Hasn’t the Gambian economy really been growing over the past years?

Introduction

I will go straight to the point: I have been motivated to write this article by two related factors: the first is a posting in internet that drew my attention a few weeks ago, which starts with a rather emphatic statement, and I quote: “if anyone is telling you that Gambia is growing just give them a slap on the cheek”! Since I believe that the notion of the “growth” being referred to here is not with respect to the physical size of the country, I assume that the phenomenon being referred to is the country’s economic growth. The second factor is a reiteration of this stance that was made during an important meeting I attended a few weeks ago with what I consider to be a group of well-respected citizens of the country. To paraphrase their assertion (not exactly in their words), a couple of them stated that anybody who talks about the Gambian economy registering positive economic growth should have his or her head examined.

Having written a number of articles over the past three years on the country’s economic growth trajectory since Independence, mostly on a positive note, I felt a bit of self-consciousness. But certainly not defensiveness, since I believe the data assembled by not only by the country’s Statistical Bureau but also by a wide range of other institutions, including international development organizations, all point to an overall positive growth picture.

Thus, the main proposition of this article is that review of the Gambia’s growth trajectory since Independence indeed points to a relatively good growth record, resilience and some degree of consistency, especially when we consider the small size of the economy and low level of natural resources endowment. Of course, it should be acknowledged at the outset that closer analysis of the patterns of growth invariably brings up other pertinent issues like the extent to which this growth has been transformational, broad-based or poverty reducing and equitable. In the rest of this article, we will first revisit here briefly the basic concepts and measurements of economic growth (so that we will all be on the same wavelength about the growth we are talking about), before focusing on the Gambia’s historical growth performance and conclude with the key lessons that could be drawn from this record for short, medium and long-term policy actions.

This focus o economic growth is justified by the fact that growth is key to higher real income levels and improved living standards, productive employment creation and generation of tax revenues for development.

Back to Basics: The Concepts and Measurements of Economic Growth

The concepts and measurements of economic growth have been at the heart of economics thought right from its origins. In the literature, those origins are traced to the writings of the ancient Greek Philosopher, Aristotle and his disciples. In fact, the name of the subject, Economics, derived from one of the seminal works of Aristotle with the same title, whose Latin name is Oeconomica while the Greek version is Oikovouika. Aristotle basically looked at an economy from the vantage point of the household and the properties and resources at its disposal. In this regard, he saw “agriculture as the most natural form of good use for this property”. (Sarah B. Pomeroy, 1994). According to his thesis, therefore, the basic formation of an economy revolves around the economic activities of a household, and they “involve the buying and selling of properties and a flourishing lifestyle that supports civilization. With these basic guidelines, man can accumulate wealth and stimulate a form of economy”(Ibid S.B. Pomeroy). At a basic level, we can derive two major conclusions from Aristotle’s above treatise: first, it could be argued that it laid the foundations for modern microeconomics, that focuses on economic activities at the household and firm level; and second, it sheds light on how growth takes place in economies, even though his focus was on the exchanges at the level of households, with agriculture as the principal economic activity.

The centuries that followed the era of Aristotle witnessed a steady, sometimes radical, evolution in economic growth theories. These could be said to start with “Mercantilism”, which saw the growth in the wealth of nation states as determined mostly by accumulation of gold and the building up of trade surpluses, followed by classical economic theory, whose father was Adam Smith. Adam Smith’s theory of growth was presented in his famous book, “Wealth of Nations” (1776), in which he argued that the key drivers of growth are the following: competitive markets, that determine supply and demand; labour productivity and other factor inputs; active trading, that allows for specialisation; and economies of scale from increased production. It could be argued that the main strands of Adam Smith’s treatise ran through succeeding theories of economic growth, from the neo-classical to modern economic growth thoughts. The neo-classical growth theories placed emphasis on “supply-side factors such as labour productivity, size of the workforce and factor inputs”.

