Growth and poverty. A vision for Africa 

Poor countries are so because those in power make decisions that generate poverty
Crecimiento y pobreza.Una visión para África 

 -  

Washington, 10 April 2014. According to a report published by the World Bank, economic growth, while critical to reducing poverty, has limits. Countries must complement efforts to increase growth with policies that allocate more resources to the extreme poor. These resources can be distributed through the growth process itself, by promoting more inclusive growth, or through public programmes such as conditional and direct cash transfers.  

"To end extreme poverty, we must place special emphasis on making growth more inclusive and increase the number of programmes that directly assist the poor". Jim Yong Kim. 1   

 Introduction  

Why do some economies expand and others do not? Is there a clear formula for growth? Does growth come or go for no obvious reason? What growth are we talking about? Does it make sense to make comparisons across regions, geographies, and cultures?   

These and other questions have long been addressed by economists and there is still no single answer to them.   

Let us look at the African situation, its growth and influence on poverty. 

THE 10 POOREST COUNTRIES IN THE WORLD BY GDP PER CAPITA (data in USD; 2020)   

The 10 poorest countries in the world (by GDP per capita) according to the latest data from the International Monetary Fund (year 2020). 

  1. Sudán del Sur: 243,27 $  
  1. Burundi: 312,73 $ (2011 PIB pc 533)  
  1. Eritrea: 349,79 $  
  1. Malawi: 385,68 $ (2011 PIB pc 805)  
  1. Niger: 427,45 $ (2011 PIB pc 642)  
  1. República Centro Africana: 471,94 $  
  1. Madagascar: 490,91 $  
  1. Afganistán: 509,76 $  
  1. República Democrática del Congo: 511,6 $   
  1. Mozambique: 521,83 $ (2011 PIB pc 861)  

 

Crecimiento y pobreza  Una visión para África 

Let's go back a few years  

In 1960 the GDP pc of SSA2 was higher than that of the East and Central Asian countries; the average of the latter was not higher than that of SSA. Even in 1975 the difference between the GDP pc of the two regions was not very substantial. The chasm occurred between 1975 and 1995 and already in 1995 SSA's GDP pc was almost 20% lower than in 1975, a development which is quite contrary to that of Asian countries.  

IN USD$ 3 

Sub-Saharan Africa GDP pc 1960: 1.172;1975: 1.487;1995: 1.225   

Southeast Asia GDP pc 1960: 916;1975: 1,256;1995:3,535   

Southeast Asia excluding China GDP pc 1960: 1,138;1975:1,980;1995: 5,392  

Central Asia GDP pc 1960: 741; 1975: 970; 1995: 1,542  

The distribution of GDP pc across countries is very uneven. In 1970 the average GDP pc4 of the 25 richest countries was 25 times higher than the average of the 25 poorest countries, the difference was abysmal, but by 2005 the gap had only widened, with the 25 richest countries having an average GDP pc 51 times higher than the 25 poorest. On both dates, 15 of the 25 poorest were the same, 13 of them sub-Saharan Africans. Already in 2005, 22 of the 25 poorest were in the sub-Saharan area. 5   

We should ask ourselves why stagnation and regression persist in some countries (not in all, as some have managed to break it, such as Mauritius, Botswana6 and Namibia, for example).   

Clash between growth and poverty. Arguments.  

There are several reasons for this clash, of which I will cite the main ones.  

