Notes on Poverty and Economic Growth in Africa

 The World Bank. “Africa Continues to Grow Strongly, but Poverty and Inequality Remain Persistently High”. The World Bank, 7 October 2013.

http://www.worldbank.org/en/news/press-release/2013/10/07/africa-continues-grow-strongly-poverty-inequality-persistently-high

• Economic growth in Africa is strong, and expected to increase in the near future. As of 2013, African countries are among the fastest growing in the world.
• Despite this, extreme poverty is highly prevalent, with half of the continent living in extreme poverty.
• “Africa grew faster in the last decade than most other regions, but the impact on poverty is much less than we would’ve liked. Africa’s growth has not been as powerful in reducing poverty as it could have been because of the high levels of inequality. Growth with equity is possible, but it requires a decline in inequality in both outcomes and opportunities,” says Francisco Ferreira, Acting Chief Economist, World Bank Africa Region”
• Africa has increased its diversity of exporters, with the largest gains being in exports to the BRICS. The materials exported however remain concentrated among commodities like oil, metals, and gas.

OEC. Atlas Media, MIT Data:

• Algeria, Petroleum makes up 96% of all exports, but only 76% is unprocessed
• Angola, Petroleum makes 96% and Diamonds are 1.5% of all exports
• Benin, 45% Petroleum, 11% raw cotton, 6% cashews, and 5% gold (67% unprocessed)
• Botswana ???
• Burkina Faso, 55% gold, 19% raw cotton
• Burundi, 16% gold, 16% tea, 22% coffee
• Cameroon, 45% petroleum, 10% cocoa beans
• Cape Verde, almost nothing unprocessed
• CAR, 49% wood, 24% raw cotton
• Chad, 95% crude petroleum
• Comoros, 61% cloves, 17% vanilla
• DRC, 42% ores, 11% cobalt, 6% raw copper, 3% diamonds
• Republic of Congo, 65% petroleum,
• Djibouti, 15% coffee, 16% charcoal, 7% seeds
• Egypt, 25% petroleum, 2% gold
• Equatorial Guinea, 94% petroleum
• Eritrea, 94% copper ore
• Ethiopia, 19% petroleum, 7.2% gold, 15% coffee, 10% vegetables, 7% flowers
• Gabon, 81% petroleum
• Gambia, 14% wood, 21% cashews
• Ghana, 22% cocoa beans, 26% petroleum, 23% gold
• Guinea, 27% petroleum, 32% gold, 24% aluminum ore
• Guinea-Bissau, 77% cashews, 18% wood
• Cote d’Ivoire, 25% coca beans, 16% petroleum, 5% gold
• Kenya, 16% tea, 12% flowers, 12% petroleum
• Lesotho, ???
• Liberia, 38% iron ore, 4% wood
• Libya, 96% petroleum
• Madagascar, 23% nickel ore, 8% vanilla
• Malawi, 51% tobacco, 6% tea, 4% sugar
• Mali, 42% cotton, 36% gold, 6% seeds
• Mauritania, 52% ores, 4% petroleum, 17% gold
• Mauritius, 10% cotton
• Morocco, 3% petroleum
• Mozambique, 34% unprocessed aluminum, 17% petroleum, 12% coal
• Namibia, ???
• Niger, 46% uranium, 21% petroleum, 9% uranium ore
• Nigeria, 91% petroleum
• Rwanda, 40% ores, 12% petroleum, 8% coffee, 10% tea
• Sao Tome, 60% cocoa beans
• Senegal, 12% gold, 8% petroleum
• Seychelles, almost nothing unprocessed
• Sierra Leone, 80% ores, 8& diamonds
• Somalia, 28% seeds, 59% livestock
• South Africa, 11% gold, 7% platinum, 10% diamonds, 5% coal, 5% iron ore
• South Sudan, 99.8% petroleum
• Sudan, 64% petroleum, 8% seeds
• Swaziland, ???
• Tanzania, 21% gold, 10% ores, 6% tobacco
• Togo, 23% petroleum, 27% gold, 5% seeds
• Tunisia, 8% petroleum
• Uganda, 20% coffee, 4% tea, 6% tobacco
• Zambia, 13% raw copper, 64% refined copper
• Zimbabwe, 19% gold, 9% diamonds, 14% tobacco, 10% sugar

Benjamin, Nancy, Shantayanan Devarajan, and Robert Weiner. “The ‘Dutch’ Disease in a Developing Country: Oil Reserves in Cameroon”. Journal of Development Economics, Vol.30, No.1 (1989): 71-92:

• Dutch disease refers to the negative effects of the discovery of oil fields on the Netherlandish economy in the 1970s, the surge of associated investment leads to growth in small sector isolated from the rest of the economy and inflates the value of local currency, hurting the competitiveness of other exports (72).
• One of the major symptoms of Dutch disease in developed countries is the movement of capital from productive sectors into the oil sector, however in the case of Cameroon, domestic capital is so small compared to foreign capital that the effect is negligible (73).
• Agriculture is particularly badly affected by Dutch Disease in developing countries, as its products are especially vulnerable to substitution and thus to decreases in competitiveness as a result of exchange rate changes (90).
• Because African manufacturing products are often niche or not easily replaceable, manufacturing is not actually severely damaged by Dutch disease in developing nations (90-91).
• Cameroon actually attempted to avoid the negative symptoms of Dutch disease, by investing oil revenues abroad to avoid domestic wage and price inflation, and by subsidizing crops to prevent a decline in agricultural wages (91).

