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6 Lessons on Policies for Promoting Inclusive Growth in Africa

The concept of “inclusive, shared, sustainable or balanced growth” [1] underscores the importance of developing policies to address both economic and social inequalities, including inequalities in income, assets, financial and human capital (education and health), and economic opportunities. The consensus in the literature is that rapid, sustainable economic growth must also be equitable, which matters for poverty reduction (Stuart 2011).

This section catalogues certain lessons learned to date in attaining economic growth while pursuing inclusive and pro-poor policies. Obviously, African policymakers face the daunting tasks of ensuring better coordinated efforts with their donor community, as well as tough tradeoffs and sacrifices in directing public policies and investment funds principally toward growing and sustaining their economies, and then secondarily investing in the poor to resolve any current inequities in growth so as to achieve inclusive growth that is also pro-poor.

First, the World Bank (2000) conducted interviews of the poor and assessment of experiences of poverty reduction and conceptualized a simultaneous attack on poverty based on three intimately related fronts—empowerment, security and opportunity. The Bank's report defined empowerment as addressing directly a range of interconnected inequalities (economic, social and institutional) which disadvantage the poor and which prevent them from having influence over policies and interventions which influence their lives. Security means addressing the issues of risk and vulnerability, at the micro and macro levels such that reversals and risks of reversals do not trap households and nations into poverty. Opportunity means sustainable economic expansion and human development in which the poor participate fully, to provide the material basis for poverty reduction. The World Bank recommended that such a multidimensional attack on poverty must be envisioned at the local, national and international levels.

Second, a comprehensive policy statement issued by the OECD (2006) provided additional suggestions on pro-poor growth [2]. Three key messages stemming from the statement were:

(1) Rapid and sustained poverty reduction requires pro-poor growth; that is a pace and pattern of growth that enhances the ability of poor women and men to participate in, contribute to and benefit from growth. Public policies must, therefore, look to the extent to which the poor participate in growth both as agents and beneficiaries, since they are interlinked and both are critical for long-term growth and sustained poverty reduction.

(2) Policies to tackle the multiple dimensions of poverty, including the crosscutting dimensions of gender and environment, are mutually reinforcing and should go hand-in-hand. Policy tradeoffs do exist, however, and those must be better coordinated.

(3) Empowering the poor is essential for bringing about policies and investments needed to promote pro-poor growth and to address the multiple dimensions of poverty beyond economic poverty and inclusive of political, socio-cultural, human, and protective (security) dimensions. The state must first be open, transparent and accountable to the interests of the poor, and second, set policies that place resources in the hands of the poor to expand their economic activities.

The OECD statement also indicated that in part because the poor are not homogeneous, any policy implementation to reduce poverty must take into consideration the importance of understanding the characteristics of the poor; for example, identifying who they are and how they earn a living. Since this paper takes an economic view, the focus is guided by understanding how public policy impacts the incomes and assets of the poor.

To this end, policies for sustaining growth such as those aimed at macroeconomic stability, institutional quality, democratic and effective governance and favorable investment climate must engage the poor as catalysts for economic growth by increasing incentives, opportunities and capabilities for employment and entrepreneurship. Policies must also create the conditions and remove obstacles to the participation of the poor in the growth process, for example, by assuring access to land, labor and capital markets and to invest in basic social services, social protection and infrastructure. Additionally, the poor must remain informed and empowered to participate in the policy-making process which is accountable to their interests. The OECD document also provided specific guidelines to donors on how to make their support to pro-poor growth more effective.

Third, critical search of the development literature suggests that one of the

development successes have emanated from East Asia. The development strategies that countries such as Hong Kong, Indonesia, South Korea, Malaysia, Singapore, Taiwan, and Thailand pursued have been characterized as shared growth strategies [3]. The shared growth strategy is composed of two parts. First leaders in those countries enhanced growth by encouraging high savings, long-term investments, and upgrading organization, with technological growth and managerial know-how. Second, the leaders visibly put in place wealth sharing mechanisms such as universal primary education, land reform and free basic health care to induce greater productivity. These strategies sent the right signals in building trust that all parties (elites and non-elites) were interested in playing their parts in supporting and benefitting from the economic growth process.

Fourth, the development literature also abounds with studies on inclusive growth in developing countries and specifically in Africa. For example, Fosu (2011) focuses on whether enhanced economic growth in developing countries has led to poverty reduction and to assess the distributional impact of growth. Gaddah and Munro (2011) have conducted benefit incidence analysis of health expenditure in Ghana. There is general agreement that growth reduces poverty and that relationship appears to be reciprocal; in that poverty reduction is also good for growth (Clements et al. 2011). Therefore, providing the poor relief from poverty is expected to unleash their productive potential to contribute to the general growth of a nation. Yet, Collier (2007) bemoans that it is not clear whether the poor in Africa have shared in the benefits of globalization that have accrued in many of the developing and developed world.