  • Growth and extractive economic institutions. The institutional framework  

Extractive institutions are designed to extract income and welfare from one sector of society for a different sector. Extractive institutions concentrate power in the hands of the few, are constructed to extract resources from the many for a minority who use the resources to consolidate their positions of political power and are unable to provide incentives for economic activity. Extractive institutions can generate a certain degree of growth, but this is not sustainable given the instability of concentrated political power struggles and limitations on innovation. 7Such institutions lead to stagnation and poverty. For all these reasons, I argue that growth needs to be analysed carefully, because we should not think that an African country's soaring growth rates are due to orthodox economic policy. What happens is that the elites can directly allocate resources to productive activities that they personally control. This monopoly of power may even allow for some inclusive economic institutions as these would not threaten their political control. But let us not deceive ourselves that this is a very common occurrence, but in the long run it does not generate sustained economic development in any country. All this is closely linked to what Bates8 calls the control regime (CR), which basically consists of administrative intervention in the economy (the CR fixes most prices, intervenes in companies, and strictly regulates internal and external trade, as well as financial flows and foreign exchange) and we can already imagine where the rents generated by these CRs lead or are diverted to, to the beneficiaries of these rents, i.e. officials and politicians. Corruption then becomes the norm. 

Crecimiento y pobreza  Una visión para África 

Governance in Africa has been and is influenced by a fragile institutional framework in many of its countries, and by government control regimes that have driven many of its economies with enormous influence on the economic development and growth of many of its countries over time (it is worth looking at the case of Zimbabwe after 1980 as its case was a clear example of sub-Saharan Africa after the independence of its countries: After independence Mugabe established his personal control, violently eliminated his opponents, rewrote the constitution he had inherited and became president, and finally in 1990 got rid of the senate altogether and introduced positions in the legislature that he could appoint. He rewrote the constitution he had inherited from independence and became president, and finally in 1990 he got rid of the senate altogether and introduced positions in the legislature that he could appoint. The result was a one-party state run by himself). 9 

The failure of the economic model led to adverse institutional dynamics that led in more than a few cases to situations of state failure, with even more devastating consequences. Africa has an enormous ethnic variety, but this does not seem to be the ultimate cause of political instability and economic underdevelopment. Ethnic conflicts do not turn into armed conflicts when the state exists. It is the crisis of the state that leads groups vying for power to use ethnic banners to broaden their support base10. 

A new analysis of public policies and institutions in Africa reveals however that 26% of countries have made significant progress in development and poverty reduction. The poor performance of conflict countries demonstrates how violence rapidly erodes the progress made in equality and growth. Côte d'Ivoire and Rwanda are among the continued best performers in this annual World Bank analysis. According to this analysis, the overall quality of public policies and institutions for development and poverty reduction in African countries remained stable in 2014, but with more marked progress in the area of budget and financial management. The latest report on the Country Policy and Institutional Assessment of Africa (CPIA) describes the progress made and obstacles encountered by African governments in strengthening policies, institutions and programmes for sustainable development. Each country is rated on a scale of 1 (low) to 6 (highest). The final score was determined through 16 indicators in four areas: economic management, structural policies, social inclusion and equality policies, and public sector and institutional management. The CPIA11 score is used to determine the allocation of interest-free loans and grants to economies eligible for assistance from the International Development Association (IDA) and the World Bank Group's funds for the poorest countries. 

It is correct to say that developing countries could significantly improve their economic performance by strengthening their institutions. To take the African example, if the average quality of African institutions were to catch up with that of Asian developing countries, per capita income in the region would increase by 80%, from an average of USD 800 to more than USD 1400, according to IMF estimates.  

Crecimiento y pobreza  Una visión para África 

Finally, let us not forget that any deal that supports economic growth with extractive political institutions is by nature fragile. Infighting will arise and that will be its tendency. And as I mentioned earlier when development comes through these institutions in those places where the institutions have an aspect of inclusiveness there is a danger that they will become more extractive and their growth will stall. Everything is in the hands of those in power, so it is essential that there are consolidated democracies in many African countries so that this does not happen. We are talking about Africa, but this is true for other regions in the world.  

 The success or failure of countries is strongly influenced by their institutions
  • Growth and natural resources  

In some countries (those rich in natural resources), African growth has distinct characteristics that do not alleviate the poverty12 of their people.  

