Shared Frustrations: How to Make Economic Growth in Sub-Saharan Africa More Inclusive

By Antoinette M. Sayeh

(Version in Français)

Suddenly it’s the thing everyone is talking about. Income inequality. Not just between countries, but inequality within countries.

In North Africa and the Middle East, jobless youth sparked the Arab Spring. In the United States, the growing gap between rich and poor is the “meta concern” of the Occupy Wall Street movement. Worldwide, frustrations appear to be on the rise.

What about sub-Saharan Africa? Sustained economic growth has certainly produced some tremendous advances. But a large proportion of the population is still living in poverty. So frustrations about the inclusiveness of growth are also shared within the region.

Complex story

Is the story really as negative in sub-Saharan Africa as the relatively slow reduction in the incidence of poverty and some people’s frustration suggest? Or is the underlying situation a little more complex?

In July, I wrote about the importance of inclusive growth and whether economic growth was a necessary or a sufficient condition for poverty reduction. The IMF’s latest Regional Economic Outlook for Sub-Saharan Africa takes that thinking a step further. The new analysis looks at how living standards for the poorest households have actually been changing in some countries in the region.

Inroads to poverty reduction

First, let’s look at what the existing data tell us about poverty and growth. For the region as a whole, the percentage of the population living on less than $1.25 a day—at 2005 international prices—fell from 59 percent in 1996 to 51 percent in 2005. During the same period, the region’s average growth rate more than doubled, from 2¼ percent before1995 to over 5 percent in the early 2000s. The message seems to be that poverty fell, but that growth had a disappointingly weak impact compared with experience in other regions.

The picture changes, however, when we begin to drill down a little into the data. For a start, if we compare the rate at which poverty declined among the better-performing countries in the region, we find that growth rates did seem to matter. The faster the country was growing, the larger, on average, the reduction in poverty. The relationship seems to have been less powerful than observed elsewhere in the world, but it was still significant.

Survey data

Household survey data are more revealing. We have been digging into this data to see how individual households have been faring, so that we can compare changes in living standards of families between different parts of the population. It would not be surprising if growth reduced poverty substantially in countries where a lot of households were initially just below the poverty threshold. But we wanted to look at a wider range of households.

Amid the wealth of data in household surveys is information about what every household consumes, including food they grow themselves. And the extent to which consumption levels change over time can tell us a lot about whether growth has been inclusive. So we tracked changes in consumption—over five or six year intervals—in six fairly typical countries in sub-Saharan Africa: Cameroon, Ghana, Mozambique, Tanzania, Uganda, and Zambia.

Benefits of higher growth

The results support the idea that high growth was inclusive.

  • Among the poorest 25 percent of the population, per capita consumption levels increased substantially faster than inflation in three of the four higher growing countries we studied—annual increases averaged nearly 4 percent in real terms.
  • But there was much less sign of improvement in per capita consumption of poor households in the two low-growth countries.
  • Results for the sixth country were ambiguous because of uncertainty about the measurement of price changes.

Our analysis also suggests that job creation in rural areas, particularly in the agricultural sector, is associated with more inclusive growth, increasing poor households’ consumption growth and improving their living standards. This makes good sense, given that rural households account for about two-thirds of the population in the six countries we studied. More specifically:

  • In Uganda and Cameroon, we found that real per capita consumption increased faster among poor households than it did among rich households. At the same time, agricultural employment grew strongly.
  • In contrast, the poorest households in Mozambique and Zambia experienced weak or negative per capita consumption growth, while rural agricultural employment opportunities declined.

Policy considerations

It also seems that characteristics such as levels of educational attainment and household location go a long way towards explaining differences in consumption. This provides important guidance for policymakers.

  • Providing budget resources for improving and targeting health and educational services for instance, can greatly improve vulnerable individuals’ well being and earning potential.
  • Well targeted transfer programs can help to make growth more inclusive by redistributing its benefits more widely.
  • Policies to enhance agricultural productivity—through improved inputs or infrastructure investment in energy, irrigation, or transportation—will further contribute to improved inclusiveness.

The frustrations of the poor are all too understandable. But maybe there is more hope than some measures of poverty suggest. Growth is bringing gains, albeit fewer than we would like.

However, the goal should be to do more. And we hope the findings in our analysis can help equip policymakers to better target support to those who most need it and design policies most likely to promote more equitable and lasting growth.

3 Responses

  1. The relationship between (inclusive) growth-poverty reduction is rightly becoming an important subject in general, but particularly so in the African context. As the writer clearly indicated, “Sustained economic growth has certainly produced some tremendous advances (in Africa) … But a large proportion of the population is still living in poverty. ..”. The main reason was indeed that growth has never been inclusive enough to bring about a significant dent on poverty in Africa. However, growth all by itself, no matter how inclusive it may be, can not be the silver bullet. There are two fundamental and related issues that one needs to consider in this regard: Growth should be, to the extent possible, sustainable so that poverty reduction achievements will not easily offset by unexpected economic shocks (as the recent global economic crisis). This necessitates that the growth outcomes need to be based on a diverse of economic activities or sectors. To this end, the potential role of the private sector, if provided with the right incentive structure and business enabling environment, is undeniably high. Enhancing the investment climate in Africa further is therefore critical to attract private investment into Africa (beyond the traditional primary sectors), enhance competitiveness and facilitate the region’s path towards a more diversified economic base. This in turn makes the resulting growth ‘INCLUSIVE’ through generating employment opportunities to a wider part of the population and sub-regions within a country. This also would reduce the potential for internal conflicts.

    The other fundamental issue for inclusive growth to have a significant impact on poverty in Africa as indicated by the author, is that it should be accompanied by supportive social policies (such as population policy, policies that enhance better access to infrastructure, education and health services, etc. to a broader part of the population), and pro-poor public expenditure that facilitate these. In addition to these, given the fragmented and small internal markets in Africa, benefits of national pro-poor policies can be enhanced through a well thought design of regional integration strategies and road maps.

    Finally: It is also important to point out that up to date data and information is key to follow-up poverty outcomes and take corrective action. I think this is an area where development partners and governments need to do more. The interesting article by the author on this topic is based on household survey datasets collected in the 1990s, and compares poverty outcomes in 2005. The analytical outcomes remain still valid, but had we have more recent comparable survey data sets, the analysis could have probably revealed more policy relevant facts. Support to build capacity and statistical systems in African countries to generate reliable and timely data (including household surveys) is therefore needed.

  2. Yes, you are right and of course the IMF is the right to get these instant fundings to promote growth, because without growth, it is less likely to have a fair and balanced development, including production and manufacturing, and resource allocations.
    But, I am reluctant to say that growth is making everything better because when one sees so much money wasted, we can be frightened. My friend Bill is a money managerr and used to say that it is not the quantity that matters, but how money a person or an organization is able to manage. So, people matter uppermost.

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