Africa has the highest level of poverty in the world and is one of the two regions where poverty has not declined in the past twenty years. As the United Nations Economic Commission for Africa's forthcoming Economic Report on Africa 2005 shows, the proportion of the poor -- those living on less that one dollar a day -- halved between 1980 and 2003 at the global level, from 40 percent to 20 percent. But in Africa, the share of the poor increased slightly, from 45 percent to 46 percent. Africa's poverty rate in 2003 exceeds that of the next poorest region, South Asia, by 17 percentage points.
Recognizing the link between economic growth and poverty reduction, those who crafted the UN's Millennium Development Goals (MDGs) estimated that halving poverty by 2015 in Africa requires countries to achieve an average minimum growth rate of 7 percent annually. Whether or not African countries will reach this goal is an open question.
Since the mid-1990s, African economies have been recording growth rates that are higher than world averages. According to the World Bank, the average growth rate for the period 1996-2002 in Africa was about 3.6 percent, compared to the world average of 2.7 percent. Growth in Africa in 2004 averaged 5.1 percent, the fastest in eight years. Growth rates this year and in 2006 are projected at 4.7 percent and 5.2 percent, respectively.
These average rates mask stark differences between countries. In 2004, for example, Chad's 39.4 percent annual growth rate contrasted sharply with Zimbabwe's negative 6.8 percent economic contraction. Nevertheless, there is no doubt that African economies, taken together, have recovered from the dark years of the 1980s. So the big question is why growth hasn't translated into poverty reduction.
One reason is that Africa's recent growth rates, while high by international standards, remain too low to have a substantial impact on poverty. Initial conditions are so low that only high and sustained growth levels may have a noticeable impact on poverty reduction. In no year has Africa, as a continent, achieved the 7 percent average growth rate required by the MDGs.
Consider Ethiopia. With its per capita GDP of about US$100, a growth rate of 7 percent means that a typical Ethiopian will increase his income by US$7 a year (if this additional income is evenly distributed). But if this rate of growth were sustained over a period of just ten years, per capita income would double, which underscores the need for sustained high growth rates.
Very few countries in Africa have posted growth rates consistent with the MDGs' threshold. In 2004, only six countries -- Chad, Equatorial Guinea, Liberia, Ethiopia, Angola and Mozambique -- had annual growth rates higher than 7 percent. And only four countries sustained a growth rate of 7 percent or more over the past five years.
Moreover, most of the observed growth was generated by capital rather than labor-intensive sectors. If the fruit of economic growth reaches the poor through employment creation, growth in capital-intensive sectors has a limited effect on poverty reduction. Indeed, recent growth in Africa appears to have been fueled by increases in oil exports and high oil prices. Eight of the top 10 performers in 2004 are either oil-exporting countries or post-conflict economies, with the latter's high annual growth rates explained mostly by the proverbial "dead cat bounce" -- the low base period over which growth is measured.
Economic growth reduces poverty only if it benefits the poor, and the effect of growth on poverty reduction is a function of the pattern of income distribution within a country. Africa as a continent has the world's second highest measure of income concentration. This suggests that the new wealth created over the last ten years has mostly benefited the rich.
To help reduce its poverty, Africa must strive to increase even further its growth rates and sustain them over a long period. Moreover, there must be greater balance between capital-intensive and labor-intensive activities. But encouraging labor-intensive industries, which create jobs for the poor, must not be at the expense of capital-intensive industries.
Finally, Africa's income distribution must become more equitable. This is difficult, given that a skewed income distribution is usually a legacy of a country's history. But it is not impossible, particularly for those African countries that succeed in modernizing their political institutions.
Janvier D. Nkurunziza, an economist, works for the Economic and Social Policy Division of the United Nations Economic Commission for Africa in Addis Ababa, Ethiopia. Copyright: Project Syndicate
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