The idea that a country rich in natural resources - and there are quite a few in Africa - has much chance of becoming prosperous is not at all obvious. Take the examples of oil in Nigeria, Angola, Algeria, Egypt, Libya, Equatorial Guinea, Sudan and South Sudan, the Republic of Congo, etc., where the wealth of such a fundamental resource is no guarantee of growth. Regardless of whether this resource is poorly managed economically, as is indeed the case in the main oil-producing countries, the fact is that its revenues leave little or no revenue for the population. 

Contrary to a widespread perception in most African countries, oil, gas and mineral resources (unprocessed) represent only a limited part of their economies. Their share is more than 20% of GDP in only 10 African countries out of 54 (10/54). However, for some countries, the export of these resources is the main (sometimes the only) source of foreign exchange to finance their imports. Revenues from the exploitation of raw materials could constitute an important part of state revenues if they could tax the rest of the informal economy that is so prevalent on the African continent. It must be said that the least resource-dependent countries are the most dynamic. (Morocco, Senegal, Mauritius, for example).   

Africa is rich in natural resources. The region has the world's largest arable land mass; the second largest and longest river (the Nile and the Congo); and its second largest tropical forest. The total value added from its fisheries and aquaculture alone is estimated at $24 billion. In addition, about 30% of all the world's mineral reserves are found in Africa. The continent's proven oil reserves constitute 8% of the world's oil reserves and natural gas reserves 7%. Minerals account on average for 70 per cent of Africa's total exports and about 28 per cent of gross domestic product. The contribution of extractive industries to public finances is significant, and in some African countries public revenues depend almost entirely on them. In fact, the AfDB13 estimates that Africa's extractive resources could contribute more than $30 billion annually in government revenues over the next 20 years. The Bank also estimates that revenues from newly discovered oil, gas and minerals could contribute between 9% and 31% of additional government revenues in the first ten years of production for countries such as Ghana, Liberia, Mozambique, Sierra Leone, Tanzania and Uganda. Moreover, beyond extractive industries, land, watersheds, wildlife reserves and national parks offer an opportunity for ecotourism and related economic activity.  

Crecimiento y pobreza  Una visión para África 

Africa's natural resources offer a unique opportunity to foster human and economic development. However, there are significant obstacles that prevent African countries from realising this potential.   

  • First, there are problems of sustainable development and governance, including environmental problems, desertification, resource conservation, displacement of communities from their traditional lands, and lack of clear guidelines for catalysing growth and development through effective natural resource management.  
  • Secondly, weak institutions lead to poor border controls, lack of human security, reduced investment, poor policy choices and a decline in biodiversity and formal trade. In this context, there is pressure to solve the problems quickly. First, the need to protect natural resources is growing as consumption increases and trade-offs between different resource uses offer more alternatives (e.g. mining activities versus conservation for tourism). Second, persistent poverty, unemployment, inequality and the growing voice and influence of CSOs14 increase pressure on governments and investors to share the benefits of natural resource wealth. While there is a clear understanding of these needs and challenges, it is not matched by the capacity to respond to them. 

These challenges listed, sub-Saharan Africa is not growing because it is a subcontinent brimming with natural wealth, but because it is gradually becoming immersed in global trade in goods and services, as well as because of a more sustained and not easily measurable growth in domestic consumption, giving rise to an emerging African middle class: services, manufacturing, and basic consumables constitute an important part of the growth. 15  

Crecimiento y pobreza  Una visión para África 

But trade in these resources is as always subject to the price variables of the commodity market. This is why I always say that it is necessary to have a basket of different resources and to know how to use them in an orthodox way. Those countries rich in resources (Angola, Nigeria, Algeria, DRC, etc.) should not be obsessed with a single product and diversify the exploitation of other resources available to them. Because what happens with the rise or recovery of oil and hydrocarbon prices in general is that this creates additional indebtedness by creating expectations of growth in the producing countries, which in turn leads to new indebtedness, and when a new wave of falling prices occurs, there are not enough reserves to cushion it. To all this, we must add that oil can indeed add growth (fragile if its revenues are not well regulated and managed) but also corruption and wars. See the Nigerian case. And let us not forget external demand and its dependence, since we are in a market "and if growth locomotives such as the EU, China and the US put the brakes on, a large part of the price will be paid by those at the back of the wagon".16 

