Africa’s poverty reduction is slowing down, says World Bank
Africa’s prosperity gap with the rest of the world is widening, and faster rates of economic growth are not a panacea. That is one of the key insights from the World Bank’s latest Africa’s Pulse report, which projects that the continent’s economic growth will pick up pace to 3.4% in 2024 from 2.6% last year.
“The pace of economic expansion in the region remains below the growth rate of the previous decade (2000-2014) and is insufficient to have a significant effect on poverty reduction. Moreover ... economic growth reduces poverty in sub-saharan Africa less than in other regions,” the Washington-based lender said. Indeed, the slowing pace in the reduction of poverty is worrying.
“The speed of poverty reduction has decreased ... since 2014. The rate of reduction was 3.1% between 2010 and 2014, subsequently decreasing to 1.2% between 2014 and 2019.
“In contrast, the rest of the world reduced extreme poverty on average by 9.2% per year within the same time horizon, suggesting that the Africa region is falling further behind,” the report said.
“As growth slowed down between 2010 and 2019, the importance of addressing inequality as a means to reduce poverty rates across the region increased. In sub-saharan Africa, gross domestic product growth of 1% per capita is associated with poverty reduction of only 1%. In the rest of the world, this number is as high as 2.5%.”
This means that African economies need to grow at a faster rate than other regions to reduce poverty because of what the World Bank refers to as “structural inequality”.
This refers to “the extent to which differences in incomes across individuals are driven by the circumstances into which people are born and are beyond their control, as well as the result of market and institutional distortions, as opposed to differences in individuals’ talent or effort.
“Beyond increasing the rate of economic growth, growth must also become more efficient at reducing poverty,” the report noted.
Market-oriented reforms
The World Bank suggests market-oriented reforms along the lines of those pursued by Vietnam and Bangladesh.
“Bangladesh and Vietnam are among the fastest-growing economies in their respective regions that have also experienced periods of falling inequality and poverty. Market-oriented reforms in each of these countries helped to boost growth,” it said.
“In Vietnam, initial reforms included decentralised decision-making, price liberalisation and the replacement of central planning with market-based resource allocation. Trade and foreign exchange controls were lifted, setting the stage for the country’s reintegration into the global economy.”
Both these countries have focused on attracting foreign direct investment through domestic market reforms – this would include things like slashing red tape – to promote labour-intensive manufacturing employment opportunities.
No doubt, many are sweatshops that have poached relatively well-paying jobs from regions such as the Rust Belt in the US, but poverty levels have been reduced significantly. The two countries have also focused on the roots of structural inequality such as unequal access to education.
But the report does quantify how economic growth – though crucial – alone won’t address the issue.
Africa has many other challenges, as noted in the report, including an exceptional vulnerability to climate change as well as conflict. But it surely helps to address the basics such as access to education and healthcare.