AfDB Publishes First Results of the International Comparison Program for Africa (ICP-Africa)
Comparative Consumption and Price Levels in African Countries
Shanghai, 13 May 2007 – The African Development Bank (AfDB) has just released the first results on the comparative consumption and price levels in African countries. They show that out of the 48 African countries surveyed, only 7 have per capita household expenditure levels above AFRIC 1,000. In fact, most of them have per capita expenditure levels of less than AFRIC 500. Three countries, Mauritius, South Africa and Tunisia, have per capita household expenditure in excess of AFRIC 1,500; and a further four, Egypt, Swaziland, Botswana and Gabon, have per capita expenditures ranging between AFRIC 1000 and 1,500. The remaining countries recorded per capita expenditures of less than AFRIC 1,000 while most have below 500. (Algeria, Libya, Eritrea, Seychelles and Somalia are not featured in the report).
The report also provides information on the general price levels in African economies. These are shown in the table below where countries with ratios above 1.0 show that prices of consumer goods and services are higher than the average level for Africa; whereas ratios below 1.0 show that they are mostly cheaper than the average. For example Egypt and Ethiopia have relatively low price levels while Gabon and Equatorial Guinea have relatively high price levels.
The results have been published as part of the outcomes of a global program involving more than 140 participating countries worldwide, 48 of which are in Africa. The program aims at providing a reliable basis for comparing countries national wealth as measured by the Gross Domestic Product (GDP) and other income and price indicators. For such comparisons to be meaningful it is essential to bring economic indicators being compared under a common denominator free of price and exchange rate distortions. To that end purchasing power parities (PPPs) are used since they allow comparisons of the real value of production free of price and exchange rate distortions.
The major use of PPPs is as a first step in making inter-country comparisons in real terms of gross domestic product (GDP) and its component expenditures. GDP is the aggregate used most frequently to represent the economic size of countries and, on a per capita basis as a proxy for economic well-being of their residents. Calculating PPPs is the first step in the process of converting the level of GDP and its major aggregates, expressed in national currencies, into a common currency to enable these comparisons to be made. They provide also appropriate answers to such questions as "What is happening to living standards in Africa? Are the UN Millennium Goals being met?" These are some of the questions that researchers, governments, corporate bodies and international agencies among others, often have to grapple with in their work.
The ICP results are also critical for policy management and decision-making at both national and international levels, facilitating not only cross-country comparison of GDP and related aggregates, but also for comparing regional poverty incidences and for poverty analysis across countries and across regions within the same country. The PPP adjusted $1 per day poverty line is also used as a threshold for poverty measurement. ICP information can also facilitate the process of harmonizing economic policies across countries thus fostering regional integration; analysis of a country's comparative advantage and hence facilitate policy decisions relating to investment and trade. Information generated on wage differentials and cost of production in general can be used for decisions on investment.
"This marks the first time that ICP-Africa, since the inception of ICP nearly 40 years ago, has had an African institution taken the lead position in implementing ICP activities in the region and in generating such comprehensive information African Economies," Chief Economist Louis Kasekende explained.