  • A brief digression on the geography of wealth in Africa  

The differences in per capita wealth between countries in North and Southern Africa are striking. These two southern and northern regions comprise half of the 20 countries with the highest GDP per capita on the continent. However, both regions do not contain the four richest countries on the continent. The two richest in these terms are the Seychelles (Seychelles has the highest GDP/capita in Africa: $28,243.33/capita) and Mauritius, thanks to the development of the textile industry, tourism and financial services, followed by Equatorial Guinea and Gabon. On the other hand, the poorest in these terms are scattered in all regions of the continent with the exception of North Africa. The poorest are scattered across all regions of the continent except North Africa: CAR and DRC in Central Africa, Mozambique and Malawi in Southern Africa, Burundi and South Sudan in East Africa, Liberia, Sierra Leone and Niger in West Africa, and Madagascar in the Indian Ocean. Is geography a handicap to be considered, given the difference between coastal and inland countries?  

No landlocked country has a GDP per capita ppa of more than $1.00017.   

  • Growth, corruption and poverty  

In Africa, the phenomenon of corruption is widespread. Each year, African countries rank among the lowest in the Corruption Perceptions Index (CPI) compiled by Transparency International, which in its reports, recommends that African governments take steps to intensify efforts to combat corruption and strengthen their democratic institutions. 

Transparency International index 2020 / Financial Secrecy Index18  

Unsurprisingly, several sub-Saharan African countries are among the 50 most corrupt in the world, despite some changes.   

Across sub-Saharan Africa, many countries are making significant progress towards the vision of a democratic, prosperous and peaceful continent outlined in the African Union's Agenda 2063. However, progress is threatened by high levels of corruption. Along with the problem of petty bribery, which is widespread in some parts of the region, the interrelated phenomena of fragility, crony capitalism and poor governance have given rise to scandalous forms of corruption, particularly state capture. In response, countries have enacted various anti-corruption legal instruments. Regional organisations, civil society and the media are also tackling the problem head-on.  

Global governance indices suggest that sub-Saharan Africa's public sector is the most corrupt of all world regions. Many citizens believe that corruption levels have increased in recent years and are dissatisfied with their governments' anti-corruption efforts.   

  • Corrupt practices are deeply intertwined with ongoing conflicts and state fragility in some African countries, particularly in the Horn of Africa, the Sahel region and the Democratic Republic of Congo.  
  • Political corruption is common and takes many forms, including state capture, patronage networks, opaque financing of political parties, vote buying and unresolved conflicts of interest.   
  • Land-based corruption is especially prevalent in the region, and studies have shown that women are particularly vulnerable.  

Crecimiento y pobreza  Una visión para África 

The five least corrupt countries in the region are Seychelles, Botswana, Cape Verde, Rwanda and Namibia. There is a correlation between CPI19 scores and other corruption-related indices. For example, the Worldwide Governance Indicators (WGI), a World Bank research instrument that captures key governance issues, gives percentage scores for corruption control (World Bank 2018b). According to the 2018 indicators, Seychelles scored 75. 96, Botswana (77.88), Cape Verde (78.37), Rwanda (71.15) and Namibia (65.38). These countries are performing well on both indices. Comparatively, Sudan (5.77), Equatorial Guinea (2.40), the Democratic Republic of Congo (DRC) (3.85), South Sudan (0.48) and Somalia (0.00) have poor anti-corruption scores. 

