banks. Obviously RSA numbers must be horrific at the moment so a “rebalancing” was needed. Remove the FIRE economy and government spending from GDP to see where the real economy is.
Ghana, between 5 and 6 November 2010, had its GDP increase by 60 percent overnight, turning it officially into a “low-middle-income” country. The reality had not changed, but the GDP statistics had, because the country’s statistical agency had updated the weights used in calculating the price index, and consequently real GDP, for the first time since 1993. After similar adjustments, Nigeria added a whopping 89 percent to GDP overnight in 2014, and Kenya added 25 percent. There is no ‘objective’ ideal of GDP nor how one ought to calculate it. Any definition can be justified depending on one’s worldview; hence, the politically expedient options seem to be chosen.

If we truly want to see ANC performance, make the base year 28 April 1994 and that will give us a clear picture, but I suppose GDP data is perhaps not a measure of ruling party performance since inception.

If the notion of “setting the tone at the top” applies, the 1994 base year may give us a good GDP reflection, especially in the era when Thabo Mbeki ,Trevor Manuel and Tito Mboweni were running the economy. Realistic Adjusts need to be made to get Norminal vs. effective/real values so as to avoid self fulfilling prophecies, political or economic.

Hedonic adjustment is the term.

What is this ‘rebasing’ thing?

As far as I know in the USA “asset purchases” end up growing the GDP number. Sadly they have exported much of their manufacturing to Asia so these “assets” are not invested in the real economy but serve to enrich bankers and drive bubbles in property and the stock market.

There is no way savers in EU and USA can be rewarded because real interest rates are negative so bonds cease to be an asset class. For how long can confidence hold out in this environment?

Like in SA it seems they are happy to manipulate inflation figures because they are dead scared of raising interest rates.

End of comments.

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