A decline in poverty but not inequality

Proshare

Tuesday, May 26, 2015 8:45 AM / FBN Capital Research                                      

Growth per head in Africa has picked up from zero to about 3% in the past 15 years and the number of Africans in absolute poverty, defined as having daily incomes less than US$1.25 per day, has fallen. Yet inequality according to the Gini coefficient has increased.

This challenge is the core of the African Development Bank’s (AfDB) flagship publication, launched yesterday at the annual meetings in Abidjan and entitled “Economic growth in Africa: leaving no one behind”. It was discussed by a panel composed of two government ministers (from South Africa and Côte d’Ivoire), the head of research at the AfDB, a leading Africa economist at the World Bank and the deputy governor of the Bank of Uganda.

A structural change in most African economies from agriculture to services has been unhelpful. Most services sector companies are not large employers, unlike manufacturing or indeed agriculture.

The central banker from Uganda (and former AfDB chief economist) noted that his country had achieved growth of between 6% and 8% for a decade but that agriculture had managed just 2%. He concluded that policymakers had to revisit the connectivity of agriculture to markets because of its job creation.

The Ivorian minister pointed out processing of cocoa beans in her country has reached 35% and was moving towards the government target of 50%. We note a large step forward in the form of the e-wallet mechanism widely introduced in Nigeria.

Inequality in Africa is higher than any other region except Latin America. The World Bank economist highlighted its prevalence in resource-rich countries.

The panel was ambivalent about a question from the floor about the double-digit growth achieved for a decade in Ethiopia and the lessons that might be learnt from it. The two government ministers avoided the question. There was a fair comment about the danger of becoming too prescriptive about a particular economic model.

At the same time there was acknowledgment of its agricultural and infrastructural development, and the rapid building of its social safety net.  The in-house head of research spoke of a “giant awakening” and added that its poverty reduction had been the most rapid in Africa.

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