Peter Fabricius
Tax reforms throughout the continent could raise the funds to lift millions of its people — but the focus must be on growth and lowering inequality, too
Explores a chapter in Jakkie Cilliers’ new book and “the promise of an African welfare state”
● “For you always have the poor with you.”
This familiar quote from the Bible, Matthew 26:11, does not seem a very promising epigraph to a chapter on how to end poverty — and inequality — in Africa. But then Jakkie Cilliers is a realist.
In that chapter from his latest book, Africa First! Igniting a Growth Revolution, the founder and chair of the Institute for Security Studies in Pretoria does not varnish the immense challenge of trying to solve Africa’s greatest problem.
Globally, market liberalisation, mainly in the East, has been reducing the number of extremely poor people rapidly for about the past four decades. In just 11 years, from 2006 to 2017, the number or poor actually halved, to fewer than 800-million people.
And so the world reached the main Millennium Development Goal of halving poverty in 2010 — five years ahead of the 2015 deadline. Most of the globe is now broadly on track to reach the more ambitious Sustainable Development Goal (SDG) of eliminating extreme poverty by 2030.
But Africa will miss that goal “by a very large margin”, Cilliers concludes.
He says two main factors reduce poverty — rapid economic growth and greater equality of income distribution. Globally, income inequality has steadily decreased over the past four decades, albeit mainly between the countries of the developed world and the new emerging nations, and generally not within nations. Despite this, a sense of relative deprivation is rising, with more people feeling that they are growing poorer while the rich grow richer.
In Africa, inequality is decreasing too slowly to translate improved economic growth into significant poverty reduction, and rates of economic growth are too slow. Cilliers offers Botswana as an example of a country that has grown rapidly but not really reduced poverty. But he says Cameroon, Egypt, Ghana, Kenya, Mali, Mauritania, Senegal, Tunisia, Uganda and — surprisingly — Eswatini have been “relatively efficient” at turning income growth into poverty reduction, generally because of relatively lower inequality levels.
Cilliers offers China as the classic model of a country that turned rapid growth into extraordinarily rapid reduction in poverty because of low levels of inequality. In 1980, China, then a low-income country, had almost a billion people living on less than $1.90 daily. By 2018 that number was under 2-million (less than 1% of its population).
In Africa, however, the extent of poverty and inequality means “there are no quick fixes”, Cilliers says. Governments must implement the right policies for economic growth and redistribution, education and job creation. He addresses these longer-term solutions in other chapters of the book.
In this chapter he explores the impact of a more immediate remedy for reducing poverty — social grants, or, as he also puts it (perhaps a little ambitiously) “the promise of an African welfare state”. Social grants “have proven to be an effective shortterm solution to assist the poor and change levels of extreme inequality” in countries as diverse as Brazil, SA and India.
In Brazil, the most unequal country in South America, the Bolsa Familia programme has reduced poverty “on relatively low rates of economic growth”. In India, the Aadhaar project has used digital technology to link the bank accounts of social grant recipients to biometric identification and cellphones to ensure the right people receive the grants and so cut out corruption.
But a major obstacle to providing social grants across Africa is that tax rates across the continent are “notoriously low” because of inefficient tax collection and a “bewildering array of tax breaks to donors, special economic zones and tax holidays to big investors — often mining houses”, Cilliers says.
He models a scenario in which effective tax rates are increased by eliminating many of these tax breaks, and additional taxes are raised on skilled workers.
Through these measures, African governments would raise an additional $171bn (R2.9-trillion at today’s rates) in annual taxes in 2040, of which
$155bn would be transferred in social grants, mainly to low-skilled workers.
“This will take an additional 22-million Africans out of extreme poverty in 2040 and, cumulatively, 300million Africans over the 20 years from 2020 to 2040. On average, the poverty rate would decline by almost two percentage points by 2040,” Cilliers says.
Inequality would also diminish.
On its own, however, his Social Grants for Africa scenario does not fundamentally change the rather dismal extreme poverty forecast — a situation that has deteriorated alarmingly due to the impact of Covid-19. On current trends, only Gabon, Tunisia, Seychelles, Egypt, Algeria, Morocco and Mauritius will eliminate extreme poverty by 2030. On the Social Grants for Africa scenario one more country, Mauritania, would join them by 2040.
For an advocate of social grants, Cilliers is sharply critical of them, especially in SA, where he cautions that they should only be used “to bridge a desperate situation”, particularly to cushion the poorest citizens from the impact of government policies — such as the removal of fuel and food subsidies — designed to boost economic growth.
But perhaps he does not go far enough. For it’s not a question of SA (and others) just adding social grants onto policies designed to boost economic growth rapidly. As Cilliers implies, but does not quite say, the problem with SA, and also to an extent Brazil, India and other similar countries, is that they have biased socioeconomic policy towards tackling inequality through redistributive policies, rather than focusing, laser-like, on boosting economic growth.
SA, Cilliers has written elsewhere, needs jobs in the formal sector for its skilled population, grants for the rest, lower barriers to entry into the informal sector and will also have to invest in vast employment creation efforts for those who have few skills or job experience.
Fabricius is a freelance writer. This is part of a series on Africa First! Igniting a Growth Revolution by Jakkie Cilliers