Page 18 - QEB_2_2016_lowres

No doubt GDP is a useful number; using it for policy or insights for which it was not
intended, however, could lead to poor policy decisions. One argument put forward
in support of GDP is that as long as GDP’s methodology is held constant, it provides
sufficient insights into economic movements. The thing is, GDP might grow, but the
sphere of growth might not be the spheres of intended growth. Furthermore, not all
growth contributes to economic health or citizen wellbeing.

The creation of a tax haven might see GDP and GDP per capita soar, but might not
contribute in any way to the wellbeing of the citizen. Cheap imports that are significantly
marked up and immediately exported may present high levels of corporate profits, but
add very little to economic health. While these profits contribute to GDP, they do not
contribute much to the sustainable wellbeing of the citizen.

GNP gets us closer to the actual health of the economy by adding wages and income
from abroad and subtracting income earned by foreign capital and non-residents
within our borders. Net National Income (NNI) goes a step further by subtracting capital
depreciation and depletion of natural resources from GNP. NNI’s approach recognises
natural resources as an asset that is used up and discounts its usage accordingly.

The red line in Figure 18 below illustrates the extent to which GDP is over stated after
compensating for earnings in South Africa by foreign capital, depreciation and
depletion of natural resources.

Figure 1 South Africa: Economic Performance

40.00%
35.00%

30.00%
25.00%
20.00%
15.00%
10.00%

5.00%
0.00%
1946/12/31 1948/12/31 1950/12/31 1952/12/31 1954/12/31 1956/12/31 1958/12/31 1960/12/31 1962/12/31 1964/12/31 1966/12/31 1968/12/31 1970/12/31 1972/12/31 1974/12/31 1976/12/31 1978/12/31 1980/12/31 1982/12/31 1984/12/31 1986/12/31 1988/12/31 1990/12/31 1992/12/31 1994/12/31 1996/12/31 1998/12/31 2000/12/31 2002/12/31 2004/12/31 2006/12/31 2008/12/31 2010/12/31 2012/12/31 2014/12/31

Net Capital Formation: % of GDP % Residual (GDP-NNI) Capital Formation: % of GDP

Source: World Bank, Statistics SA & Own Calculations

14 QUARTERLY ECONOMIC BULLETIN 2016