GROWTH, POVERTY AND INEQUALITY IN AFRICA

Janvier D. Nkurunziza

UNCTAD, Special Unit on Commodities

Praia, 7 May 2013

OUTLINE

Key message

What is social protection?

Social Protection and economic growth

Why has poverty reduction been so slow in Africa?

Some policy conclusions: looking beyond growth

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KEY MESSAGE

Despite high economic growth, slow poverty reduction:

From 1999 to 2010, median poverty reduction of 1.6%/year

In East Asia and Pacific (EAP): 6%/year

Reasons: sources of growth, population growth, inequality...

We need a more inclusive growth process

Focus action in sectors where poor are 3

WHAT IS SOCIAL PROTECTION?

Social protection is (see UNRISD):

About preventing, managing & overcoming situations that adversely affect people’s well being…

Through interventions that seek to reduce poverty & vulnerability

Such as: employment promotion, insurance, social assistance

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WHAT IS SOCIAL PROTECTION?

Social protection is associated with:

Economic growthIt is about human capital formation and preservationIt increases economic participation & may help to generate growthIt is costly & requires important resources---issue of sustainability

PovertyIt helps to reduce poverty & could help countries to avoid poverty trapsIt helps to reduce vulnerability & build economic resilience

InequalityIt reduces inequalityIt empowers, fosters independence & encourages risk-taking

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AFRICA’S RECENT GROWTH EXPERIENCE

Africa recently experienced relatively high rates of growth:

From 2000 to 2011

Median rate of economic growth was 4.8% per annumMedian per capita income growth was 2.2% per annum (46% growth)Median income per capita was $1805 in 2005 PPP

In East Asia and Pacific (EAP) region, over the same period

Median rate of economic growth was 3.9% per annumMedian per capita income growth was 3% per annum (77% growth)Median income per capita was $6892 in 2005 PPP

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AFRICA’S RECENT GROWTH EXPERIENCE

Despite recent relatively high rates of growth:

Extreme poverty (income below $1.25 per day in 2005 PPP)

From 58% of the population in 1999 to 48.5% of the population in 2010The average annual rate of poverty reduction is about 1.6%

In EAP, extreme poverty

Declined from 35.6% of the population in 1999 to 12.5% in 2010The average annual rate of poverty reduction is 9.1%This is almost 6 times the rate in Africa

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POVERTY TRENDS

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WEAK LINK BETWEEN GROWTH AND POVERTY REDUCTION IN AFRICA

Income-growth elasticity of poverty measures sensitivity of poverty to income growth

In Africa, 1%-point growth in income per capita leads to 1 to 1.5-% point decrease in poverty

In EAP, the elasticity is 2.5%-point

In Latin America and Caribbean: 3.1%-point

In Cape Verde:1%-point9

WHY HAS POVERTY REDUCTION BEEN SLOW?

High level of poverty

As figure showed, Africa has by far highest level of poverty

It is more difficult to achieve higher rate of poverty reduction at high levels of poverty (Ravallion)

For same rate of poverty reduction: absolute number of poor pulled out of poverty higher for countries with high poverty level

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WHY HAS POVERTY REDUCTION BEEN SLOW?

High population growth has limited poverty reduction

Late demographic transition: 2.3% population growth in 2000-10

Youthful population: dependency ratio in 2009 was 85%, as in 60

In EAP region, the ratio was 43% in 2009

Hence, GDP per capita growth has been lower than EAP

Slow growth in GDP per capita slowed poverty reduction11

WHY HAS POVERTY REDUCTION BEEN SLOW?

Relatively high growth has only been recent

In 1980-99, negative median income/cap growth: -0.6% per year

In 1999 per capita income was 11% lower than in 1980

In EAP region growth was 2.6% per year

In1999 income was 67% higher than 1980 level

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WHY HAS POVERTY REDUCTION BEEN SLOW?