Garcia-Verdu et al. (2011) have also demonstrated the value of conducting

robust assessment of the inclusiveness of SSA growth by examining case studies of household survey data for six countries (Cameroon, Ghana, Mozambique, Tanzania, Uganda and Zambia). The authors found that the poorest quintile experienced substantial annual household per capita consumption growth in three of the high-growth countries (Ghana, Tanzania and Uganda). On the other hand, the poorest quintile of the consumption distribution in the low-growth countries experienced low (in Cameroon) or negative (in Zambia) changes in consumption. Results in Mozambique were not clear.

Following the Garcia-Verdu et al. (2011) study, Adedeji et al. (2013) have also conducted analyses of inclusiveness of growth in Africa by studying how equitable are access to economic and social opportunities, specifically in education and health access. The authors employed the social opportunity function to assess inclusiveness of growth in Cameroon, Ghana, Tanzania, Uganda and Zambia (countries that have experienced growth episodes in the past decade). The results show that consistent with the results of Garcia-Verdu et al. (2011), periods of growth also coincided with periods of increased access or opportunities to education and health, and that average access to and distribution of education and health care had increased across all the six countries over the period of study. The results indicated that the countries experienced inclusive growth in access to education (both primary and secondary) and health care.

The empirical results are important since they point out the importance of understanding the distributional consequences of effective wealth sharing mechanisms specific to the country context. For example, public policies geared toward the effective design and implementation of investments in education and health services of the poor in African countries or even infrastructure for market access would sustain reforms and growth momentum. Adedeji et al. (2013) further suggest that the results could be extended to include how policy may be initiated to direct limited resources of governments to the poor to ensure access to and equity of job opportunities, finance and land ownership so as to reduce poverty. Therefore, the poor must be trained and given incentives to participate in the marketplace as productive members of society.

Indeed, a review of the development literature shows that typically the poor have limited access to financial services, infrastructure (including roads, water, electrical power, and telecommunication), education, and health services. Typically, whenever people have money to spend, it serves as an incentive mechanism to induce all manner of service providers (such as banks, telecommunication firms, water providers, transport operators, etc.) to offer their services. These services are necessary for the average person to develop their creative potential by investing in their education, protecting their health (with good nutrition and medicine), moving goods to market, and communicating with potential clients (employers and customers, etc.). Therefore, the literature generally supports the claim that healthy people find greater incentive to be productive and are more likely to thrive in their jobs (regardless of the enterprise), and so are healthy and nourished students able to realize better performance in school. Since these factors are interconnected in ensuring growth, businesses typically locate in areas that are richer in such factors.

Acemoglu (2009) indicates that people need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions—the rule of law and security and a governing system that offers opportunities to achieve and innovate [4].

In Africa the advantage in receiving incentives naturally goes to the burgeoning urban centers that have been teeming with people clamoring for jobs in both the modern formal and informal sectors due to the forces of agglomeration. The rural sectors with the greatest concentration of the poor tend to be also poorer in the identified factors and typically languish because firms find them unattractive as centers of economic activity. Therefore, policymakers would have to come up with better coordinated policies to make growth inducing advances in both the urban and rural fronts. Absent such coordination, just investing public funds to facilitate economic growth activities in areas with poor access to education, health care, infrastructure and markets would appear to have the perverse effect of lowering overall aggregate economic growth.

The pursuit of inclusive growth strategies that are also pro-poor by African countries are gaining renewed focus. The African Union's Agenda 2063 reflects the commitment toward advancing positive and sustained growth trajectories for many African countries. The African Union recognizes that Africa today is faced with a confluence of factors that present a great opportunity for consolidation and rapid progress. These factors include unprecedented GDP growth rates resulting from sound macroeconomic policies and strategies. Additionally, there has been significant reduction in violent conflicts, increased peace and stability, advances in democratic governance, and rising prospects of the African middle class coupled with the youth bulge that can act as catalysts for increasing growth. Moreover, there is global change in the international finance architecture stemming from the rise of Brazil, Russia, India, China and South Africa (BRICS) as potential and rising sources of FDI inflows to Africa.

However, investing in the poor will call for greater innovative strategies. As Page (2006) notes, governments need to know which segments of the population may benefit from particular programmatic commitments and which may be excluded, and then align budget allocations with wealth sharing priorities that receive well-harmonized support from donors. The author suggests three policy areas for further research as potential building blocks in constructing shared growth strategies in many countries in the SSA region. These are (i) strategies for managing natural resource revenues; (ii) creating an export push in Africa; and (iii) strengthening sub-regional integration.

