15 May 08 Global Poverty Presentation

A Framework for Understanding the Economics of Global Poverty

Jim Donahue

15th May [email protected]

© 2008 Jim Donahue

Overview

1. Nearly half of the world still lives in poverty

2. Some countries have moved from being poor to rich

3. Africa continue to lag behind

4. Mobile telephony is a key enabler for growth in poor countries

5. There is an ongoing debate about what needs to be done to fight extreme poverty

Appendices:

A. Case Study of Malawi: Can it move from poverty to prosperity?

B. Example lifestyles at different levels of economic development

2

1. Nearly half of the world still lives in poverty

3

How are rich and poor countries defined?

How can poor countries become rich?

GNI/Capita (PPP 2004)

- >$20,000

- $10,000 - $20,000

- $5,000 -$10,000

- <$5,000 Source: World Bank Development Indicators - GNI/capita, PPP – 2004

5

Most of the world lives in developing countries and nearly half earn less than $2 per day

01020304050607080

High Income(> $20,000 US)

Upper Middle(10-$20,000)

Lower MiddleIncome (5-$10,000)

Low Income (<$5,000)

33 2541

73

Number of Countries

Population

0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

High Income(> $20,000 US)

Upper Middle(10-$20,000)

Lower Middle(5-$10,000)

Low Income (<$5,000)

1 B

.2 B

2.2 B2.7 B

Source: World Bank Development Indicators - GNI/capita, PPP – 2004

1 Billion <$1/day

3 Billion <$2/day

International Poverty Lines:

Developed Countries

Developing Countries

6

Extreme poverty has been reduced in recent years, but nearly half of the world still lives in poverty

1981

40% less than

$1/day

Additional27% on

less than $2/day

33%

Greater than $2/ day

Total Population: 4.5 Billion

Less than $1/day 1.5 Billion

Less than $2/day: 3.0 Billion

2004

19% less than

$1/day

Additional29% on

less than $2/day

52%

Greater than $2/day

Total Population: 6.4 Billion



Source: World Bank Development Indicators - % Poverty 1981 - 2004

2. Some countries are moving from being poor to rich

7

8

There of numerous examples of countries moving from being poor to rich

Today’s Emerging Markets

(% growth 2004-05)

Turkey – 7.4%

Venezuela – 9.3%

China – 10.2%

Estonia– 9.8%

Argentina – 9.2%

S. Africa – 4.9%

Malaysia – 5.9%

Philippines – 5.0%

Indonesia – 5.6%

India – 9.2%

Angola – 20.6%

Europe

Greece 2005($23,620)

Greece 1950

Spain2005 ($25,820)

Spain2000

Ireland 1988

Ireland 2005($34,720)

Japan and the Asian Tigers

Japan 2005($31,410)

Japan1950

S. Korea, 2005 ($21,850)

S. Korea 1970

Taiwan 1960

Taiwan 2005(25,000)

Source: World Bank Development Indicators

9

Europe

Czech –$20,140 (6.1%)

Hungary-$16,940 (4.1%)

Estonia -$15,420 (9.8%)

Poland -$13,490 (3.4%)

UK- $32,690 (1.8%)

France - $30,540 (1.2%)

Germany -$29,210 (1.0%)

Italy -$28,840 (0.0%)

Spain -$25,820 (3.4%)

Russia -$10,640 (6.4%)

Romania-$8,940 (4.1%)

Turkey - $8,420 (7.4%)

Ukraine-$6,720 (2.6%)

GNI per Capita/ Growth Rate

(PPP 2005 US$)(%Growth 2004-05)


Years to Double Size of the Economy

Developed Countries

Newly Emerging Markets

Key steps to poverty reduction through growth: 1. Create a good investment climate2. Create formal economy jobs 3. Empower the poor to participate in the economy

10Geography

People/Culture

Governance

Infrastructure, Health, Education

Indirect factors influencing investment decisions:

Informal/ Sustenance

Economy

Private Sector Formal

Economy

3. Health and education levels

empower the poor to move into

formal economy jobs

2. Private investment and

export industries create jobs and help grow the

formal economy

1. Key private sector investment decision factors:

11

Six types of underlying factors help to explain a country’s ability to attract investment and grow

