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5 Has the Recent Growth Episode in Africa Been Pro-poor?

Without question, economic growth in Africa has accelerated in the past decade and has remained relatively robust. Many recent reports paint a picture of a continent in resurgence. For example, recent data from the United Nations (UN 2014) show that despite recent global decline in growth, economic growth in Africa that has been growing in the past decade is expected to continue its secular increase from 4 % in 2013 to 4.7 % in 2014 and 5.0 % in 2015. West Africa is expected to continue enjoying the strongest growth on the continent, with an anticipated increase from 6.7 % in 2013 to 6.9 % in 2014. The UN report is bullish on the region and suggests

that the region will continue to attract investment in oil and minerals, especially in Burkina Faso, Ghana, Guinea, Liberia, Niger, Nigeria and Sierra Leone. The top performers in the SSA region include Mauritius, South Africa, Ghana, Rwanda, Angola, Botswana, Nigeria, Zambia, Mozambique, Namibia, Tanzania, Ethiopia, Cape Verde, Gambia and the Seychelles. The UN (2014) report also anticipates other important factors that would influence the region's medium-term growth prospects such as increasing domestic demand—especially from a growing class of new consumers with rising incomes associated with the urban sector—and improvements in economic governance and management. Additionally, projected improvement in major developed economies is expected to fuel growth in the region through trade, investment and capital flows.

A news report released by the World Bank (2014b) stated that economic growth in SSA continued to rise from 4.7 % in 2013 to a forecasted 5.2 % in 2014. According to the report, recent performance is boosted by rising investment in natural resources and infrastructure, and strong household spending. Capital flows to the region reached 5.3 % of regional GDP 2013 and that was above the developing-country average of 3.0 %. Net foreign direct investment (FDI) inflows grew 16 % in 2013 to a near-record $43 billion, boosted by new oil and gas discoveries in many countries including Angola, Mozambique and Tanzania. Remittances to the region grew 6.2 % to $32 billion in 2013, exceeding the record of $30 billion previously recorded in 2011. Conspiring with lower food prices, these inflows boosted household real incomes and spending.

Sy (2014) indicates that demand for natural resources from emerging markets, especially China, has increased in the last decade and remains important. In describing the “most likely” trajectory of the world's energy system, the BP Energy Outlook 2035 also noted that Africa will remain an important producer of oil and natural gas, accounting for 9 % of global oil and 9 % of natural gas production in 2035. Generally, recent reports indicate that the region's growth prospect is expected to be supported by improvements in the global economic and regional business environment, relatively high commodity prices, easing infrastructural constraints, and increasing trade and investment ties with emerging economies such as China.

Furthermore, the continuation of good medium-term policies and structural reforms are expected to bode well for continuing future growth in the region. Moreover, Sy (2014) suggests that many countries in the region have adopted democratic institutions to some extent, and despite a few spots experiencing instability, violence and armed conflicts have decreased. Invariably, however, it is expected that half of the world's future population growth will come from Africa [1]. This trend could lead to a “demographic dividend” of an adult population of 800 million by 2030 (compared to 460 million in 2010). Africa's rapid urbanization and burgeoning middle class could also generate hundreds of millions of consumers (Sy 2014).

Nevertheless, pressure on the labor market from a steady stream of new entrants, mainly the youth, has meant that the recent solid GDP growth rates have not translated into adequate job creation and the broad-based development necessary to reduce high poverty and rising inequality rates in many countries (UN 2014). The UN report further clarifies why positive growth in many African countries has had limited impact on employment; the informal sector is still large in many countries with limited opportunities for those seeking to enter the labor market. Therefore, youth unemployment rates are typically high and gender disparities in earnings continue.

The central message of the 2013 Economic Report on Africa published by the United Nations Economic Commission for Africa (UNECA 2013) is that as the world has witnessed sweeping political and economic changes over the last half century, global power structures have been reformed, trade and capital flows have been reconfigured, old hegemonies have loosened and allowed new ones to emerge, and led to serious rethinking of development paradigms. According to the UNECA (2013) Report, given its remarkable growth since 2000, there is now a huge opportunity for Africa to emerge as a global economic power; but the continent faces serious challenges. To fulfill development expectation, African countries will require robust and sustained, broad-based and inclusive economic growth. The Report bemoans the reality that recent economic performance has not generated enough economic diversification, job growth or social development to create broad based wealth and lift millions of Africans out of poverty. A key challenge, therefore, is how Africa can pursue more effective policies to accelerate and sustain high growth and make that growth more inclusive and equitable.

5.1 Analysis of Poverty Growth in Africa

Analysis of what triggers and sustains growth acceleration is beyond this paper. Additionally, empirically exploring country-specific variations linking growth, poverty, and inequality pose various methodological challenges. Therefore, in the absence of critical multidimensional data on poverty (for example the incidence of poverty, measures of wage and price differentials, and access to critical infrastructure such as water and electricity), the methodological approach taken is to determine how Africa as a region has fared, compared to other developing nations and regions in the world in reducing the number of poor (using data on poverty headcount), and to determine if recent growth has been inclusive and pro-poor. This regional study suffers from country-specific analysis that may explain concentrations of poverty and inequalities (for example, between urban centers and rural areas and also mineral-rich rural areas).

Figure 5 shows the evolution of extreme poverty rates [2] in the world by region as reported by the World Bank (2014a). Whereas in 1981 more than half the citizens in the developing world lived on less than $1.25 a day, the rate dropped to 21 % in 2010. Despite a 59 % increase in the developing world's population, there were significantly fewer people (about 1.2 billion) living on less than $1.25 in 2010 than three decades ago (about 1.9 billion). The extreme poverty headcount rates appear to have fallen recently in all developing countries, including SSA. After steadily increasing from 51 % in 1981 to 58 % in 1999, the extreme poverty rate fell 10 percentage points in SSA between 1999 and 2010 to 48 %.