Since natural resource revenues accrue primarily to the state, public decision

choices influence their allocation. Therefore, governments in the countries experiencing natural resource boom, for example, may choose to invest in growth promoting assets such as infrastructure and those geared toward improving the capacity of the poor to participate in markets such as education and health care. Additionally, African countries will have to do a better job negotiating at multilateral and regional trade forums to ensure better market access and the removal of tariffs on African traded manufactured and value-added goods and services in international markets.

Many of Africa's poor live in rural areas and they derive their incomes from agriculture. It is well understood that a good strategy in successfully reducing poverty would be to increase incomes of rural households (World Bank 2005). Therefore, poverty levels must be responsive to agricultural sector growth (Aryeetey and McKay 2004; Okidi et al. 2005). Aryeetey and McKay (2004), for example, found that in Ghana from 1991 to 1992 and 1998 to 1999, increase in agricultural incomes accounted for about 44 % reduction in poverty. Okidi et al. (2005) also found that in Uganda between 1992 and 2003 agricultural sector growth resulted in more than 50 % of the reduction in headcount poverty. However, it was reported that governments in the two countries achieved those impacts by allocating just 2.5 % and 1.5 % of the budget, respectively, to agriculture.

The agricultural sector in African countries must play a critical role in the overall economic growth and inclusive growth strategies of the region. Yet, decades following the Asian agricultural Green Revolution, African farmers generally lack access to improved technology and extension. Therefore, agricultural productivity in Africa continues to lag behind all other developing countries in both output per unit of land and output per unit of labor (Byerlee and Jackson 2005). Total factor productivity in agriculture for the region only rose from -2 % in the 1960s to about 1.7 % by mid-2000, irrigated area is only about 3.7 % of land mass and fertilizer consumption is just 12 kg/ha of arable land.

Juma (2011) has proposed a vision for transforming and modernizing African agriculture as a major catalyst in achieving rapid economic growth. The author also proposes using agriculture to create mass employment to rural youth. Three themes have been suggested: (i) advances in science, technology, and engineering worldwide offer Africa new tools needed to promote sustainable agriculture; (ii) efforts to create regional markets will provide new incentives for agricultural production and trade; and (iii) a new generation of African entrepreneurial leaders must help the continent to focus on long-term economic transformation through knowledge-based entrepreneurial activities. Innovative agribusiness ventures must be encouraged by recognizing the importance of offering incentives to induce agricultural research, investing in infrastructure, building human capacity, stimulating entrepreneurship and improving the governance of agricultural innovation.

One key strategy is to divert some of the revenues earned from oil, gas and minerals exports into agricultural sector investment to boost domestic food production as well as expanding agricultural valued-added processing aimed toward markets both within and outside the region. The UNECA (2013) report indicates that structural economic changes, driven by information and communication technology, have led to substantial increases in domestic and cross-border financial capital flows and trade in intermediate and processed goods. These reflect the rising importance of value chains. Targeting in-country and intra-regional trade in a two-pronged value-chain (upand down-stream) approach would have the potential to raise both overall industrial and agricultural growth rates and increase on and off farm incomes of the rural sector. This approach must be viewed strategically from the recent regional integration frameworks, in that any effective regional integration frameworks that reap benefits of growth would also be broadly shared within and across national boundaries.

Improving the productivity of small holder agriculture can be done through enhanced targeted fertilizer and other input subsidies (or even encouraging competitive input markets) and massive investments in rural infrastructure such as roads, irrigation, reliable electricity supply, market infrastructure and water systems. Commercial agribusiness ventures must be encouraged by governments through public-private partnerships that take advantage of new regional agribusiness initiatives, such as the Agriculture Fast Track Fund (AFTF).

The AFTF is a new multi-donor trust fund managed by the African DevelopmentFund (AfDB), and it is designed to boost investment in Africa's agricultural sector. It is funded by the U.S. Agency for International Development (USAID), the Swedish Development Agency (SIDA) and the Danish International Development Agency (Danida). The AFTF provides grant funds up to $1.5 million (and a minimum of $1 million) for project development cost such as feasibility studies, market research, financial modeling, business development, and environmental and social impact studies. Six pilot countries in which project funds may be awarded are Burkina Faso, Ghana, Ivory Coast, Ethiopia, Ghana, Mozambique and Tanzania. The Fund's main objective is to reduce the infrastructure deficiency in the African agriculture sector by developing a pipeline of projects that are attractive to development finance institutions and that can engage private investors as project sponsors by offering potential entrepreneurs the opportunity to transform their good ideas into bankable investments.

  • [1] The terms have been used interchangeably in the literature. However, they share the same meaning
  • [2] One necessary caveat in this discussion is to recognize that the poor may not be a homogeneous group and that country contexts may differ
  • [3] For a greater exposition on the subject, see Campos and Root (1996).
  • [4] For more exposition on the subject, read Acemoglu, Daren and James A. Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Random House.
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