Growth (1990-2003) %

Investment (% GDP) %

Exports (% GDP) %

Imports (% GDP) %

Unemployment (00-05) %

Inflation (Avg. 1990-03) %

Gross National Income (GNI)

Economic Output

Economic Performance

GNI per capita

% Industry

% Agriculture

% Services

Geography• Climate

• Arable Land

• Net energy imports

• Natural resource

• Access to trade routes

• Natural Disasters

People• Population growth

• Net Migration

• Ethnic Groups/ Cultural Values

• Population age profile

Governance• Governance Rating: x%

• Competitiveness Index: x/125

• Ease of Doing Business: x/175

Infrastructure• Paved Roads %

• Telecoms

• Internet/PC

• Reliable power

• Water/ Sanitation

Health• Life expectancy

• Child Mortality

• Immunisation

• AIDS%

• Tuberculosis %

Education

• Male Literacy

• Female Literacy

• Primary

• Secondary

• Tertiary

• Political Stability• Control of Corruption• Democracy/People’s Voice• Rule of Law• Gov’t/Regulatory Effectiveness

Economy Poverty

<1$

Between $1 and $2

> $2

12

United Kingdom

Growth (Avg. 1990-03) 2.7%

Investment (% GDP) 16%

Exports (% GDP) 25%

Imports (% GDP) 28%

Unemployment (00-05) 4.6%

Inflation (Avg. 1990-03) 2.7%

GNI: $2.273 trillion (2005)Population: 60 million (2005)

Economic Output

Economic PerformanceGNI/capita, PPP:$32,690 (2005)

Services: 72%

Industry: 27%

Agriculture 1%

France

GNI: $2.169 trillion (2005)Population: 61 million (2005)

Economic Output


GNI/capita, PPP:$30,540 (2005)

Services: 73%

Industry: 24%

Agriculture 3%

Growth (Avg. 1990-03) 1.9%


Exports (% GDP) 26%

Imports (% GDP) 25%


Inflation (Avg. 1990-03) 1.5%


> $2 > $2

Economy PovertyEconomy Poverty

13

France (GNI/Capita, PPP $30,540)

United Kingdom(GNI/Capita, PPP $32,690)

Geography• Temperate/ Continental

• Arable Land

• Net Energy imports

• Natural Resources



People• Births per woman: 1.7

• Net migration: +.16%

• Ethnic Groups/ Culture

• Population age 0-14: 18.2%

Governance• Governance Rating: 90%

• Competitiveness Index:10/125

• Ease of Doing Business: 6/175

Infrastructure

• Paved Roads 100%

• Mob Tel :112%

• Internet: 42.3%

• Reliable power


• Life expect: 78

• Child Mort: 0.6%

• Immun: 80%

• AIDS: 0.2%

• TB: 0.12%

Health Education

• M Literacy: 99%

• F Literacy: 99%

• Primary: 99%

• Secondary: 95%

• Tertiary: 64%

• Political Stability• Control of Corruption• Democracy/Voice• Rule of Law• Gov’t/Reg Effect’ness


• Arable Land






• Net migration: + .1%

Governance

Infrastructure

• Paved Roads 100%

• Mob Tel: 80%

• Internet :36.5%

• Reliable power


• Life expect: 79


• Immun: 86%

• AIDS: 0.4%

• TB: 0.12%

Health Education

• M Literacy: 99%

• F Literacy: 99%

• Primary: 99%

• Secondary: 93%

• Tertiary: 54%



• Governance Rating: 89%




Sources: World Bank Development Indicators 2005, WEF Global Competitiveness Rankings 2006, World Bank Governance Index-2005, UN Population Division : Net Migration 1995-2000/Births per woman 2004, Koppen Climate Classification, ITU Mob/Internet Ranking 2005

14

Asia

India China

Extreme Poverty reduction since 1980

70 million fewer

400 million fewer

….but it is improving

Millions are living in poverty…..