Mogotsi, Imogen. “Botswana’s Diamonds Boom: Was There a Dutch Disease”. South African Journal of Economics, Vol.70, No.1 (2002): 128-155:

• Dutch disease often causes de-industrialization in developed countries (129).
• There are a number of cases where Dutch disease has not involved de-industrialization, namely in Indonesia – where government support for steel, fertilizer, and cement product allowed it to survive (138-139).
• Botswana experienced a diamond boom between 1982 and 1990, with diamond exports peaking in 1991 before a collapse in global markets hit the trade (140).
• Botswana experienced an increase in public and private spending as a result of Dutch disease, because more wealth is available (149).
• Increased wealth led to resource transfer as a symptom of Dutch disease, since more skilled workers moved into the profitable mining sector and were replaced by unskilled labor, driving wages down (150-151).
• This meant that unemployment did not increase as a result of Dutch disease, as more people were simply incorporated into the manufacturing sector (154).
• There was a decline in the growth of some manufacturing sectors, particularly the competitive textiles market, due to Dutch disease, although overall growth was still positive (154).
• The majority of Botswanan government expenditure was on civil servant’s salaries, triggering the exchange rate strengthening. Unfortunately, this creates vested interests that will be difficult to dismantle following the boom (155).

Chandy, Laurence. “Why is the number of poor people in Africa increasing when African economies are growing”. Brookings Institute, 4 May 2015.

https://www.brookings.edu/blog/africa-in-focus/2015/05/04/why-is-the-number-of-poor-people-in-africa-increasing-when-africas-economies-are-growing/

• Despite achieving growth rates averaging 5.2% from 1995, the number of extreme poor in Africa has increased from 358 million to 415 million during that same time period.
• High population growth accords for part of the disparity, as absolute numbers of extreme poor have grown at the same time as proportions have fallen from 60% to 47% in 2011.
• High population growth also has to be factored in when thinking about growth rates. In per capita terms, Sub-saharan GDP growth rates are often below the global average.
• Africa also had deeper poverty than the rest of the world, with the extreme poor farther from the $1.25 line of poverty in Africa than elsewhere. This makes lessening poverty more difficult to measure.
• Although inequality hasn’t increased since the 1990s, it was already at a very high level, meaning that economic growth has disproportionately benefited the rich in African countries, leaving many in poverty.
• Look at country-specific growth. Much of the continent’s growth has occurred in Ethiopia, Rwanda, and elsewhere. This is great, but needs to account for no growth in DRC and Madagascar, where poverty has intensified.

Fosu, Augustin Kwasi. “Inequality and the Impact of Growth on Poverty: Comparative Evidence for Sub-Saharan Africa”. The Journal of Development Studies, Vol. 45, No.5 (2009): 726-745.

• A number of studies find that income inequality is an important element in the low poverty-growth elasticity in Sub-Saharan Africa, and elsewhere (726).
• High levels of inequality are often a bigger barrier to poverty reduction than low levels of growth, as the unequal distribution of income is the primary factor keeping people in poverty (727).
• Understanding the reasons for historical and contemporary high levels of inequality in many parts of Africa is necessary for actually reducing poverty in those areas (737-738).
• The high levels of inequality in Africa mean that higher levels of growth are needed to reduce poverty than elsewhere in the developing world (738).
• This is confirmed by the rates of poverty reduction in different African countries in recent history, such as Ethiopia’s relative success in reducing poverty compared to Botswana, despite high growth rates (738).

Fosu, Augustin Kwasi. “Growth, Inequality and Poverty in Sub-Saharan Africa: Recent Progress in a Global Context”. Oxford Development Studies, Vol.43, No.1 (2015): 44-59.