Need high growth for long period to produce sizable results on poverty reduction

If Africa keeps 1.6% rate poverty reduction for 20 years, extreme poverty will still affect 35% of population by 2030

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WHY HAS POVERTY REDUCTION BEEN SLOW?

Economic growth has not been high enough

To meet MDG1, Africa needed 7% average growth per year, from 2000 to 2015

Between 2000 and 2011:

Only 7 countries grew by 7% or more per year, on averageAngola, Eq. Guinea, Ethiopia, Liberia, Mozambique, Rwanda & Tanzania

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WHY HAS POVERTY REDUCTION BEEN SLOW?

Even high growth is not same as high poverty reduction…

How growth gains are shared matters a lot: who benefits?

In 61% African countries, inequality elasticities of poverty are higher than income-growth elasticities (Fosu)

Hence, for poverty reduction, reducing inequality may matter even more than achieving high economic growth rates

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POVERTY REDUCTION NOT JUST ABOUT GROWTH

1999 2002 2005 2008 2010

Angola 54.29 55.33 55.55 55.9 59.48

Ethiopia 55.17 48.2 38.96 32.18 30.65

Liberia 80.04 69.71 86.49 83.06 82.62

Mozambique 67.61 76.66 66.70 59.58 61.22

Rwanda 73.88 73.68 72.75 67.66 63.17

Tanzania 80.12 81.93 74.21 66.76 62.53

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WHY HAS POVERTY REDUCTION BEEN SLOW?

Inequality in Africa is second highest in the world

Average Gini coefficient in Africa is about 46, the second highest

It is 52 in LAC and 36 in EAP region

Following examples illustrate some cases of high inequality

In Namibia, richest 10% control 55% of wealth in 2004, from 65% in 93

In S. Afr.10% richest control 45% wealth in 2000, 57% in 06 & 52% in 09

In Swaziland: from 50% in 1995 to 41% in 2001 and 40% in 2010

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WHY HAS POVERTY REDUCTION BEEN SLOW?

The statistics show that:

If unchecked, it could worsen over time (South Africa, 2000-06)

Inequality can decline even in severe cases (Namibia, 1993-04)

Strong political commitment is required to tackle inequality

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WHY HAS POVERTY REDUCTION BEEN SLOW?

Generally, growth not generated by sectors where poor are

Commodities sector (oil) which create little local employment

High-end services: hotels and restaurants; financial services; transport and communications (MGI, 2010)

In agriculture where most poor are:

Investment has declined (including in Cape Verde)Productivity (output/unit of labour) has been decliningTotal factor productivity has, at best, stagnated (Block, 2010)

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LOOKING BEYOND ECONOMIC GROWTH

Growth is good but not enough for poverty reduction

Need short-term and long-term policies that ensure high pro-poor growth through, e.g. reduction of inequality

Examples of short-term to medium-term policies:Insurance & social assistancePromoting employment particularly in low-end of income curve

Examples of long-term policies:Investing in sectors where poor are (rural economy, fisheries…)Promoting entrepreneurship particularly SMEs (tourism in CV)Ensuring access of poor to quality education (free education?)

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LOOKING BEYOND ECONOMIC GROWTH

Investing in food security programs because:

Poor spend large share of income on food in many countries in net food importing countriesPoor are among food producers in a number of countriesFrequent food crises & food prices will likely remain very high

How?

Boost domestic food production to increase revenue &/or stabilize food pricesPut particular emphasis on consuming domestically-grown foodConsider sourcing food from neighbouring countries

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LOOKING BEYOND ECONOMIC GROWTH

Pro-poor growth policy requires built-in distributional aspect

Example (Geda et al.) in Ethiopia, using 2000 as baseline:

GDP/cap growth of 4% per year would reduce poverty rate from 44% to 26% over 10 years in Distributional Neutral Growth (DNG) scenario

In Equally Distributed Gains (EDG) of growth scenario, poverty would decline from 44% to 15% over 10 years

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THANK YOU FOR YOUR KIND ATTENTION!