India (2004) China (2004)GNI per Capita/

Growth Rate(PPP 2005 US$)

(%Growth 2004-05)


Hong Kong-$34,670 (7.3%)

Japan -$31,410 (2.6%)

Taiwan - $25,400 (5.0%)

S. Korea-$21,850 (4.0%)

Malaysia - $10,320 (5.2%)

Thailand - $8,440 (4.5%)

China - $6,600 (10.2%)

Philippines - $5,300 (5.0%)

Indonesia - $3,720 (5.6%)

India - $3,460 (9.2%)

Vietnam - $3,010 (8.4%)

<1$ Between $1 and $2

> $2<1$

> $2Between $1 and $2

15

China

GNI: $2.3 trillion (2005)Population: 1.3 billion (2005)

Economic Output

Services: 33%

Industry: 52%

Agriculture 15%

India

GNI: $804 billion (2005) Population: 1.1 billion (2005)

Economic Output

Services: 51%Industry: 27%

Agriculture 22%



Growth (Avg. 1990-03) 10.3%


Exports (% GDP) 34%

Imports (% GDP) 32%


Inflation (Avg, 1990-03) 4.9%

Growth (Avg. 1990-03) 5.9% (9.2)


Exports (% GDP) 14%

Imports (% GDP) 16%






<1$> $2

Between $1 and $2

Between $1 and $2

<1$

> $2

Economy PovertyEconomy Poverty

16

India(GNI/Capita, PPP $3,460)


• Arable Land





People• Births per woman:1.7

• Net Migration: -.03%



Governance

Infrastructure

• Roads ND

• Mob Tel: 30%

• Internet: 6.3%

• Reliable power


• Life expect: 71


• Immunis: 86%

• AIDS: 0.4%

• TB: 0.12%

Health Education

• M. Literacy: 98%

• F. Literacy: ND

• Primary: 98%

• Secondary: 70%

• Tertiary: 15%

China(GNI/Capita, PPP $6,600)

Geography• Tropical, Temperate, Dry

• Arable Land





People• Births per woman 3.1




Governance

Infrastructure

• Roads 57%

• Mob Tel 8%

• Internet: 1.7%

• Reliable power


• Life expect: 68


• Immun: 67%

• AIDS: 0.9%

• TB: 0.26%

Health Education


• F. Literacy: 81%

• Primary: 95%

• Secondary: 79%

• Tertiary: 28%










17

India is struggling to improve its poor infrastructure in an effort to improve its capacity to grow

3. Africa continues to lag behiond

18

Sub-Saharan Africa is not on track to meet the UN Millennium Development Goals by 2015

19

Goal 1: Eradicate Extreme Poverty and Hunger

TARGET Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day

Goal 2: Achieve Universal Education

TARGET Ensure that, by 2015, all children will be able to complete a full course of primary schooling

Goal 4:Reduce ChildMortality

TARGET Reduce by two thirds, between 1990 and 2015, the under-five mortality rate

Goal 6:Combat HIV/AIDS,Malaria &Other Diseases

TARGET Have halted by 2015 and begun to reverse the spread of HIV/AIDS

√√ - goal achieved- goal achieved

√√ - on-track- on-track

xx – not on-track – not on-track

√√ - goal achieved- goal achieved

√√ - on-track- on-track

√√ - good progress- good progress

30 out of 48 African countries have GNI/capita less than $2,000 and are not well integrated into the global economy

20

LIBYA

EGYPT

TUNISIA

NIGER

CHADSUDAN – 5%

ALGERIA

MOROCCO

MALI

WESTERNSAHARA

MAURITANIA

SENEGAL

IVORY COAST

7%

LIBERIA GHANA 51%

TOGO

BENIN

SIERRALEONE

BURKINAGUINEA NIGERIAGUINEA

BISSAU

THEGAMBIA

CAMEROON

CENTRALAFRICANREPUBLIC

CONGOGABON

EQUATORIALGUINEA

Democratic Rep of Congo

ANGOLA

TANZANIA

ETHIOPIA

KENYA

UGANDA

RWANDA

BURUNDI

SOMALIA

DJIBOUTI

ZIMBABWE

ZAMBIAMOZAMBIQUE

MADAGASCAR

SOUTH AFRICA

BOTSWANA

NAMIBIA

LESOTHOSWAZILAND

MALAWI

RedSea

Source: World Bank Development Indicators - 2005

GNI/Capita, PPP

->$20,000

- $10 – 20,000

- $5-10,000

- $2 – 5,000

- < $2,000

Paul Collier proposes a model of four traps to explain why some countries are unable to grow out of poverty

