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The nexus between poverty, inequality and growth in Africa (theory and evidence)
This paper attempts to estimate the level of additional investment that will be required to meet some of the developmental goals of the Sustainable Development Goals(SDGs), and the additional financial resources that will be required assuming that savings, foreign direct investment (FDI) and official development assistance (ODA) stay at their current level. It particularly focuses on the first SDG on ending extreme poverty by 2030. However, we also experiment with alternative scenarios on reducing poverty and inequality. The results show that ending poverty will almost be an insurmountable task, unless effort is made to strengthen the responsiveness of poverty with respect to income. Africa will require a growth rate of 16.6 per cent per year between 2015 and 2030 to end extreme poverty by 2030. This corresponds into investment to GDP and financing gap to GDP ratios of 87.5 and 65.6 per cent per annum, respectively. However, the results vary widely across sub-regions, levels of development and individual countries. Countries and sub-regions with low initial poverty levels and higher responsiveness of poverty to income will be able to end poverty with relatively a low growth rate, and their corresponding financing gap is quite narrow. Further experiments suggest that targeting halving poverty and inequality simultaneously will require quite attainable growth and financing targets. The innovative aspect of this study is the computation of the continent’s financing needs to address both poverty and inequality simultaneously unlike similar previous attempts that focus solely on halving the former. In addition, the paper outlines the potential policy implications of these findings for mobilizing resources to finance the post-2015 agenda.