In WAEMU, GDP statistics are underestimated. This seems obvious to say the least. First, there are strong signals: the informal economy is everywhere; in the agricultural sector, « in the bush », in the building, in the services to the person, in the small street trade or in the markets. There are also weak signals: on average, in the ports of the subregion, the ships remain 15 days at the wharf or in the roadstead, five times more than in Asia, indicating a trade activity by sea well superior to port reception capacities; airports are always busy; the price of a square meter in Dakar may exceed one million three hundred thousand francs; the number of high-end vehicles is impressive in West African capitals; and projects of all kinds do not seem to want to stop … All this is not a priori consistent with a nominal GDP per capita of the order of 575 000 FCFA, or just over 1000 US $.
The purpose here is precisely to propose a method for estimating the actual GDP of the WAEMU economies. By definition, the informal economy escapes any direct measure. We can never quantify precisely what is restive to observation. That said, there are indirect methods of estimating informal GDP, i.e., the amount of annual wealth produced outside the channels captured by accounting. We define the effective nominal GDP as follows:
Effective nominal GDP = Official nominal GDP + Informal nominal GDP.
The nominal nominal GDP is defined as follows:
Official nominal GDP = Consumer Price Index x Real Formal GDP
The nominal nominal GDP is known: it is published by various sources such as the Ministries of Economy, the BCEAO, the IMF etc. What we are trying to quantify is informal nominal GDP by indirectly measuring nominal real GDP. And to do this, we will use Fisher’s equation, which is expressed as follows:
M x V = Y
where M is the money supply used in market exchanges, namely the monetary aggregate M1 (coins and notes in circulation, plus deposits in current accounts), V is the speed of circulation of the money supply, and Y official nominal GDP.
The central concept: speed of currency circulation
In a given economy, the speed of circulation of money is a structural datum. V is a variable that evolves little over time. It represents the number of times a monetary amount (a ticket for example) changes hands in a year. In countries where there is little saving and where there is little capital accumulation, as in WAEMU, the speed of circulation of money is necessarily higher than in the so-called « developed » economies where savings are used for capital accumulation. In addition, given the obvious importance of the informal economy, where savings are almost zero, the speed of circulation of the currency is boosted accordingly.
The velocity of currency circulation is (very) underestimated in WAEMU. We have collected official nominal GDP and M1 monetary aggregate statistics for nearly 200 countries worldwide, from which we have deduced the speed of circulation of the currency in each of these countries. The global average of V is 3.20 over the period 2008-2018, with an overall downward trend of V during this decade due to the quantitative easing of central banks post-crisis subprime, meaning that there is more money supply in circulation for growth that has not kept pace. As the theory suggests, the emerging countries exhibit a higher circulation rate, of the order of 6.51, while the world average is 5.73 and its median is 5.17. That said, the WAEMU countries, which, however, are lagging behind in their development, display currency circulation speeds well below the average for emerging countries, below the world level and often below the average. its median. This empirical result is incoherent, ultimately suggesting that we need to significantly correct these velocities of money to capture the effects of informal value creation.
By reassessing the actual circulation rates of the currency, we will be able to deduce actual nominal GDP, from which will be derived an estimate of the informal GDP of the subregion. For the WAEMU countries, it is therefore important to identify the speed of circulation of the currency that is consistent with the essentially primary structure of their economies and the intensity of the formal and informal trade that takes place there. . For that, we must compare our savings with their pairs.
Formal monetary speed vs. effective monetary speed: which comparables?
Let’s question the neighborhood. Good candidates for benchmarking are the immediate neighbors of ECOWAS who are not in WAEMU, namely Ghana, The Gambia, Nigeria, Guinea Conakry, Liberia and Sierra Leone. While the formal V in UEMOA is between 3.2 (Guinea-Bissau) and 5.8 (Niger) on average over the period 2008-2018, the ECOWAS neighbors have much higher monetary velocities: Ghana is 7.8, Guinea and The Gambia at 5.9, Liberia at 6.7, Nigeria and Sierra Leone at 10.2 … even though all these economies would also have a significant share of informal non-captured statistically. How is it that despite very similar economies, almost identical lifestyles and intense cross-border trade, the velocities of money are so different?
Let’s go a little further … in Central and Eastern Africa. Chad exhibits a formal V of 8.4, while Cameroon is 8.3. Equatorial Guinea is 9.6, Gabon 7.2. In Malawi and Rwanda, V is 9.9; Madagascar is at 8.1, Sudan at 8.1, Uganda at 11.2, Botswana at 10.5, Tanzania at 10.3, Zambia at 13.1 and Zimbabwe at 7.1. These monetary velocity statistics, although certainly themselves undervalued, are much more consistent than in WAEMU. This state of affairs is certainly correlated with the tax burden, which is higher in WAEMU than elsewhere in sub-Saharan Africa: economic agents prefer to produce and exchange in the informal rather than to formalize themselves, to publish their figures and to suffer the tax, perceived as confiscatory, illegitimate or misaligned with respect to the quality of public services.
Let’s complete our world tour and see similar, comparable or more developed countries on other continents. In Argentina and Turkey, though much more industrialized, V is above 8. Brazil is at 17. Least developed countries like Bangladesh or Cambodia have Vs at 8.9 and 12.8 respectively. Costa Rica, Dominican Republic, Ecuador, Indonesia, Laos, Nicaragua, Sri Lanka, East Timor and Uruguay have G over 10. Thailand, Tajikistan, Colombia Armenia, Iran, Kazakhstan, Lebanon, Micronesia and Paraguay are above 8. It is therefore simply unthinkable that the WAEMU countries have monetary velocities below a minimum of 8; these rates are likely, even after the quantitative monetary easing post-2008, to be closer to 10. Let us readjust the macroeconomic statistics of GDP in terms of these reassessed multiples, and estimate the nominal nominal GDP then, through the weight a priori of the informal economy.
Reassess UEMOA nominal GDP
The nominal real GDP of the subregion is at least two times higher than formal and official nominal GDP. By adjusting V of 4.6 on average in WAEMU to 8 (minimum) and 10 (maximum), the nominal real GDP is between 146 and 183 trillion FCFA, against 69 trillion formal and official GDP. This means that WAEMU’s informal GDP represents between 77 and 113 trillion FCFA. This rate of underestimation of the nominal GDP of the
subregion in the range of 53% to 62% depending on the assumptions of V is consistent in all WAEMU countries, with relatively few disparities between Member States. In Benin, the underestimation of GDP is between 54% and 63%; in Burkina Faso, between 56% and 65% m; in Côte d’Ivoire, between 59% and 67%; in Côte d’Ivoire, between 71% and 77%; in Mali, between 34% and 48%; in Niger, between 29% and 43%; in Senegal, between 51% and 61%; and in Togo, between 50 and 60%.
The stakes are important. The criteria for macroeconomic convergence and multilateral surveillance often refer to nominal GDP: in ratios such as public debt / GDP and budget deficit / GDP, numerators are well defined, but the denominator remains clearly poorly captured. Macroeconomic management and money management are becoming uncertain. In the same way, our countries are often constrained by the programs engaged with the IMF, which limit our capacities of indebtedness, notably in currencies, and thus our power of accumulation of physical capital. Hence the importance of formalization programs for economic actors, especially in the primary sector and the urban market sector. The challenge is not only fiscal: it is about the in-depth modernization of our sub-regional economies.