21

The Conflict Trap The Natural Resource Trap

Landlocked with bad Neighbours

Current Conflicts:• Somalia• Cote d’Ivoire• Chad• Sudan

Recent Conflicts:• DRC• Congo Republic• Liberia• Sierra Leone

• Nigeria – Oil

• Zambia – Copper

• Botswana – Diamonds

• Sierra Leone – Diamonds

• DRC – Diamonds, etc

• Chad – Oil

• Angola – Oil, Diamonds

• Malawi

• Central African Republic

• Burkina Faso

• Rwanda/ Burundi

• Uganda

• Chad

• Zimbabwe

• Somalia

• Chad/Sudan

• Nigeria

• Angola

• DRC

• Ivory Coast

Source: The Bottom Billion, Paul Collier, Oxford University Press, 2007

Bad Governance

Globalisation reinforces poverty for many poor countries

• Wealth of global investments opportunities highlights high risk of poorest countries for both foreign and local investors

• Even more difficult to compete against other Asian competitors such as India and China

• Increased emigration opportunities intensifies ‘brain drain’ of limited pool talent

22

Malawi’s economy reflects challenges typical of many African countries

Geography• Tropical wet and dry

• Arable Land



• Landlocked




• Ethnic Groups/ Religion

• Population age 0-14: 45%

Governance

Infrastructure

• Paved Roads 18.5%

• Mobile Tel: 3.3%

• Internet: 0.3%

• Reliable power

• Water/Sanitation

• Life expect: 37


• Immun: 77%

• AIDS: 14.2%

• TB: 0.44%

Health Education



• Primary: 71%

• Secondary: 29%

• Tertiary: 0.4%

•Governance Rating: 31%

•Competitiveness Index:117/125

•Ease of Doing Business: 110/175


GNI: $2.1 billion (2005)Population: 13 million(2005)

Economic Output


GNI/capita, PPP:

$650 (2005)

Services: 49%Industry: 15%

Agriculture 38%

Growth (Avg. 1990-03) 3.0%


Exports (% GDP) 27%

Imports (% GDP) 41%

Unemployment no data

Inflation (Avg, 1990-03) 31.1%22

<1$> $2

Between $1 and $2

Economy Poverty


23

Governance

Infrastructure

• Paved Roads 18.5%

• Mob Tel: 3.3%

• Internet: 0.3%

• Reliable power


• Life expect: 37


• Immun: 77%

• AIDS: 14.2%

• TB: 0.44%

Health Education



• Primary: 71%

• Secondary: 29%

• Tertiary: 0.4%

•Governance Rating: 31%

•Competitiveness Index:117/125

•Ease of Doing Business: 110/175


Malawi Poverty Reduction Strategy (2004/05)

Nurse Training

Salary Top-ups

Nutrition Programs

HIV Youth training

ICT Skill Training

Rural Electricity

Roads Projects

Water Distribution

Train 3000 Teachers

154 Teacher Houses

22 New Schools

Educational Material

Campus for Mzuzu Univ

Female Scholarships

Courtrooms & Judges

Anti-Corrupt Bureau

New Financial Systems

Economic/ Industrial Policy Reform

Services: 49%

Industry: 15%

Agriculture 38%

Tourism Standards

Agricultural Productivity

Tourism Committee

Small-scale Irrigation

Off-shore Fishing

Fish Farming

Mobile Telephony

Promote Small-scale Mining

Increase Telecom Capacity

Farmer cooperatives

WTO Doha

RoundPrivate

Foreign Direct

Investment

World Bank Projects

EU ProjectsIMF/WB Debt Cancellation

Other/NGO Projects

UK DFID ProjectsUK DFID Projects

UK DFID Projects

Political instability and poor governance have been problems in many African countries - but many conflicts are ending and governance is improving