• In systems featuring high rates of income inequality, the poor are still only accessing their share of the growth rates achieved – assuming income inequality is level rather than rising – leaving poverty rates minimally affected (49).
• The author still finds that income-growth and GDP growth is the single factor most strongly correlated to poverty reduction, urging a continuation of a growth-centred policy. Inequality reduction also continues to be strongly associated, however (52).
• The author is also limited to real world examples of African growth and poverty reduction, leaving few examples of governments prioritizing inequality reduction over economic growth (52).
• Some investments, like infrastructure, can support both growth and equality (52).
• Part of the failure to fully account for differences in poverty reduction relates to measurement, as more successful poverty eradication campaigns in Ethiopia and Tanzania can be partially explained by high initial incomes compared to Swaziland or Zambia; it is easier to reach the international poverty line if you are close (54-56).
• “Declining inequality tended to decrease poverty […] lower initial inequality raised the rate at which growth was transformed into poverty reduction” (56).

Christiaensen, Luc, Lionel Demery, and Stefano Paternostro. “Macro and Micro Perspectives of Growth and Poverty in Africa”. World Bank Economic Review, Vol.17, No.3 (2003): 317-347.

• This article specifically deals with economic growth and poverty reduction in Ethiopia, Ghana, Madagascar, Mauritania, Nigeria, Uganda, Zambia, and Zimbabwe (318).
• African poverty indicators were extremely low in the 1980s, with Africa experiencing some of the highest rates of child malnutrition, child mortality, and some of the lowest rates of primary school enrolment (320).
• Growth has not led to substantial changes in economic inequality, which has generally continued to persist at high rates – although that rates depends on colonial legacies (322).
• Poverty levels at the micro-lever were shown to be heavily correlated to simple issues such as lack of access to rainwater for irrigation or lack of adequate health services. Not investing in these public goods, especially in rural areas, keeps poverty rates high (341).

Berardi, Nicoletta, and Federica Marzo. “The Elasticity of Poverty with Respect to Sectoral Growth in Africa”. The Review of Income and Wealth, Vol.63, No.1 (2017): 147-168.

• Africa has ended a period of sustained and prolonged economic growth since 2000, triggered primarily by a global increase in commodity prices and high liquity in global financial markets (147).
• The windfall of the commodity boom has not been effectively exploited to promote economic development and diversification. This is particularly troubling because, unless strong redistributive policies are exacted, commodity exports do not greatly reduce poverty (148).
• Some aspects of Africa’s lower than average growth-poverty elasticity are structure, caused by abnormally low levels of initial development (deeper poverty) and high levels of inequality (148).
• There is a great amount of variation in the success of different African countries in capitalizing on growth in poverty reduction, with Tunisia, Morocco, and Ghana able to strong reduce the prevalence of extreme poverty (152).
• Economies dominated by services had the highest rates of GDP growth, followed by those based on mineral and petroleum extraction (154-155).
• The sector whose development had the largest effect on poverty is agriculture, with manufacturing as a distant second. Growth in the service sector did not affect poverty, while growth in mineral extraction or oil extraction actually increased poverty (155-156). The increase of poverty associated with extractive industries is likely a symptom of Dutch disease’s effect on exports.
• This implies that the extremely poor in Africa are almost entirely clustered in the agricultural sector, and that strong growth in manufacturing, services, or extractive industries benefits certain population strata, but not the extreme poor (156).
• Countries with high proportions of their population in non-agricultural industries, like North African countries, have been able to successfully reduce poverty at much higher rates than agricultural countries (156-157).
• The poverty elasticity rates of agricultural growth have a high standard deviation, however this is reflective of some exceptional high potentials alongside a high average poverty elasticity. In other words, it is already high, but countries like Ethiopia and Zambia – where the extreme poor are overwhelmingly agricultural workers – are driving it up further (163).
• This paper demonstrates that growth in commodity-sectors and extractive industries is not beneficial to poverty reduction. It suggests that countries should encourage agricultural growth, particularly through the construction of infrastructure for agriculture and introduction of modern technologies (167).

Sembene, Daouda. “Poverty, Growth, Inequality in Sub-Saharan Africa: Did the Walk Match the Talk under the PRSP Approach?”. IMF Working Paper (WP/15/122), 2015.

• The PRSP was an initiative of the IMF launched in 1999 to reduce poverty and increase growth in countries with and usually high rate of poverty, organized in coordination with the Millennium Development Goals (5-6).
• The implementation of PRSP goals certainly did achieve higher rates of growth, but failed to effectively increase the income of the lowest quintile of the population (6).
• There is no evidence to suggest that PRSP implementation helped Sub-Saharan countries actual reduce poverty rates compared to non-PRSP countries (21).
• Between 1999 and 2011 the number of extreme poor only increased by 30 million persons, accounting for only 5% of population growth and demonstrating the ability of African government to reduce poverty faster than population growth (15).
• The lack of successful implementation of PRSP strategies in African countries demonstrates a need to take more extreme measures in the future, as the small budget allocations and programs envisioned in PRSP did not have their intended effect (28).

