Economic Prosperity Will Not End Poverty In Africa

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For the last twenty years, sub-Saharan Africa has been growing fast, at an average of 5.2 percent per year. Meanwhile, the number of people on the continent reportedly living in poverty (under $1.25 a day) has continued to creep upwards from 358 million in 1996 to 415 million in 2011—the most recent year for which official estimates exist.

The rate at which poverty is falling is less than the rate at which the population is rising.

In January this year, The World Bank’s growth forecast for the region in 2016 is 4.2 percent. When you lop off 2.6 percent for population growth, you’re left with per capita income growth of only 1.6 percent. Whereas the world average where projected economic growth of 2.9 percent combined with population growth of 1.1 percent results in per capital income growth of 1.8 percent in 2015. So in per capita terms, Africa’s growth is expected to be below the global average, because even though African economies are generating more income, that income has to be shared among an ever-increasing number of people.

Things have even become worse, earlier this month, the World Bank revised the growth forecast for sub-Saharan Africa down to 2.5 percent, consequently, the per capita income of growth sank to less than 1 percent. Within six months Africans have gone from bad to worse.

In 2011, the average person living in extreme poverty in Africa lived on 74 cents a day, whereas for the rest of the developing world, it was 98 cents. This means that Africans are further behind the poverty line. Consequently, Africa would need income growth much higher than what is required in other regions to push a given number of poor people above the $1.25 per day threshold. Thus, a lot of the efforts aimed at bringing people out of poverty go almost statistically unnoticed because they would still be poor.

While inequality isn’t rising in most African countries, the current level of inequality across Africa is already unusually high.

Inequality in Africa is outstanding. In Nigeria (Africa’s largest economy), figures recently released by the Nigeria Deposit Insurance Corporation (NDIC) revealed that just 2 percent of the population own 90 percent of the total bank deposits, and that the percentage of Nigerians who have more than 500,000 Naira (about $2,500) in their bank account is 2 percent.

In 2015, French economist, Thomas Piketty, during a lecture in Soweto, South Africa,revealed key statistics that 60 – 65 percent of South Africa’s wealth is concentrated in the hands of just 10 percent of the population (compared to 50 – 55 percent in Brazil, and 40 – 45 percent in the US).

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In such cases where initial inequality is high, it is to be expected that economic growth delivers less poverty reduction, since the absolute increases in income associated with rising average incomes will be that much smaller for the have-nots versus the haves. Moreover, the degree of inequality that exists on the continent is worse than it looks. The fact that Africa is divided into so many countries masks big differences in income between them. If Africa were a single country, its inequality would look much worse, even more than Latin America as a whole. Since incomes across African people vary so widely, only a fraction of people are likely to cross the poverty line at any one time. Unlike in India where a concentration of people immediately below the $1.25 mark means that even a small increase in incomes can result in a sudden flood of people moving above the poverty line.

Economies are growing far away from where large numbers of people are living in poverty.

While the region’s growth in recent times has benefited some of its poorest countries, including Ethiopia, Mozambique and Rwanda, some others such as the Democratic Republic of the Congo and Madagascar have recorded little or no growth over the past 20 years. In addition to this the population of these less fortunate countries grew in the stipulated time. Little economic growth plus a noticeable increase in the size of the population means more people were born into poverty, hence, the number of people living in poverty rose accordingly. So long as a handful of the region’s fragile states struggle to build and sustain economic momentum, the number of poor people in Africa need not fall.

For Africa to even stand a chance of pulling more people out of poverty, whatever growth that we have now must be sustained across the continent, especially in the most vibrant economies.

“Sustaining Africa’s strong growth over the longer term while significantly reducing poverty and strengthening people’s resilience to adversity may prove difficult because of the many internal and external uncertainties African countries face,” says Makhtar Diop, the World Bank Group’s Vice President for Africa.

Mr Diop’s assertion may sound pessimistic, but it is the reality. Natural disasters such as droughts and floods are occurring more frequently and lasting even longer, which is a tremendous threat to the agricultural sector and food security. While the threat of conflict continues, recent events in Burundi and the Central African Republic are a huge threat to development, which reinforces the need for peace, security and development to take place at the same time.

Extractive institutions and dependence on foreign aid.

According to Daron Acemoglu and James Robinson in their book ‘Why Nations Fail’, when poverty is been created  by ‘extractive’ institutions, i.e. economic institutions that systematically block the incentives and opportunities of poor people to make things better for themselves, their neighbours and their country, foreign money does very little to change the situation.

When the South African government, in 1913, declared that 93 percent of South Africa was the ‘white economy,’ while 7 percent was for blacks (who constituted about 70 percent of the population), this spelled out poverty for black people. The only jobs black people could take in the white economy were as unskilled workers on farms, in mines or as servants for white people. Such economic institutions sap the incentives and opportunities of the vast mass of the population and, thereby, keep a society poor.

Liberia typifies the failure of foreign aid in reducing poverty. Since 2003, the international community has poured billions of dollars of aid into the country. In 2011 alone, OECD data indicates that Liberia received $765 million in official development assistance, 73 percent of its gross national income. Hundreds of international NGOs have set up offices and deployed staff to manage projects. Yet, Over 50 percent of the population live in extreme poverty and life expectancy is just 57 years, the population is one of the least skilled anywhere and illiteracy is over 60 percent. The UN ranks Liberia 182nd out of 187 countries on itsHuman Development Index, and Liberia was recently featured toward the bottom of Transparency International’s Global Corruption Barometer.

In 2013 every one of the 25,000 students who took the exam to enter the University of Liberia failed. All of the aid is still failing to provide a decent education to Liberians.

Bad leadership and government corruption also factor in to neutralise the benefits of aid. African leaders are always accused by donor countries of siphoning development funds, and where they are not under investigation for corruption, they are implementing the wrong policies.

Proponents of aid are quick to argue that the $13 billion ($100 billion in today’s terms) aid of the post-World War II Marshall Plan helped pull back a broken Europe from the brink of an economic abyss, and that aid could work, and would work, if Africa had a good policy environment.

The aid advocates skirt over the point that the Marshall Plan interventions were short, sharp and finite, unlike the open-ended commitments which imbue governments with a sense of entitlement rather than encouraging innovation. Only a handful of countries (Rwanda, Botswana and South Africa before the late 2000’s) are proof that development finance can indeed combat poverty and bolster growth. What Rwanda has done with foreign aid in the last 15 years was only possible because of exemplary leadership that prepared the country to maximise, by focusing on the ease of doing business, combating corruption and running a lean government that emphasises the importance of innovation and entrepreneurship.

So, while intuitions may lead us to question our reputation as the fastest growing region, it is now easy to see why it faces significant headwinds as a result of global trends and region-specific risks.

Tellingly, economic growth in Africa only benefits the rich and the quality of growth is deficient, both combine so well with high inequality, overpopulation, government corruption and effects of bad leadership to create a new system of apartheid across Africa.

The dissension between Africa’s growth performance and its scale of poverty is a striking phenomenon that demands more explanation than what we already know and poverty is unlikely to go away any time soon. The World Bank anticipates much of the same for the next few years: The number of poor people in Africa is expected to remain close to 400 million until 2020, despite a forecast of ongoing robust economic growth.



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