24

LIBYA – 22%

EGYPT 36%

TUNISIA – 51%

NIGER – 29%CHAD - 11%

SUDAN – 5%

ALGERIA 29%

MOROCCO 42%

MALI 46%

WESTERNSAHARA

MAURITANIA 44%

SENEGAL

IVORY COAST

7%

LIBERIA GHANA 51%

TOGO

BENIN

SIERRALEONE

BURKINAGUINEA NIGERIA

14%

GUINEABISSAU

THEGAMBIA

CAMEROON


CONGO

GABON

EQUATORIALGUINEA

Democratic Rep of Congo

– 3%

ANGOLA 14%

TANZANIA 36%

ETHIOPIA – 18%

KENYA 26%

UGANDA 30%

RWANDABURUNDI

SOMALIA 0%

DJIBOUTI

ZIMBABWE 5%

ZAMBIA 31% MOZAMBIQUE

38%MADAGASCAR

50%

SOUTH AFRICA 64%

BOTSWANA 74%

NAMIBIA 58%

LESOTHOSWAZILAND

MALAWI 34%

RedSea

Source: World Bank Governance Indicators - 2005

World Bank Governance Rating

2005

- 75%

- 50- 75%

- 25 – 50%

- 10 – 25%

- 0 – 10%

Improved Governance Rating (1996 – 2005): • Botswana (Corruption)• Ghana (Democracy)• Mozambique (Stability)• Tanzania (Effectiveness)• DRC (Democracy, Regulations)• Nigeria (Democracy)• Madagascar (Corruption)• Liberia (Democracy)• Senegal (Stability, Democracy)

Political Stability

- Year conflicts ended

- Conflicts still unresolved

2007

2002

2002

1999 2003

1993

2003

2002

1992

1994

Other Developing Country Governance Ratings:• China – 38%• India – 43%• Turkey – 47%• Romania – 52%

Africa’s economic growth since the mid-1990’s is more promising for poverty reduction, but diversification away from commodities is still a challenge

25

LIBYA – 5.3%EGYPT 3.7%

TUNISIA – 4.5%

NIGER 3.7% CHAD

14.5% SUDAN 6.1%

ALGERIA 5.1%

MOROCCO 4.3%

MALI 5.9%

WESTERNSAHARA

MAURITANIA 4%

SENEGAL

IVORY COAST

-0.1%

LIBERIA GHANA 5.1%

TOGO

BENIN

SIERRALEONE 13.7%

BURKINA FASO 5.6%

GUINEA NIGERIA 5.9%

GUINEABISSAU

THEGAMBIA

CAMEROON 3.7%


CONGO

GABONEQUATORIALGUINEA 23.2%

DEM REP CONGO 4.4%

ANGOLA 9.9%

TANZANIA 6.5%

ETHIOPIA 4.7%

KENYA 3.4%

UGANDA 5.6%

RWANDA 5.1%

BURUNDI 5.6%

SOMALIA

DJIBOUTI

ZIMBABWE (5.7%)

ZAMBIA 4.7% MOZAMBIQUE

8.4% MADAGASCAR 2.0%

SOUTH AFRICA

3.9

BOTSWANA 5.9%

NAMIBIA 4.7%

LESOTHO 2.9%

SWAZILAND 2.5%

MALAWI 3.4%

RedSea

Source: World Bank, African Development Indicators, 2007

Annual GDP Growth (2000-2005)

> 5% - 18 countries

3- 5% -16 countries

1-3% - 6 countries

< 1% - 6 countries

Countries with Average Growth Greater than 5%, 2000-2005

- Sustained, diversified growth

- Dependant on oil as major export

GNI: $223 billion (2005)Population: 47 million(2005)

Economic Output


GNI /capita, PPP:$12,120 (2005)

Services: 65%

Industry: 31%

Agriculture 4%

Growth (Avg. 1990-03) 2.3 (4.9)%


Exports (% GDP) 28%

Imports (% GDP) 26%



Geography• Dry, Temperate, Continental

• Arable Land







• Population age 0-14: 32%

Governance

Infrastructure

• Paved Roads 21%

• Mob Tel: 72%

• Internet: 6.8%

• Reliable power


• Life expect: 46


• Immun: 83%

• AIDS: 15.6%

• TB: 0.5%

Health Education



• Primary: 99%

• Secondary: 65%

• Tertiary: 15%





Economy Poverty

<1$

> $2Between $1and $2

South Africa’s diversified economy still has its issues but provides hope for African growth