Africa Progress Panel. Equity in Extractives: Stewarding Africa’s Natural Resources for All. 2013.

http://www.africaprogresspanel.org/wp-content/uploads/2013/08/2013_APR_Equity_in_Extractives_25062013_ENG_HR.pdf

• Inequality seems to be the main factor preventing resource wealth from translating into higher incomes and levels of economic development in many African countries (14).
• Countries which were heavily dependent on resource exports for revenue generation were some of the fastest growing economies during the 1990s and onwards during the present commodity boom (17).
• These high levels of growth did not always have an effect on levels of poverty, however. Despite achieving remarkable growth, Cameroon and Mali did not record declining poverty rates, and poverty actually increased in Nigeria and Zambia (19).
• The financial resources from this resource boom could be used to help Africa’s poorest citizens, it usually isn’t though (19).
• Poverty is geographically concentrated in many African states, leaving people in rural or isolated areas to suffer high rates of poverty without the government services available to urban or favoured areas (26).
• Focus on investment and growth in certain economic sectors has meant that segments of the extremely poor have been largely unaffected by growth. In particular, capital-intensive sectors like telecommunications, extractive industries, construction, and finance have benefited specific urban areas and ignored the rest of the country (29).
• Growth in extractive industry tends to have the additional effect of being unable to absorb additional labour, meaning that this sector can record growth despite increasing unemployment (32).
• The limited expenditure of African government on healthcare, education, social security, and welfare programs keeps many, especially the rural poor, from making smart decisions and thus traps them in poverty when sickness or poor weather strikes (67).
• In countries were public services are funded, their coverage is typically limited to areas that have political favour and urban centres. Even robust healthcare and welfare services do not reach the areas of intense poverty (67).
• Underinvestment in key infrastructure limits economic growth in most sectors, although not extractive industries, hobbling growth in the areas that would have the greatest impact on poverty (68).
• Again, infrastructure of all kinds tends to be concentrated in well-off areas because the elites can demand its existence. Areas with poverty also tend to be politically marginalized and thus lack the voice to demand necessary infrastructure (68).
• Mineral and petroleum resources in Africa tend to be unexploited, with raw products and ore being exported before refinement and processing can move these products up the value chain (84).
• The imports needed in these industries are also only recruited from local producers on a partial basis, in a process prone to corruption. This further limits the impact of extractive industries on other economic sectors (85).

Arndt, Channing, Robert James, and Kenneth Simler. “Has Economic Growth in Mozambique been Pro-Poor?”. Journal of African Economics, Vol.15, No.4 (2006): 571-602.

• In 1997, when the first household income survey was taken, Mozambique was one of the poorest nations on Earth, with its average GDP per capita underneath the poverty line (572).
• In 2002, this has improved to the degree that enough wealth now exists for all Mozambique to live above the poverty line. Because of severe inequality, especially in cities they do not (582-583).
• Between 1996 and 2002, the economy grew by 62% total, largely in the agricultural sector – which had the largest impact on poverty reduction (572-573). Poverty was reduced by 22% during that period (598).
• Mozambique also invested in a number of capital intensive ‘mega-projects’ during this period, resulting in high rates of economic growth without real rewards in poverty reduction (599).
• The evidence from Mozambique clearly shows that in societies characterized by high levels of inequality, economic growth will disproportionately benefit the rich, whose incomes grew much more rapidly than the poor – despite inequality levels remaining similar (588-589).
• Most of this inequality has been concentrated in cities, and above all in Maputo, the capital. In fact, this small group of elites in Maputo accounts for the majority of income inequality in the country (589).

Kakwani, Nanak. “Poverty and Economic Growth with Application to Cote d’Ivoire”. Reivew of Income and Wealth, Vol.39, No.2 (1993): 121-139.

• The extremely poor, the lowest quintile, are not strongly affected by economic growth compared to the rest of the population. Reductions in income inequality have a larger effect on their movement out of poverty than does growth (136).
• Poverty was extremely dependent on the agricultural sector, as demonstrated by the rapid increase of poverty during the period of structural readjustment in the 1980s. If the government had not kept its support for agricultural prices, poverty would have increased three-times as much. Agricultural productivity and poverty are deeply linked in Cote d’Ivoire (136).

Blas, Javier, “Equatorial Guinea: Squandered riches”. Financial Times, 3 February 2014.

• Equatorial Guinea is majorly fucked up, largely because of some properties intrinsic to the oil industry.

Kiersz, Andy. “Here are the Most Unequal Countries in the World”. Business Insider UK, 8 November 2014. Available at: http://uk.businessinsider.com/gini-index-income-inequality-world-map-2014-11?r=US&IR=T

• Six of the world’s ten most unequal countries in African.

Cheeseman, Nic. "Cultures of Resistance: Civil Society and the Limits of Power". In Democracy in Africa: Successes, Failures, and the Struggle for Political Reform, by Nic Cheeseman, 57-85, New York: Cambridge University Press, 2015.

• Development after colonial rule was often unequal (60-61).