The subsequent modern growth theories saw the rate of technological innovation, in addition to labour and utilization of capital, as crucial influencing factors on the pace of economic growth that can be attained by countries. This is clearly presented by the Cobb-Douglas Production Function as follows:

Y f(L, K, E), which means total production by a country (Y) is determined by its total labour force (L), its total capital stock put to productive purposes (K) and technological progress (E). This production function has been universally accepted as determining how countries grow. During the Soviet Union era, the constituting countries adopted a variant of this production function called the Leontieff Production function. But fundamentally, they share the same characteristics and properties.

In terms of measuring or tracking economic growth, Economists and Statisticians use a number of metrics, but two are most commonly used: the gross domestic product (GDP) and gross national income (GNP). The GDP measures the total value of goods and services produced within the borders of a country during a particular period, normally over a year. The GNP measures the total value of goods and services produced by a nation’s citizens, including the ones living and working abroad. Over the years, most countries in the world have settled on using the GDP for measuring the rate of increase of their collective wealth. The USA was the only major country that continued to use GNP as the primary indicator of its economic growth. However, with effect from 1991, it too began using GDP as the primary indicator of its economic growth.

Thus, across the world, GDP has become the universal metric used by countries to measure the rate of growth of their economies over given periods of time. Of course, over the past decades, debates have raged among some economists and policy makers as to whether GDP itself adequately captures all the values created in an economy, notably by care givers and more recently natural capital of countries or whether distributional or equity considerations are properly integrated in the metrics. For the latter particularly, the United Nations Development Programme (UNDP) came up with the notion of Human Development, and it’s measurement, Human Development Index, in the early 1990s.

Has the Gambian Economy Really Been Growing Over the Years?

Having reviewed the basic concepts of economic growth, its importance and how it is measured across the world, we will now look at Gambia’s economic growth trajectory over the years using the universally accepted metrics of GDP for doing so. This analysis will be non-partisan, and a guarantee of that is taking a long-term perspective, going back to the immediate post-independence years through to the present. In this regard, the period selected covers 1968 i.e. three years after Independence through to 2024. Thus, this implies that the timeframe adopted covers all the three Republics, with no bias for or against any of them.

Our main proposition is that indeed Gambia’s economy has been growing positively over the past years, but issues such as the extent to which its pattern of growth has been transformational or adequately poverty reducing, could be raised. A wide range of policy statements and accompanying programmes of both the Gambia Government and key development partners were also reviewed. We found a convergence among all of them about the country’s consistent relatively good economic growth track record.

As we have noted in previous articles, the Gambia’s growth performance during the period 1968 to 2024 (56 years) averaged about 5 percent compared to 3.5 to 4 percent for Sub-Saharan Africa as a whole as can be seen in Figure 1.  It is worth noting that the country’s real GDP growth surpassed 8 percent in 1968, 1973, 1975, and 1983 respectively and exceeded 6.0 percent over many years. Thus, empirical evidence clearly shows that Gambia’s economy has maintained positive growth performance on average since the immediate post-Independence years through to the present. Its growth performance also compares favorably with the African continent’s average growth performance during the same period under review. It is our humble opinion that this indicates resilience of Gambia’s economy given its paucity of natural resources and narrow economic base. We also believe that Gambians should be proud of this record as the growth performance provides a foundation for accelerated economic expansion.

And in that regard, we believe that in looking ahead what the Gambians and their external partners should be more concerned about are the following issues. First, is the fact that although the average growth registered by the country has remained positive and better than the average for the rest of Sub-Saharan Africa, the growth has been volatile and has not necessarily generated prosperity for most of the population. For instance, the current rate of poverty in the country is assessed to be quite high. The latest available data on poverty rates in the country all indicate that poverty levels are high, with income poverty standing at around 70%. Furthermore, the average growth attained by the country over more than half a century falls short of what is deemed to be necessary for sustained poverty reduction, which is at least 7 to 10 percent over several years.

