Number crunchers in Africa leave investors in the dark

By Duncan Miriri

NAIROBI (Reuters) – African countries' rapid growth over the past decade may have been the envy of many developed economies, but their number crunchers have struggled to keep up.

That barely mattered when investors were desperate to find a place to park their cash as more developed markets careered off course.

But now that a global recovery is increasing competition for fund inflows, Africa can ill afford to pump out dodgy data from poorly funded statistics bureaux or leave investors in the dark about central bank policymaking.

Years of neglect, a lack of technical skills and large informal economies make reliable data collection a huge task.

Failure to address these challenges could drive away investors unable or unwilling to pay for their own research if they cannot see an economy's true scale or potential.

"It is important for us to boost the quality of statistics in Africa," said Mthuli Ncube, chief economist at the Africa Development Bank (AfDB), which is working to improve its data operations.

"The better the data, the better the information to investors. So it is: more transparency, better data, better investments," he said.

Nigeria showed in April what a review of out-of-date figures can mean: it vaulted South Africa to become the biggest African economy after rebasing its numbers to 2010 from 1990.

For the first time, it properly calculated the impact of mobile phones and its huge "Nollywood" film industry.

Ordinary Nigerians were quick to point out that a more accurate measure of the nation's gross domestic product didn't mean that they were now richer or roads had fewer potholes. But economists and investors say it could have a longer-term impact.

"There has been a tendency to underestimate economic activity in Africa," said Razia Khan, Africa researcher at Standard Chartered Bank. "This may have discouraged some investment in the region, as investors would not have appreciated the true size of those economies."

SHORT SHRIFT

Some statistics shortcomings are glaring, creating headaches for governments seeking to plan ahead and making it difficult for companies to understand a market's prospects.

In Kenya, for example, more than 40 percent of births and more than half of deaths are not captured by the national registry, said Mwende Gatabaki of the Kenya Citizens and Foreign Nationals Management Services. Kenya is now spending 5 billion shillings ($57 million) to create a digital registry.

Statistics that do emerge can spark strong debate. The AfDB raised eyebrows in 2011 when it said Africa's middle class had risen to 350 million people in 2010, or about 34 percent of the continent's total population, from about 126 million in 1980, about 27 percent at the time. This was based on those living on $2 to $20 a day.

Given that $2 a day or below is widely accepted as a poverty indicator, many economists viewed the AfDB's middle class range in that study as optimistic, saying any sudden sharp rise in food or fuel prices could plunge people back into poverty.

Some economists suggested a more "African-appropriate" measure of middle class would be those on $15 to $20 a day.

Hardened Africa investors have long learned to give official figures short shrift, relying on their own close knowledge of markets. But gathering this kind of data can be hard work and costly.

Jonathan Oppenheimer, director of investment firm E Oppenheimer & Son Ltd, said the lack of reliable data forced investors to open local offices or make more frequent trips than they would in other markets.

"You have to be on the ground," said Oppenheimer, whose $300 million Tana Capital, held jointly with Singapore-based Temasek, invests in consumer firms across Africa.

Some, however, see the opacity of Africa as an attraction.

"That is what makes Africa compelling," said James Mworia, chief executive of Nairobi-based Centum Investment. "When markets are extremely efficient you can't get the sort of returns we are getting."

Centum, which invests in listed firms, property and private equity, has delivered returns that beat the benchmark Nairobi bourse index by 19 percent over the five years to the end of last March. The return on its private equity portfolio was 42 percent in the year to March.

To achieve this, however, it has a team of number crunchers sifting markets and other data, the kind of investment not everyone can afford or wants to pay for.

While local analysis and the figures from corporate earnings reports may trump GDP figures as a guide to the outlook, reliable figures contributing to inflation and growth, or consumer purchasing power, are valuable elements.

"BEHIND THE CURVE"

So too is greater clarity about policymaking by central banks and other official institutions.

"People need to understand the basis on which a policymaker is making a decision," said Bob Collymore, head of Kenyan mobile phone operator Safaricom, a unit of Britain's Vodafone.

"It is of the utmost importance because otherwise people will take their money to markets where they will get that transparency," he said.

That is particularly pertinent for Africa's central banks, slowly emerging from the shadow of their governments.

"They are behind the curve," said Paul Collier of Oxford University, which organises an annual conference for African central bankers. Central banks, he said, were now more authoritative but needed to learn that "they are there to communicate with citizens not just (act) as technocrats advising governments."

Only one African central bank – the offshore centre of Mauritius – issues minutes after monetary policy meetings, which offer an insight into how members voted. That, in turn, helps investors see where rates could head next. Other central banks are wary about following suit.

"If the minutes are issued with a view to improving the public's understanding of discussions on the economy at the meetings, then that is helpful," said one African central banker, who asked not to be named.

However, he said, in Africa's often cliquey markets, "there is a risk of the issues being personalised" and members might worry about voting against a rate change if their names were published.

Nevertheless, more African countries are seeking to provide greater clarity on their economies, and are seeing the benefits of investing in better statistics data and more transparent policymaking.

"We used to have different statistics from the World Bank, from the IMF, the U.N., from everywhere," said Claver Gatete, finance minister of Rwanda, which has won praise for reforming its economy, left in ruins after genocide 20 years ago.

Rwanda has rebuilt its National Institute of Statistics and issues data that now has broad acceptance, Gatete said.

In addition, "the central bank holds regular press briefings, communicating every quarter," he said – although central bank minutes remain elusive.