How to deal with poverty: An adaptation of Prof Mthuli’s contribution

POVERTY levels are swelling in Zimbabwe as much as they are in every part of greater Africa. Among some of the explanations of the causes, flagrant policy-making marred with inconsistencies has been said to be a disstate to both foreign and domestic investment across the whole continent. Despite numerous debates on causes and effects of poverty in Africa, what is more important are the solutions that can possibly impact change.

Some of the commendable insights on remedies of Africa’s plight are deducted from Professor Mthuli Ncube, Zimbabwe’s Minister of Finance and Economic Development contributions to an African Development Working Paper in 2015. Prof Mthuli, joining two academics, Bicaba and Brixiova argued that a serious commitment to eliminating extreme poverty in Sub-Saharan Africa requires a three-pronged approach:

Structural transformation which requires stable macro-economic policies, infrastructure investments and inclusive growth prioritising productive employment.

Cautious regional integration which invites trade and Foreign Direct Investment flows to support regional growth.

Improved global governance that creates space for meaningful representation of African perspectives.

Sustained poverty reduction will require growth that is not only high but of higher quality, namely inclusive and green, as emphasised in the Ten Year Strategy of the African Development Bank.

Eradicating extreme poverty for all people everywhere by 2030, is the first goal among the UN Sustainable Development Goals (SDGs) expected to guide the post-2015 development agenda. Prof Mthuli and colleagues found that while extreme poverty in Sub Saharan Africa is unlikely to be eradicated by 2030, it could be reduced to very low levels. They become a bit technical when they assert that “A ‘best case’ scenario, assuming accelerated growth and redistribution from the richest 10 to poorest 40 percent of the population, could bring the poverty rate down to around 10 percent of SSA population by 2030”.

Given Africa’s potential and track record, its poverty eradication agenda under the SDGs will likely focus on creating prosperity and reducing inequality. At the recently held Davos World Economic Forum, the discussion of reducing inequality became the centre agenda. Perhaps the argument Prof Mthuli and colleagues made in 2015 were at best academic fortune telling. Inclusive growth will benefit the entire population, including the poorest.

In their paper, Prof Mthuli and his colleagues ask: The question is then which policies can produce such growth and improve Sub Saharan Africa poverty outcomes? African countries need to find their own path, depending on their circumstances and priorities. One of the three paths they suggest in their candid contribution is how national policies can drive growth through structural transformation.

There are two dynamics that tend to drive growth: fundamental capabilities and structural transformation. Industrial policy-prioritisation of high potential sectors with proper incentives is instrumental for structural transformation. They posit that policies of successful countries share some common features, namely a stable but flexible macro-economic framework; incentives for restructuring, diversification and mobility; investment in physical and human capital as well as technology adoption; and strong institutions. Perhaps the signing of the Africa Continental Free Trade Agreement is quite a noble idea to expedite the processes of eliminating extreme poverty.

Another important lesson from Prof Mthuli Ncube in the 2015 paper is that macroeconomic policies can help facilitate high, stable and balanced growth. Important in their recommendation on how poverty may be managed is that Sub Saharan Africa countries will need to accumulate sufficient reserves during the booms to cushion the downturns.

Turning to structural transformation, they argue that it can drive reduction in inequality and poverty. The sources of growth clearly matter for poverty reduction and inclusion: new jobs need to be created in productive and employment-intensive sectors. In particular, based on lessons from Latin American and other countries successful in reducing poverty, growth needs to generate productive jobs for large segments of the population. The lessons from China suggest that to reduce poverty African countries should focus on raising productivity of agriculture, which in turn facilitates structural transformation, as manufacturing absorbs workers from rural areas. Equally important, Brazil has shown that the Government can help reduce poverty through well-designed redistributive programmes and social protection, so far missing in most of Africa.

The second aspect they submit is that regional policies: Trade policy and the importance of regional integration. Regional integration has gained momentum recently in several regional economic communities (RECs), as evidenced by increased intraregional trade and flows of foreign direct investment, as well as announcements aiming to formalise the relations and bring them to higher levels. Successful regional integration would indeed allow countries to draw on their comparative advantages, leading to higher efficiency and growth as well as integration to global value chains, and reduced “among countries” inequality. It would also provide platforms for collective insurance (for example against food insecurity) and facilitate regional solutions to collective challenges such as climate change.

Despite these pay-offs, regional integration, in particular establishments of monetary unions should not be rushed, as the experience of the Euro zone indicates. Structural reforms must successfully address infrastructure gaps, harmonise macro-economic outcomes, and synchronise business cycles before further monetary integration can occur. Regional strategies should initially focus on developing areas of industrial complementarity to raise countries’ capacity to trade, supported by building regional infrastructure to facilitate movement of products, services, capital and, last but not least, people.

Last, but not least suggestion, they mentioned that global policies are effective in reforming governance structures for inclusive growth. Policy recommendations typically focus on actions, either individual or collective, of African countries. Less attention is being paid to the role that global governance should play. How are then influential institutions such as the G20 faring on supporting inclusive and green growth, and hence poverty reduction, in Africa? Following the Seoul Consensus on Development in 2010, the G20 placed development and low-income countries once again at the centre of its post-2015 agenda. Specifically, inclusive growth or rather strong, sustainable, balanced and inclusive growth has been a key objective of the G20 for some time. However, green growth is not among the key priorities of the year, and gradually faded from the agenda already in 2013 and 2014. Lastly, the G20 group could also better link various development priorities such as agricultural productivity with infrastructure and any other related development areas rather than treating them as separate issues.

In other words, Africa needs to be well represented, as an equal partner in the key policy and decision-making global structures. Only a global partnership with strong African representation can tackle challenges as important as eliminating the region’s extreme poverty.