News ID: 209615
Published: 0943 GMT February 07, 2018

World Bank takes new approach to shine light on wealth of nations

World Bank takes new approach to shine light on wealth of nations

More than two dozen countries saw their wealth per capita fall in the 20 years to 2014, according to the most comprehensive attempt so far to produce a ‘balance sheet’ of nations’ assets.

The World Bank study seeks to provide a more comprehensive picture of economic progress than gross domestic product data alone, according to FT.

It tracks four different types of capital for 141 countries between 1995 and 2011: produced capital (such as roads, machinery and buildings); human capital (based on estimating the present value of a labor force’s future earnings); financial capital (net foreign assets); and natural capital (mainly sub-soil energy resources, minerals, forests and agricultural land).

Using the methodology, there was a big increase in per capita wealth in Asia during those years, driven by capital formation in China and India. Sub-Saharan Africa, the only region to go backwards, experienced a slight fall in per capita wealth, largely as a result of continued high birth rates in many countries that offset a rise in nominal wealth.

In contrast to the more positive GDP numbers, the data showed the poorest African countries ‘shearing away’ from the rest of the world, said Paul Collier, professor of economics and public policy at the University of Oxford’s Blavatnik School of Government.

The new World Bank methodology added to the picture provided by GDP, which showed the flow of income and production over a period but gave no information on the human, physical, natural and financial assets underlying that income, said Kristalina Georgieva, World Bank chief executive.

The wealth data provided a forward-looking measure that could help governments manage development strategies better than if they relied only on ‘backward-looking’ GDP, the bank added.

“We can use this data to better understand what makes countries’ wealth sustainable,” said Georgieva. Citing Bangladesh, Rwanda and Vietnam as countries that were investing in the right things, she added: “What leaps out is that when countries use their natural capital well, investing primarily in their people, then countries leap forward in terms of wealth per capita.”

But if a country frittered away income from natural resources on consumption, wealth per capita could fall even if GDP growth appeared healthy, she said.

Countries with a high birth rate, such as the Democratic Republic of Congo, had fallen behind as population growth outpaced rising wealth. Conflict was also a sure way of destroying wealth, particularly produced capital, Georgieva said.

Nigeria, whose GDP boomed until the sharp drop in oil prices in 2014, suffered a fall in wealth per capita as successive governments failed to use oil revenue to improve infrastructure, Collier said, adding that the wealth numbers, if published earlier, could have blown the whistle on failing policies.

Zimbabwe also saw a sharp fall in wealth, largely due to a drop in human capital related to high unemployment at home and the emigration to South Africa and elsewhere of millions of its best-educated people.

In Europe, Greece suffered a fall in wealth per capita as its net financial position deteriorated and rising unemployment impaired workers’ lifetime earnings potential.

As nations develop, they convert natural capital into other forms — roads, factories, hospitals, schools and universities — so the share of natural capital in their total wealth falls as other forms rise in importance, the bank said.

In high-income Organization for Economic Co-operation and Development countries, natural capital makes up just three percent of total wealth as human and produced capital become the main drivers of growth. In poor countries, natural capital contributes 47 percent of total wealth, according to the report.

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