False Growth: African Economies Are Growing, But Poverty Is Deepening

Unrest in Lilongwe, Malawi had resulted in the reported deaths of 18 people during July 2011. The demonstrators demanded action on the failing economy which is under tremendous pressure due to the world financial crisis., a photo by Pan-African News Wire File Photos on Flickr.

By Felix Njini
Southern Times

False Growth

Africa’s economies are growing, but poverty is deepening

Windhoek - Africa’s fast-paced economic growth over the past decade has not made a dent on high poverty levels and wealth inequalities that continue to afflict the continent despite its enviable mineral endowment.

Millions of Africans still live in poverty despite the continent’s economies maintaining a positive growth trajectory, a recent World Bank report states.

This dovetails with the view held by Professor Lorenzo Fioramonti of South Africa’s University of Pretoria in his book, “Gross Domestic Problem: The Politics Behind the World's Most Powerful Number".

Prof Fioramonti argues that abstract “development” measures such as GDP do not factor in resource depletion and high income inequalities.

In its “Africa’s Pulse” report, the World Bank says that while the number of people on the continent surviving on less than US$1.25 a day has declined to 48.5 percent from 58 percent between 1996 and 2010, poverty levels remain very high.

During the past decade, Ethiopia and Rwanda’s economies have grown at an average rate of eight to 10 percent. But this has resulted in respective poverty reduction of 1.3 percent and 1.7 percent.

Tanzania’s growth averaged six percent to seven percent over the last decade but its national poverty head count declined only by an estimated 2.2 percent.

Zambia, which is classified as a resource-rich country because of its immense copper deposits, has not registered any meaningful progress in the battle to eradicate poverty.

In 2012, Africa’s growth was estimated to have averaged 4.7 percent, and a quarter of the economies on the continent grew at seven percent or better.

World Bank figures show Africa is forecast to grow at more than five percent on average from 2013 to 2015.

“Higher economic growth does not economically translate into higher poverty reduction,” the World Bank says.

The high poverty levels are consistent with the equally high levels of inequality.

With Gini coefficients (a globally recognised measure of inequality) of close to 45 percent, inequality in Africa remains the highest in the world. This means the gap between the rich and the poor is highest in Africa.

The World Bank also found out that inequality is much higher in resource poor countries.

“Africa’s high inequality raises important questions regarding the poverty reducing powers of its future growth, as high inequality dampens the poverty reducing effects of economic growth,” the study says.

“Signs are that in Sub-Saharan Africa, growth in resource dependence is associated with increasing inequality … this counsels further caution about the expected effects of mineral-driven growth on poverty.

“Not only has growth in more mineral dependent economies had less effect on poverty, partly through the inequality channel and partly through other channels, but by increasing inequality it also undermines the poverty reduction effect of future growth,” the Africa’s Pulse report says.

“The pertinent question is how much more of the new found resource wealth can be converted into fiscal revenues and effective public spending to foster sustainable development, improve human welfare and generate more rapid income poverty reduction. In other words, how can we avoid another resource curse,” the report says.

The bank says mineral wealth can be of greater benefit to citizens if there is transparency in the extractive industry, efficient tax collection mechanisms are established and investment of resource rents are fine-tuned.

The World Bank also recommends advancing agricultural production as one way of tackling poverty.

Rapid urbanisation means urban food markets will quadruple over the next 20 years, while domestic and regional markets offer attractive opportunities for the continent’s producers.

“But many of the opportunities have yet to be captured. In the mid-2000s, Africa switched from being a net exporter of agricultural products to a net importer, with especially many of the mineral dependent economies being large net importers,” the World Banks says.

Despite its verdant lands, Africa imports staple cereals such as rice, wheat, milk and poultry.

“Except for wheat, which is a temperate-zone crop, these are all products in which Africa should have a comparative advantage, given its abundant land.”

Studies have concluded that greater poverty reduction is generated by increasing smallholder staple crop productivity, as opposed to export crops.

“In sum, while agricultural growth is generally pro-poor, policy should pay attention to growing smallholder staple crop productivity, despite the obvious political appeal of the fast growing agricultural niche markets, such as those of export oriented horticultural products.”

Gross Domestic Problem

In his review of Prof Fioramonti’s book, Tosin Sulaiman says the “fixation with GDP growth compels policymakers to design policies that promote consumerism and attract short-term investment, he argues, but, as the West's economic downturn has shown, the gains are unlikely to last long”.

"Gross Domestic Problem: The Politics Behind the World's Most Powerful Number", according to Sulaiman, “contradicts economic orthodoxy that GDP is one of the most important economic indicators - traces the origins of the concept from its invention by US statisticians to deal with the Great Depression”.

He says: “For many years, developing countries, especially in Africa, did not have the statistical resources to measure GDP, but from the 1970s the United Nations, World Bank and International Monetary Fund created programs to equip them with the expertise to collect regular economic data.

“Now, African policymakers are among the most vocal cheerleaders for the GDP mantra, not recognising it as a Western invention...”

Sulaiman goes on to quote Prof Fioramonti saying, “African leaders speak against colonialism and imperialism but they forget that the most important device to measure success in contemporary affairs that they're using so happily was part of the package they got from the West.”

Prof Fioramonti’s take is that countries experiencing high GDP growth “tend to rely on export-driven economic growth which means they are increasingly dependent on external money”.

"The injustices are made worse by the policies that tend to push for economic growth," Prof Fioramonti said. "It's a vicious cycle. It will never happen that GDP growth will be high enough to eradicate economic inequalities."

He adds that by relying on sale of minerals to boost GDP growth rates, African countries are "fundamentally undermining their future".

He compares the pace of minerals extraction to a person who sells off their body organs to raise money.

"I may feel rich because I've got a lot of cash but it's a matter of time that my functioning may be impaired and eventually I may have to spend a lot of cash to try and fix the damage.”

The author says GDP-led economies attract investors who want to make quick money and not those who are concerned about the long-term prospects.

As such, they take what they want and leave; leaving the country highly underdeveloped.

In his view, governments and researchers should focus their energies on “investment that promotes sustainability and social justice and creates jobs that are secure, instead of espousing a borrowed and flawed philosophy”.

"If we want to create conditions where people will live more happily and more sustainably in the future we need Africa to show us another way.”