Economic Growth is the Strongest Antidote to Poverty in Africa

Economic Growth is the Strongest Antidote to Poverty in Africa, says new World Bank study WASHINGTON, August 27, 2008 – Poverty rates in Sub-Saharan Africa have been steadily declining over the last 10 years or so, according to a new World Bank paper. Setting a new poverty line of US$1.25 a day to reflect improvements in internationally comparable price data, the report estimates that 1.4 billion people in the developing world lived below that threshold.

The global data, however, mask a number of regional nuances. Africa’s poverty rate of 50 percent is shown to be the same in 1981 and 2005: this is because poverty worsened between 1981 and 1996, a period of slow or negative growth on the continent. This changed in 1997, when economic growth started to pick up and poverty rates fell significantly—by over 7 percent, from 57.5 percent to 50.4 percent—and much faster than in South Asia, for example, which saw stronger economic growth during the same period. But the depth of poverty is greater in Africa than other regions—the mean consumption of the poor is lower than any region, at around 70 cents per day in 2005, using the $1.25 poverty line. Improvements in the depth of poverty on the Continent are also encouraging, with Africa registering an overall improvement of more than 15 percent since 1990, from 24.6 percent to 20.8 percent. The paper, produced by the Development Research Group and titled “The developing world is poorer than we thought, but no less successful in the fight against poverty”, cites a doubling in the number of poor people in Africa between 1981 and 2005, from 200 to 380 million.

The significant increase can be explained by two factors. First, the new poverty estimates use a more careful assessment of what $1.25 actually “buys” in different countries rather than equating the value of the US dollar in the US with that of the US dollar in an African country. That calculation renders the cost of living in Africa higher than using the previous methodology and changes the initial estimates of poor people. Second, Africa has the highest population growth rate in the world. So while the poverty rates declined between 1996 and 2005, it was not enough to counteract the effect of faster population growth.

The report, which tells a global story about the numbers of poor people, should not be used to judge if poverty in a particular country or region has improved or deteriorated over the 1981-2005 period. “What is more important is to look at national poverty lines”, says Shantayanan Devarajan, Chief Economist of the Africa Region at the World Bank. “This will better answer the question of how poverty in a particular country has changed over time.” In the case of very poor countries such as those in Africa, there may have been progress in extreme poverty (e.g. people living on 70 cents a day), but this may not be reflected by the $1.25 per day measurement used in this study.

Economic growth is the strongest antidote to poverty in Africa. If Africa can sustain its recent better-than-six-percent growth rates, the continent will make significant progress in reducing the number of poor within its borders “Strengthening governance is critical to achieving growth”, according to Mr. Devarajan, pointing to Botswana and Ethiopia as countries which have made rapid progress in this regard. He also notes the need for countries to continue pursuing reforms that have begun to pay dividends, to accelerate progress in human development, and to close the continent’s massive infrastructure deficit. “Tackling poverty in a multi-pronged approach will yield significant and much faster results.” The challenge of lifting people out of poverty is daunting and will only be met if economic gains are shared widely. At the same time, recent increases in food and fuel prices, the effects of climate change, the impact of HIV/AIDS and other exogenous factors, threaten to unravel any gains made. But while reminding us of the magnitude of the task ahead, the recent estimates of global poverty also show that Africa can reduce poverty if it commits itself to meeting the challenges ahead, as it has in the past decade.

For the global news release on the New Poverty Data, visit: here
For more info on the New Poverty Data, visit: here
For more information on the World Bank and Africa, please visit: here