However, SSA is the only region in the world for which the number of poor individuals rose steadily and dramatically between 1981 and 2010 (see Fig. 6). Indeed, there were more than twice as many extremely poor people living in SSA in 2010 (414 million) than there were three decades ago (205 million). Therefore, the number of extreme poor relative to the world's total in SSA rose from 11 % in 1981 to 34 % in 2010 (see Fig. 7).

Figure 8 delineates the average daily per capita income of the extremely poor in the developing world, in the SSA region, and in the developing world excluding SSA. It shows that the average income of the extremely poor in the developing world has been rising toward the $1.25 per day poverty line. In fact, the average

Fig. 5 The evolution of extreme poverty rates by region. Source: World Bank (2014a)

Fig. 6 Number of extremely poor individuals by region (million). Source: World Bank (2014a)

Fig. 7 Regional shares of the world's extreme poor population. Source: World Bank (2014a)

income of the extremely poor in the developing world rose from 74 cents per capita per day in 1981 to 87 cents per capita per day in 2010 (in 2005 U.S. dollars). Excluding the extremely poor in SSA leaves the average income of the poor in the rest of the world to converge faster toward the $1.25 line. Unfortunately, the pattern of increase in incomes of the extremely poor in other developing countries was not realized in SSA. The figure shows that the average income of the extremely poor in SSA remained at about half (at $0.71) of the $1.25 line in the region by 2010 and that was below the amount of $0.72 observed in 1981.

What do these numbers imply in terms of potential for extreme poverty reduction? Looking at Fig. 6, poverty reduction would be a huge challenge for SSA and South Asia where there were about 400 million and 500 million extreme poor people, respectively. Typically, the depth of extreme poverty is measured by the extreme poverty gap [3]. The extreme poverty gap is measured in dollars based on purchasing power parity (PPP) calculations, and gives the average amount of additional daily income required by the extremely poor to reach the poverty line of $1.25 per day. Working with the numbers on Fig. 8, the average gap of the extremely poor in the world was 38 cents per day in 2010, or approximately $140 per year in 2005 PPP dollars. Now, since there were about 1.2 billion extremely

Fig. 8 The evolution of the average per capita income of the extreme poor. Source: World Bank (2014a)

poor individuals in the world in 2010, the aggregate global extreme poverty gap amounted to nearly $168 billion in 2005 PPP dollars.

Based on the analysis, for SSA the average gap of the extremely poor was 54 cents per day in 2010, or approximately $197 per year in 2005 PPP dollars. Since there were 414 million extremely poor people in SSA in 2010, the aggregate poverty gap amounted to $81.6 billion in 2005 PPP dollars.

Therefore, if the incomes of each extremely poor person were to rise to $1.25, then the aggregate increase in their income would have to total at least $169 billion in 2005 PPP terms for the developing world and about $82 billion in 2005 PPP terms for SSA. These numbers represent the aggregate extreme poverty gap for the developing world and SSA, respectively. The amount for the developing world represents about 0.25 % of global GDP. Additionally, the aggregate global extreme poverty gap in 2010 was less than half the gap in 1981 (at $362 billion in 2005 PPP terms). This represents a faster reduction than the reduction in the number of poor people. In SSA with 205 million extremely poor in 1981, the total income needed to make up the extreme poverty gap was approximately $40 billion in 2005 PPP terms. That implies that the SSA aggregate extreme poverty gap in 2010 was approximately double the gap in 1981. This presents SSA with a major challenge that puts the region's recent experience of economic growth in a different perspective.

Based on these calculations, it appears that at least in the SSA region as a whole, recent economic growth has not risen in tandem with poverty reduction contrary to the research conclusion by Dollar and Kraay (2002). However, we must remember that the authors based their studies mainly on individual country data in the 1990s (the period for which the most comprehensive data existed). It appears that incomes of the poor in the last decade have not risen proportionately with average income growth in the region, and the poor are being left behind in the growth process. This implies that recent growth in SSA has not been pro-poor.

The World Bank (2014b) has also reported that between 1990 and 2003 in African countries such as Ghana, Tunisia and Uganda a 1 % increase in GDP per capita reduced poverty by rates of between 3 and 6 % per year. Therefore, it appears that very high and sustained increases in growth rates would be necessary for the African region to have a realistic prospect of significantly reducing income poverty. In fact, a study by the World Bank and IMF (2005) projected that to meet the poverty MDG, SSA's real GDP growth rate would have to double from a base scenario to about 7.5 % annually. Despite the recent decent levels of growth, the region does not appear to have realized the 7.5 % annual projected growth. At the time, the cited study showed that only five countries (Cameroon, Ethiopia, Senegal, South Africa and Swaziland) were well positioned to meet the poverty goal of the MDG by 2015. It is not clear that this target would be met in 2015.

Since the evidence shows that many countries in the region have not realized nor sustained annual growth in income at the projected target rate, it is clear that a sharper public policy focus on growth is still needed. However, consistent with Page's (2006) observation, the benefits of recent growth have not reflected in improving incomes and welfare of the poor. Therefore, this paper takes the position that although growth is viewed as generally good for the poor, recent evidence shows that African economic growth has not favored the poor. Therefore, African policymakers must continue to promote inclusive growth and pro-poor agenda.

  • [1] This is not because of higher fertility, which is declining, but because of longer life expectancy
  • [2] In this figure generated by the World Bank (2014a), extreme poverty is defined as living on less than $1.25 a day.
  • [3] Note that extreme poverty gap is the conceptual amount of direct additional income an average extremely poor person would need to get to $1.25 per day and may not be indicative of the level of assistance required to close the gap
 
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