How can countries, regions, even continents, be usefully compared?
Currencies exchange at different rates, and their relative value does not necessarily mirror national purchasing power. Estimates of economic activity, including gross domestic product (GDP), generally follow the UN's System of National Accounts, but are based on data of widely differing quality.
Inflation indices are computed using different baskets of goods, with varying weights attributed to products depending on the country involved.
Nevertheless, provinces, countries, regions and continents are continually compared with each other. We categorise some countries as poor and others as affluent. We compare inflation in the EU with inflation in the US, and India's economic growth rate with that of China or Germany or Mozambique.
One of the ways to make such comparisons more meaningful involves the International Comparison Programme (ICP), a global initiative to develop a reliable basis for comparing GDP per capita expenditures and the real value of production across countries, using a standardised benchmark free of price and exchange rate distortions.
In Africa, the ICP aims to answer questions about living standards and to establish whether the UN millennium development goals are being met. To do this, comparable data across countries, over time, is required. The ICP's purpose is to provide such data and develop methodologies for reliable comparisons.
Comparing economic and social data in different places requires standardised concepts and classifications, and common methods of measurement of the same data items or variables.
The system must be able to strip out variations between the strength of currencies that are due to exchange rates, rather than real purchasing power. This entails calculating purchasing power parities (PPPs) that can be used to convert national currency data to a common measurement.
Achieving an acceptable basis for national comparison has been a long-cherished international goal. In 1968 the UN started the ICP with this aim. Comparisons were made every five years from 1970. Initially 10 countries were involved, including just one from Africa. By 1993 the project included 118 nations, of which 22 were African. The current ICP round involves 148 countries worldwide, with 48 from Africa.
The quality of comparisons critically depends on obtaining comparable data on GDP expenditure and the individual items used in surveys of prices.
Internationally, this requires estimates of expenditure in respect of more than 150 components of GDP; in Africa the project has identified more than 200 components. To provide reliable inter-country comparisons, the ICP requires that the scope of GDP estimates is consistent across countries and that they distinguish between individual and accrual household consumption.
Data on prices has had to be collected for identical goods from all participating countries. This has involved intensive preparatory work at regional and country level. Workshops were held to prepare an all-Africa list of products representative of consumption patterns across the continent. Using the structured product descriptions method, a list of about 1 000 products was defined with the input of all participating countries.
Recently the African Development Bank, which is responsible for co-ordinating the ICP in Africa, released the first details of PPP-adjusted real GDP expenditures, PPP indices and price level indices for the 48 countries participating in the ICP-Africa.
These results cover final household consumption expenditure but do not include expenditure on housing services. This will be included in a second release due by December, which will also have data on gross fixed capital formation and consumption expenditure by governments and non-profit organisations.
In the context of an ongoing debate over a single currency for Africa, it is interesting that all real expenditure results have been expressed in terms of a notional African regional currency - the Afric. A key finding of ICP-Africa relates to the observed difference in each country between the official exchange rate of the currency and the PPP equivalent. This difference tends to reflect the extent of currency undervaluation or overvaluation.
The African Development Bank's first release of ICP data is, as the bank notes, critical for policy management and decision making at both national and international levels.
"Besides their usefulness for facilitating cross-country comparison of GDP and related aggregates, the results are useful for comparing regional poverty incidences and for poverty analysis across countries and across regions within the same country."
Importantly, the PPP-adjusted one-dollar-a-day poverty line can be used as a threshold for poverty measurement, while ICP information can facilitate the process of harmonising economic policies across countries, thus fostering regional integration on the continent.