By CPA Wambui Chege
Gdp/Gnp or Human Development?
Allow me to create some mental imagery for this Accountant Journal’s readers. Figure the majestic Nairobi express highway, the Mombasa Road and travel your mind to some place in Kisauni, Mombasa. Sometime in 2020, in Kisauni, a 36-year-old widow and mother of eight resorted to boiling stones to create the illusion of preparing a meal, hoping her children would fall asleep while waiting for their meal. That year, Kenya’s GDP per capita was 1,927.7 USD (World Bank Group data)
We all know that GDP is the standard measure of growth, and comparisons have been made among countries based on their GDP per capita. A sneak peek at Kenya’s statistics reveals the county’s nominal GDP in 2024 was estimated to be 116.32 billion dollars. Nominal GDP per capita was 2,220 dollars, close to 288,000 Kshs per capita (per person). It is also estimated that in the same year,26% of Kenyans lived below the international poverty line, which is 2.15 $ per day. Many people, especially in the northern frontier districts, were suffering from acute hunger, not to forget rising inequalities, gender disparities, water and health deprivations. At the current exchange rate (129.5 Kshs to the dollar), anyone living on less than 278.4 Kenya shillings a day is considered extremely poor or suffering absolute poverty. Thus, in 2024, 26% of Kenyans, close to fourteen million people, were considered extremely poor. Yet our GDP per capita, a broad measure of a country’s living standards, was Kshs. 288,000. This analysis and the mental imagery elaborated earlier clearly indicate a disconnect between the wealth of a country as measured by GDP and the real wealth of its people as depicted by their standards of living and access to basic human needs in a way that improves their dignity.
While the country’s infrastructure developed and an encouraging GDP growth rate was recorded, we must not become oblivious to the fact that, on the flip side, 14 million people were living in absolute poverty in 2024. How, then, should growth and development be measured? How do we account for the Kenyan without a decent home, the one without dignified sanitation, the one who cannot afford a protein a day? How do we quantify human deprivation?
Evolution of measures of development
According to Amartya Sen, GDP or GNP are good proxies for measuring growth, but they have too many deficiencies. They are easily quantifiable monetary indicators. But is growth a function of money only? And how have other measures of growth and development evolved with time?
GDP or GNP per capita is just one of the approaches to measuring growth and development (Bruce, 2014). Thirty years after the second world war, there was outstanding economic growth as measured by GDP/GNP per capita. But also notable was the rising dualism within nations and failure to reduce poverty. This exposed the limitations of GDP per capita as a measure of growth and development (Bruce,2014) thus resulting to evolution of new approaches to measure development. Maria and Georgina Santos (2014) describe some approaches that have been developed and have evolved over time.
- The Basic Needs approach. This approach advocated for a set of indicators covering six major areas. Health, nutrition, basic education, sanitation, housing and water supply.
- Composite indicator that focused on human development. It basically was a weighted measure of the total enrollment at secondary and tertiary level of education.
- Index of social economic development which composed nineteen indicators including GDP, indicators of structural change, indicators on education, some two indicators on health which were daily per capita consumption of an animal protein and life expectancy at birth.
- Physical Quality of Life Index (PQLI) which was an arithmetic mean of literacy, infant mortality and life expectancy.
- Index of Social Progress which was composed of over forty indicators.
- Human Suffering Index which was composed of about ten indicators representing various dimensions of human suffering.
- Sen’s capabilities approach which argued that there was need to change focus from resources and incomes as means of development to the ends of development, that is the opportunities a person has.
All these were known as the composite indices of development. They had their own shortcomings thus the evolutions.
The Human Development Indices and the Multidimensional Indices
Human Development Indices and the Multidimensional Indices have garnered lots of support because they have stronger impacts on the mind and draw attention more powerfully as they allow the analysis of joint distribution of achievements or deprivations. The concept of the human development indexes was led by Mahbub ul Haq where he emphasized “that the objective of development is to create an enabling environment for people to enjoy long, healthy and creative lives”. The basic purpose of development is to enlarge peoples choices without focusing only on quantitative parameters, on income and growth figures but also on qualitative ones such as greater access to knowledge, secure livelihoods, a life devoid of physical violence and crime, a range of political and cultural freedoms, a sense of belonging and participation in community activities, a clean physical environment, enhanced food security and better nutrition, health services and satisfying leisure hours.
Accumulating wealth may not lead to the fulfillment of some kinds of human choices. For example, a country does not have to be rich to afford democracy, a family does not have to be wealthy to respect the rights of each family member, a society does not have to be wealthy to treat men and women equally. Unless a nation recognizes that its real wealth is its people, its obsession in creating wealth can hinder its goal of enriching human lives. This paradigm of human development embraces all of society, not just the economy. The cultural, the political and the social factors are given as much attention as the economic factors. It is concerned with investing in people and using their capabilities fully by enabling a framework for their employment and growth (Mahbub ul Haq). The Human Development Index is an aggregate of three dimensions. Health, education and income.