Poverty has many faces, some of which we have already mentioned. Corruption is a widespread evil and goes with the human condition, and fighting it is not easy. It can be fought with various measures and education is its main vaccine, without neglecting other measures such as liberalisation and prosecution. In many African countries, corruption was and still is, in some of them, an integral part of the way power is organised and exercised. Corruption permeates society as a whole and gradually spreads throughout the public administration and in the economic relations between citizens. Corruption is undoubtedly a blight on development, discouraging investment, diminishing the effectiveness of foreign aid and seriously undermining any attempt at development. However, is it corruption that causes poverty, or is it poverty that stimulates corruption? The poorer a country is, the more corrupt it is? Is there a vicious circle between corruption and poverty?  When the economy is not doing well, it is easier to be corrupt. In reality, the poor are more subject and exposed to bribery than the rich, with the aggravating factor that the burden on the poor is much greater not only from an economic point of view but also from the point of view of their own security. Two thirds of citizens fear reprisals if they report corruption. 20  

Crecimiento y pobreza  Una visión para África 

  • Conclusion  

There are many other reasons that influence the quality of growth in Africa, but we have chosen to address these three because they reflect, in my opinion, the basic and most profound aspects of why growth, or the lack of it, causes poverty in the different countries of the African subcontinent. Indeed, there are still many problems pending21, so we must be cautious, but we must also recognise that efforts are being made to achieve better growth that will lead to a more inclusive Sub-Saharan Africa. 

  • Bibliographic references

1 Naturalised South Korean-American doctor, President of the World Bank from 1 July 2012 to 31 January 2019. 
2 SSA: Sub-Saharan Africa 
3 Data from Penn Tables. For each region the average GDP pc was obtained by weighting each country's GDP pc by its population. Underdevelopment and Hope in Africa: Carlos Sebastian 4 Pc: GDP per capita 5 Underdevelopment and Hope in Africa: Carlos Sebastian Editorial Galaxia Gutenberg 
6 Botswana is one of the states with the best institutional quality, ranked 1st in "political stability and absence of violence". Today it has one of the highest per capita incomes in Sub-Saharan Africa and is on a par with prosperous Eastern European countries such as Hungary and Estonia. The diamonds of the 1970s provided a strong fiscal base that the government used to invest in public services. 
7 According to the analysis of Daron Acemoglu and James A. Robinson in their book "Why Countries Fail" 8 John Bates Clark (January 26, 1847 - March 21, 1938) was an American neoclassical economist. He is known for being one of the pioneers of Marginalism and for opposing Institutional Economics.
9 Jeune Afrique 50 une histoire de l'Afrique. 
10 Carlos Sebastian: Institutional framework and growth in Africa. 
11 CPIA Ranking of governance in Africa by country. Source: CPIA (Country policy institutional assessment), World Bank 2015 (http://data.worldbank.org/data-catalog/CPIA) 
12 Poverty measured in terms of GDP per capita GDP ppa gives a truer and more accurate picture of a country's situation, as it shows the purchasing power of its citizens and is not simply based on people's nominal income as the nominal one is. However, there is often mistrust of the accounts prepared by each country, as they sometimes do not accurately show their reality or do not have mechanisms for economic transparency. The highest GDP/inhab. ppa in Africa is that of the Seychelles: $28,243.33/capita. 
13 African Development Bank
14 CSOs Civil society organisations 
15 Africa is like this: Jose- Ramon Ferrandis Muñoz Editorial Union 16 Africa is like this: Jose- Ramon Ferrandis Muñoz Editorial Union 
17 Prisoners of geography: Tim Marshall and Atlas of Africa /AFD 
18 A classification that allows us to see which countries are facilitators and recipients of corruption by accepting the practice of financial secrecy.
19 CPI : Corruption perception index 2019 
20 "Global Corruption Barometer - Africa 2019", conducted by the Afrobarometer think tank and Omega Research with the support of Transparency International. 
21 Lack of infrastructure, low education of the population, agricultural backwardness, poor access to credit, pandemics, high birth rate and population growth, consequences of climate change, etc.