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by Mthuli Ncube
With the year 2015 – the MDG finishing line – approaching, post-2015 goals as they impact Africa need to be firmed. The goal of ending extreme poverty remains paramount. In this context, extreme poverty means living on a less than $1.25 a day (PPP, 2005 prices). Given the continent’s potential and the track record, the extreme poverty reduction agenda beyond the MDGs should focus on building prosperous and resilient Africa. This can be achieved with strong, sustained and inclusive growth.
Globally, in 2013, the World Bank adopted two goals to guide its work for the next decade and beyond:
(i) to end extreme, chronic poverty by 2030; and (ii) to promote shared prosperity in every society. The specific targets are: (i) to bring the share of global population living below this threshold to less than 3%; and (ii) in each country, foster the per capita income growth of the poorest 40% of the population. These goals are to be pursued in environmentally, socially and fiscally sustainable ways.
In the African Development Bank, we examined feasibility of these objectives for Sub-Saharan Africa (SSA), the world’s poorest but rapidly rising region. To carry out some plausible scenarios for poverty paths in SSA, we drew on the following information: (i) the projected growth of the mean level of real consumption per capita; (ii) the redistribution of consumption between top 10 and bottom 40% of population by income; and (iii) projected growth of population in the region.
With this information, we examined the following scenarios: baseline (with the current projected growth); higher and lower growth; and growth combined with consumption/income redistribution from top 10%of population to bottom 40%. A large number of simulations for 47 SSA countries and 20 years (2011–2030) were carried out.
Under plausible assumptions on consumption growth and redistribution, eliminating poverty by 2030 is out of the region’s reach. Even under the ‘best case’ scenario of accelerated growth and redistribution from the richest 10% to the poorest 40% of the population, the poverty rate in 2030 would still be around 10%.
From the perspective of Africa and especially Sub-Saharan Africa, the globally appealing targets mask differences among regions, with Sub-Saharan Africa expected to fare notably less favorably than other regions except perhaps South Asia. While by 2030 the extreme poverty could be eliminated at the global level, the rate in Sub-Saharan Africa is likely to be well above 3% even under optimistic scenarios.
Over time, poverty in Sub-Saharan Africa will be increasingly concentrated in several countries. For example, in 2010, the top four contributors to poverty (e.g., Nigeria, Democratic Republic of Congo, Tanzania and Ethiopia) accounted for more than half of the poor living in the region. At the same time, some of the frontier market countries that were among top 10 contributors to Africa’s poverty in 2010 are projected to leave the group of top 10 contributors by 2030 (e.g., Ethiopia, Uganda). Overall, today’s fragile states are projected to have highest poverty rates in 2030.
The main message is that while the region is unlikely to eliminate poverty by 2030, it can make a serious dent in its reduction. Effective social protection could go a long way in reducing inequality and poverty in the region. In the area of domestic resource mobilization, such programs could be funded from taxation of the more prosperous segments of the society. The results also point to the need to put fragile and large countries in the centre of poverty-reduction efforts. For reaching these objectives, the importance of building transparent and well-functioning state institutions cannot be emphasized enough.
A more realistic goal for the region would be reducing poverty by a range from half to two thirds. At this rate, especially if in part achieved by lowering inequality, the Africa region would meaningfully contribute to the global agenda. Policies need to focus on mutually reinforcing objectives of making growth stronger, resilient to shocks, and inclusive.
Policies accelerating growth and reducing inequalities need to be successfully implemented to achieve significant reduction in extreme poverty.
Social protection could go a long way in reducing inequalities and poverty, especially if the programs are funded from domestic revenue mobilization from the more prosperous segments of the society.
The results also point out to the need to put large and fragile countries in the centre of poverty reduction efforts. For reaching these objectives, the importance of building transparent and well-functioning state institutions cannot be emphasized enough.
Africa’s own experiences
Africa can also tap into its own successful experiences. For example, the resilience that the region exhibited during the recent global financial crisis and its aftermath has reiterated the role of macroeconomic stability and buffers in progress with growth and poverty reduction.
Social protection schemes were also successful in selected low-income countries, such as Rwanda’s community-based health insurance.
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Professor Mthuli Ncube is the former 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”.