The Multidimensional Indices are an advancement to the human development indices as depicted in the UNDP human development report 2010.In this report, the Human Development Index is adjusted to account for inequality, gender and poverty, giving rise to three modifications.
- The Inequality Adjusted Human Development Index (IHDI). The index captures the losses in human development due to inequalities in the three dimensions of human development i.e., health, income and education.
- The Gender Inequality Index (GII). The Human Development Index is adjusted for gender inequality to capture the loss in human development due to gender disparities in empowerment, reproductive health and participation in the labor market.
- The Multidimensional Poverty Index (MPI). This one is quite interesting. The Human Development Index is adjusted for poverty by identifying deprivations or sufferings by households as far as health, education and living standards are concerned. The index puts emphasis on rudimentary aspects that depict poverty such as access to clean cooking fuel, ownership of at least one simple asset, access to a toilet, access to water and living in a house with an earthen floor.
The report proposes that human beings are the real wealth of a nation, noting there is so much that nations can and should do to improve the quality of their people’s lives, not just focusing on output as measured by GDP. It is evident that some countries have powerful economic performances, yet they have failed to progress in schooling, life expectancy, and overall living standards. In some areas in Kenya, both rural and urban, you find a high percentage of people living in deplorable conditions, earthen floors, unclean cooking fuel, gender-based violence, and they lack access to clean water, poor sanitation and adequate health provisions. Unfortunately, women bear the brunt of these hardships, walking miles to fetch water and firewood and in indecent birthing conditions. Further, they lack equal access to basic education and rights to own property, such as land, resulting in a cyclical poverty trap. Think of a teenager dropping out of school due to an early pregnancy. Unless her support system from the family and the government through strong, efficient institutions favours her, the girl risks a cycle of deprivation all her life, including stigmatisation. In Amartya Sen’s thoughts, this girl has no room to use her capabilities, grow her capabilities and make choices that lead to a life free of misery.
It is convenient to use the conventional GDP or GNP to measure a nation’s wealth and its growth rate. Being quantitative, GDP/GNP can be very pleasant for analysts and leaders with a knack for numbers. Sadly, the focal point of this measure is the income component only. The Multidimensional Human Development Index gives a broader evaluation of growth and development with a critical focus on the well-being of the human being. Having been adopted by the UN and some developed nations as their measure of growth, Kenya and other developing countries should follow suit. As Amartya Sen says, “the human development approach is flexible enough to take note of the prospects of human lives on the planet “. We should look forward to when our leaders talk about and celebrate our growth in terms of IHDI, GII, and the MPI.
The nexus between Accounting and Multidimensional human development as the optimal measure of a nation’s wealth
A quick search for the basic meaning of accounting is “the process of recording and processing information about economic entities” whether private entities or public entities. Correlating this with the day-to-day tasks of accountants proves the definition to be true. Another quick google search of the meaning of auditing is “it is the process of examining and verifying financial records and processes to ensure accuracy, compliance and reliability financial statements”. Alain de Javnry and Elisabeth Sadoulet (2016) argues that accountants implement comprehensive expenditure reviews to track the use of financial resources, helping to observe and explain the inconsistencies between actual and planned expenditures.
Comprehensive expenditure reviews are classified as one of the four forms of monitoring and evaluations. But does this work for development? The answer is no. Because as good as we may account for financial resources, and audit to confirm and verify financial statements, the structure of the professions does not sufficiently provide for impact evaluations. What is the intended impact of the resources we account for and to what extent has the impact been achieved? Impact evaluations seek to establish the causality between financial interventions and the resultant outcomes. Impact evaluations are about quantifying the magnitude of changes in outcomes that can be attributed to financial interventions.
This is the elephant in the room, as far as accountants and auditors are concerned. They must pursue the impacts of those financial resources they so much account for and audit. They should embrace a broader call to their accounting and auditing professions by internalising in their minds, in their professions, in their day-to-day decision making, in their fiducial responsibilities, and in their leadership positions, the concept of the human being as the ultimate goal of development. After all, “human beings are the real wealth of a nation”
References
Alain de Janvry, E. S. (2016). Impact Evaluation of Development Policies and Programs. In E. S. ALAIN DE JANVRY, DEVELOPMENT ECONOMICS THEORY AND PRACTICE (pp. 100-105). NEW YORK: ROUTLEDGE.
Maria Emma Santos, G. S. (2014). Composite Indices of Development. In R. K. Bruce Currie-Alder, INTERNATIONAL DEVELOPMENT IDEA,EXPIRIENCE, & PROSPECTS (pp. 133-145). Oxford: Oxford University Press.
Sen, A. K. (1999). Development as Freedom. Oxford: Oxford University Press.
Haq, M. u. (2008). The Human Development Paradigm. In G. Secondi, The development Economics Reader (pp. 28-33). New York: Routledge.
World Bank Group (2020). Retrieved from World Bank group: data.worldbank.org
United Nations Development programme (1990). Human Development Report . New York: Oxford University press.
CPA Wambui Chege – Senior Accountant-Tax Independent Electoral and Boundaries Commission.
vchege@iebc.or.ke
