Poverty is on the retreat in Africa
Mar 26th 2012
Overcoming extreme poverty remains at the top of the development agenda in Africa and this commitment is paying off but at a slower pace. Recent evidence indicates that poverty in Africa and in all the regions of the world declined over the period 2005-2010. In Africa, the proportion of people living below the poverty line decreased to 40% in 2008 from 47% in 1990, making it the first ever reversal of the long term poverty trend. However, there are disparities in the rate of decline between Africa and other regions. For example, between 1990 and 2008, the average rate of decline in the poverty headcount for Africa was nearly twice and three times lower at 9% relative to Asia’s 15% and Latin America’s 24%.
A number of factors have contributed to the observed decline in the level of poverty in Africa; chief among them is sustained increase in economic growth.
The African continent sustained high level of economic growth averaging slightly more than 5% of annual GDP growth over the period 2001-2010. Moreover, throughout this period, Africa’s average population growth rate of about 2.5% was significantly below the average economic growth rate. Hence, the sustained economic growth recorded by most African countries over the past decade has played a role in poverty reduction.
Other contributing factors have been the implementation of key structural reforms, prioritizing and promoting education and health, developing the private sector and the country’s infrastructure, and harmonizing international aid. These factors have improved access to basic social services.
The critical role that the international community, including development financial institutions, is playing in the fight against poverty on the continent cannot be overstated. For instance, the African Development Bank has highlighted poverty reduction as its main objective and has been extensively involved in supporting poverty alleviating policies and measures on the continent. But the battle on poverty reduction is not yet over.
Why poverty reduction in Africa is too slow?
Despite the remarkable progress in fighting extreme poverty, Africa still lags other regions of the world and the decline in both absolute and relative poverty on the continent is considered too slow. According to a recent report by the AfDB, Sub-Saharan Africa is not on track to achieve its regional target of reducing the percentage of people living in extreme poverty to 29% by 2015. Many of the gains realized at the beginning of the previous decade have been offset or reversed, mainly on account of the global financial crisis and hikes in world food and fuel prices. Moreover, the wide disparities in poverty between African countries are equally of great concern. For instance, although Morocco, Gambia, Senegal, Cameroon, Ethiopia and Ghana have made significant progress towards poverty reduction, other countries such as Cote d’Ivoire and Nigeria have experienced increases in the level of extreme poverty.
Among many, three main contributing factors to why poverty reduction slowed in Africa. First, increases in GDP growth, whilst robust in historical terms, was not enough to make a stand out as significant dent on poverty. According to the United Nations Economic Commission for Africa (UNECA), Africa would need to grow by an annual average of at least 7% in order to meet the millennium development goal of reducing poverty by half by 2015. In contrast, Africa experienced average annual growth rates of 5.3% throughout the period 2001-2009, and only a handful of countries recorded GDP growth rates of more than 7%.
Second, the link between poverty reduction and economic growth was weaker in Africa than in other regions. The elasticity between growth and poverty was equal to -1.7 for the African continent compared with -2.0 and -3.1 for South Asia and Latin America and Caribbean, respectively. However, studies caution the use of constant elasticities to estimate growth required to achieve, for instance MDG milestones.
Third, persistent inequalities may impede the responsiveness of poverty to economic growth. Evidence based on elasticity calculations showed that compared to other regions of the world, inequalities in Africa significantly dwarfed the beneficial impact of the continent’s economic growth. Reducing income disparities will enhance the responsiveness of poverty to economic growth.
The need for inclusive growth
Despite the remarkable achievements in Africa, the weak link between economic growth and poverty reduction has shown lack of inclusiveness of Africa’s growth performance. Promoting inclusiveness in all its facets will ensure that the benefits of growth reach more people, especially the poorest, thereby aiding poverty reduction. Thus, focusing on a strategy that advocates for creation of long term productive employment rather than income redistribution per se, and emphasizing equity and equality of opportunities, would especially enhance inclusiveness, thereby accelerating poverty alleviation.
Professor Mthuli Ncube is the Chief Economist and Vice President of the African Development Bank, and holds a PhD in Mathematical Finance from Cambridge University, UK, on “Pricing Options under Stochastic Volatility”.