GROWTH, POVERTY AND INEQUALITY IN AFRICA Janvier D. Nkurunziza UNCTAD, Special Unit on Commodities Praia, 7 May 2013

O UTLINE Key message What is social protection? Social Protection and economic growth Why has poverty reduction been so slow in Africa? Some policy conclusions: looking beyond growth 2

K EY MESSAGE Despite high economic growth, slow poverty reduction: From 1999 to 2010, median poverty reduction of 1.6%/year In East Asia and Pacific (EAP): 6%/year Reasons: sources of growth, population growth, inequality... We need a more inclusive growth process Focus action in sectors where poor are 3

W HAT IS S OCIAL P ROTECTION ? Social protection is (see UNRISD): About preventing, managing & overcoming situations that adversely affect people’s well being… Through interventions that seek to reduce poverty & vulnerability Such as: employment promotion, insurance, social assistance 4

W HAT IS S OCIAL P ROTECTION ? Social protection is associated with: Economic growth It is about human capital formation and preservation It increases economic participation & may help to generate growth It is costly & requires important resources---issue of sustainability Poverty It helps to reduce poverty & could help countries to avoid poverty traps It helps to reduce vulnerability & build economic resilience Inequality It reduces inequality It empowers, fosters independence & encourages risk-taking 5

A FRICA ’ S R ECENT G ROWTH E XPERIENCE Africa recently experienced relatively high rates of growth: From 2000 to 2011 Median rate of economic growth was 4.8% per annum Median per capita income growth was 2.2% per annum (46% growth) Median income per capita was $1805 in 2005 PPP In East Asia and Pacific (EAP) region, over the same period Median rate of economic growth was 3.9% per annum Median per capita income growth was 3% per annum (77% growth) Median income per capita was $6892 in 2005 PPP 6

A FRICA ’ S R ECENT G ROWTH E XPERIENCE Despite recent relatively high rates of growth: Extreme poverty (income below $1.25 per day in 2005 PPP) From 58% of the population in 1999 to 48.5% of the population in 2010 The average annual rate of poverty reduction is about 1.6% In EAP, extreme poverty Declined from 35.6% of the population in 1999 to 12.5% in 2010 The average annual rate of poverty reduction is 9.1% This is almost 6 times the rate in Africa 7

P OVERTY TRENDS 8

W EAK LINK BETWEEN GROWTH AND POVERTY REDUCTION IN A FRICA Income-growth elasticity of poverty measures sensitivity of poverty to income growth In Africa, 1%-point growth in income per capita leads to 1 to 1.5-% point decrease in poverty In EAP, the elasticity is 2.5%-point In Latin America and Caribbean: 3.1%-point In Cape Verde:1%-point 9

W HY HAS POVERTY REDUCTION BEEN SLOW ? High level of poverty As figure showed, Africa has by far highest level of poverty It is more difficult to achieve higher rate of poverty reduction at high levels of poverty (Ravallion) For same rate of poverty reduction: absolute number of poor pulled out of poverty higher for countries with high poverty level 10

W HY HAS POVERTY REDUCTION BEEN SLOW ? High population growth has limited poverty reduction Late demographic transition: 2.3% population growth in Youthful population: dependency ratio in 2009 was 85%, as in 60 In EAP region, the ratio was 43% in 2009 Hence, GDP per capita growth has been lower than EAP Slow growth in GDP per capita slowed poverty reduction 11

W HY HAS POVERTY REDUCTION BEEN SLOW ? Relatively high growth has only been recent In , negative median income/cap growth: -0.6% per year In 1999 per capita income was 11% lower than in 1980 In EAP region growth was 2.6% per year In1999 income was 67% higher than 1980 level 12

W HY HAS POVERTY REDUCTION BEEN SLOW ? Need high growth for long period to produce sizable results on poverty reduction If Africa keeps 1.6% rate poverty reduction for 20 years, extreme poverty will still affect 35% of population by

W HY HAS POVERTY REDUCTION BEEN SLOW ? Economic growth has not been high enough To meet MDG1, Africa needed 7% average growth per year, from 2000 to 2015 Between 2000 and 2011: Only 7 countries grew by 7% or more per year, on average Angola, Eq. Guinea, Ethiopia, Liberia, Mozambique, Rwanda & Tanzania 14

W HY HAS POVERTY REDUCTION BEEN SLOW ? Even high growth is not same as high poverty reduction… How growth gains are shared matters a lot: who benefits? In 61% African countries, inequality elasticities of poverty are higher than income-growth elasticities (Fosu) Hence, for poverty reduction, reducing inequality may matter even more than achieving high economic growth rates 15

P OVERTY REDUCTION NOT JUST ABOUT GROWTH Angola Ethiopia Liberia Mozambique Rwanda Tanzania

W HY HAS POVERTY REDUCTION BEEN SLOW ? Inequality in Africa is second highest in the world Average Gini coefficient in Africa is about 46, the second highest It is 52 in LAC and 36 in EAP region Following examples illustrate some cases of high inequality In Namibia, richest 10% control 55% of wealth in 2004, from 65% in 93 In S. Afr.10% richest control 45% wealth in 2000, 57% in 06 & 52% in 09 In Swaziland: from 50% in 1995 to 41% in 2001 and 40% in

W HY HAS POVERTY REDUCTION BEEN SLOW ? The statistics show that: If unchecked, it could worsen over time (South Africa, ) Inequality can decline even in severe cases (Namibia, ) Strong political commitment is required to tackle inequality 18

W HY HAS POVERTY REDUCTION BEEN SLOW ? Generally, growth not generated by sectors where poor are Commodities sector (oil) which create little local employment High-end services: hotels and restaurants; financial services; transport and communications (MGI, 2010) In agriculture where most poor are: Investment has declined (including in Cape Verde) Productivity (output/unit of labour) has been declining Total factor productivity has, at best, stagnated (Block, 2010) 19

L OOKING BEYOND ECONOMIC GROWTH Growth is good but not enough for poverty reduction Need short-term and long-term policies that ensure high pro-poor growth through, e.g. reduction of inequality Examples of short-term to medium-term policies: Insurance & social assistance Promoting employment particularly in low-end of income curve Examples of long-term policies: Investing in sectors where poor are (rural economy, fisheries…) Promoting entrepreneurship particularly SMEs (tourism in CV) Ensuring access of poor to quality education (free education?) 20

L OOKING BEYOND ECONOMIC GROWTH Investing in food security programs because: Poor spend large share of income on food in many countries in net food importing countries Poor are among food producers in a number of countries Frequent food crises & food prices will likely remain very high How? Boost domestic food production to increase revenue &/or stabilize food prices Put particular emphasis on consuming domestically-grown food Consider sourcing food from neighbouring countries 21

L OOKING BEYOND ECONOMIC GROWTH Pro-poor growth policy requires built-in distributional aspect Example (Geda et al.) in Ethiopia, using 2000 as baseline: GDP/cap growth of 4% per year would reduce poverty rate from 44% to 26% over 10 years in Distributional Neutral Growth (DNG) scenario In Equally Distributed Gains (EDG) of growth scenario, poverty would decline from 44% to 15% over 10 years 22

T HANK YOU FOR YOUR KIND ATTENTION !