4. Mobile telephony is a key enabler for ending extreme poverty

27

Mobile telephony has a broad range of benefits appropriate to fighting poverty in developing countries

• Telecom infrastructure

• Emergency and distance health benefits

• Access to internet

Infrastructure, Health, Education

% Industry

% Agriculture% Services

Mobile Telephony

• Increased Mobile penetration increases GNI Growth

Faster Overall Growth

Productivity Benefits Across All Sectors:

• Access to agriculture market prices and other information

• Jobs in rapidly growing telecom sector

• Low-cost enabler for micro-businesses

• Banking for previously ‘unbanked’

• Increased international remittances

• Innovative use of text services

New Targeted Services

28

Vodacom in the Democratic Republic of Congo (DRC) is an example of how private investment in mobile telephony can create jobs in Africa

• Using cellular networks to ‘leapfrog’ fixed line technology – In 1997 less that 15,000 landlines for 65m people– Vodacom grew to 3 million mobile subscribers since 1997

• Alieu Conteh, founder and chairman of Vodacom Congo showed entrepreneurial possibilities

• Now one of the country’s biggest employers– 600 employees/ 5,000 contractors

• Planning to create the country’s first stock market and float Vodacom Congo in a public offering

29Source: The New York Times, 17th June, 2007, What Does Africa Need Most: Technology or Aid?

5. There is an ongoing debate about what needs to be done to fight poverty

30

The Optimists: Poverty can be eliminated in Africa – more aid is needed for a ‘big push’

• Jeffery Sachs: UN Millennium Development Goals can be met, but would cost $150-200 billion a year in aid by 2015

• 2005 G8 Glen Eagles Summit leaders pledged to double aid to Africa from $25 to $50 billion per year by 2010

• Bob Geldof’s Africa Commission and Live8 supported more G8 aid funding

• Bono: Led debt relief campaign and foreign aid increases in US• Bill Gates using resources to address treatable diseases• Tony Blair, Gordon Brown, Bill Clinton global poverty initiatives

31

32

Infrastructure Health

Jeffery Sachs advocates a number of simultaneous interventions at the village level for sustainable development

Education

Millennium Villages

Agriculture

• Road improvements and community vehicle access

• Internet and mobile telephony access

• Electricity for small businesses

• Nutrition and clean water

• Health services and facilities

• HIV/AIDS, TB and Malaria Treatment

• Primary and secondary education

• Eliminate gender disparity

• ICT training

• Agricultural productivity and training

• Irrigation, fertiliser

• Support new village businesses

79 Millennium Villages operating or planned in twelve different countries in Africa:

Ethiopia, Ghana, Kenya, Madagascar, Malawi, Mali, Mozambique, Nigeria, Rwanda, Senegal, Tanzania and Uganda.

The Pessimists: Aid has not been effective

33

Temporary Famine Relief?

Where has $2.3 trillion in foreign aid over past 50 years gone?

Corrupt and wasteful

Bureaucrats?

Swiss bank accounts?

Paul Collier proposes a more balanced agenda for action to tackle poverty in the poorest countries

34

The Conflict Trap The Natural Resource Trap

Landlocked with bad Neighbours

Source: The Bottom Billion, Paul Collier, Oxford University Press, 2007

Bad Governance

Globalisation reinforces poverty on many poor countries

Military support for post-conflict countries

Charter for post-conflict governance

Aid for reconstruction

International laws and norms for resource

wealth

Substantial aid to develop infrastructure

and for basic social services

Military support to prevent coups

Trade policies encouraging exports

Intelligent use of aid to encourage reform

Selected use of military intervention (e.g. Sierra

Leone)

‘Big Push’ temporary aid for export infrastructure

Temporary trade protection from Asian

competitors

7 things you can do to help fight global poverty

1. Educate yourself about the causes and solutions of poverty

2. Vote and let your politicians know you care about global poverty

3. Contribute to organisations fighting poverty

4. Buy fair trade goods

5. Invest in companies that trade ethically

6. Volunteer for NGOs fighting poverty – build a school!

7. Tell others about poverty – give a presentation to your child’s school

35