The other important issue about the Gambia’s historical growth performance is the fact it has fallen short of levels required for meaningful structural changes in its economy, which are key to sustained resilience, diversified productive and export bases and broad-based prosperity. In this connection, any cursory examination of the sources of the country’s economic growth since the late 1960s will clearly show that its narrow base has not changed significantly over the years.

The country has remained heavily dependent on the agricultural sector (crops, livestock, forestry and logging) as well as fisheries. Agriculture accounts for about 35 per cent of GDP formation and close to 40 per cent of foreign exchange earnings, while about 70 per cent of the population relies on the sector for their livelihoods. On the other hand, the industrial sector, including construction, accounts for only 7.5 per cent of the GDP, which falls significantly short of the stipulated threshold of between 25 – 30 per cent of GDP for a structurally transformed economy. The rest is accounted for by the tourism and service sectors, mostly of the low value types.

Therefore, there has to be greater focus on, and accelerated actions towards, expanding and deepening the country’s productive and export bases in order to render the Gambia’s growth process more transformative. This will primarily require redynamising the country’s manufacturing sector as well as modernizing its agricultural sector and moving the tourism sector from the doldrums of low-cost low value sector to high income high value one. As we noted before, for manufacturing, the country should be more aggressive with regard to seizing opportunities provided by the changes in the economic conditions and policies in China and other emerging Asian countries, with labour costs in them rising. This could allow the Gambia to join other African countries to enter the markets for relatively labour intensive, low cost and low technology manufactures. China has also taken a deliberate policy decision to allow the relocation of such industries to developing countries, including those in Africa. Gambia should aim to maximize the potentials offered from its engagement with China under FOCAC. Importantly also, it should accelerate the implementation of AfCFTA by quickly moving from ratification to actual trading under this important initiative, which offers significant opportunities for industrialization and economic transformation. There are also other preferential market access arrangements under AGOA and EU’s Everything But Arms.

Regarding the agricultural sector, important initiatives are underway to introduce more modern agricultural practices, including high value crops, irrigation and mechanization as well as renewed efforts to promote more private sector involvement and youth in the sector. Again, what is required here is acceleration of implementation of the initiatives and increasing funding for them.

There is also broad consensus that the country’s growth process cannot be transformational if the current energy, utilities and physical infrastructure bottlenecks (roads, sea ports and airport) persist. It is true that important infrastructure projects, like the seaports and airport as well as cross-border roads, in all these areas are also underway, but the pace of their implementation needs to be stepped up.

Added to all this is human capital and technological development. Technological development is a critical enabler of structural transformation. But here also, Gambia’s relatively strong growth trajectory over the past decades has not been accompanied by any measurable technological innovation and development. After the country’s promising showing in the information and communications technology sub-sector in the 1990s, there has not been any notable deepening and broadening of this subsector either. Although there have been some promising developments recently through the Quantum Net group of companies and a few other private sector actors, including the gradual introduction of Fintech, the Gambia has a long way to go on the path of technological innovation and integration into other sectors. According to the United Nations World Intellectual Property Rights Organization (WIPO)’s Global Innovation Index, which ranks all the countries in the world in terms of investments and progress made in technological innovation, Gambia’s position is very close to the bottom. Human capital development is in turn a crucial enabler of technological development. Hopefully, the setting up of USET and other TVET initiatives as well as gradual stepping up of STEM in educational institutions will all soon begin to yield the desired results.

Conclusion

In summary, it is unquestionable that the Gambia’s economy has sustained positive growth rates over the past years, which in my humble opinion should be celebrated, given the country’s low endowment of natural resources and small size. This notwithstanding, in looking ahead, Gambians and their Government as well as development partners should focus more on how to push the growth rates to higher levels for sustained poverty reduction as well as how to render it more transformational and inclusive. A primary instrument for policy implementation towards these goals is the NDP II, but I do not get the sense that implementation of NDP is as vigorous and coordinated as it should be.

The views expressed in this article are not necessarily those of the Central Bank of the Gambia