Thu, Feb 23, 2017
Global poverty has been on the run over the past two decades and a half, declining from 36 percent of world’s population in 1990 to below 10% today. Hard to believe, right?
Global poverty has been on the run over the past two decades and a half, declining from 36 percent of world’s population in 1990 to below 10% today. Hard to believe, right? In the era of social media, pessimism creeps into our daily lives through Facebook feed and Twitter updates, which makes it seem like things are only getting worse and the world is falling apart, perhaps irredeemably. Positive trends go unnoticed altogether. Bad news get amplified. The result is that our general perception of the state of the world is sometimes far off from reality.
But data in recent decades tells a rather positive story: human welfare has remarkably been improving. Poverty levels have fallen faster than previously thought. According to recent World Bank projections, for the first time in human history, the number of people living in extreme poverty around the world, defined as those subsisting on $1.90 a day or below, was “likely to fall to under 10% of global population”.
To be sure, there are stark differences in performance across countries and regions. For instance, about 43% of Africa’s population still lives in poverty, way above the global average. And more worryingly, in absolute terms, the number of people living in poverty in Africa actually rose from 280 million people in 1990 to 330 million in 2012. In India, an estimated 29.5% of the population, or 363 million people, still live below the poverty line.
So how can the remaining poor escape the indignities of extreme poverty? Looking at the lesson of recent progress is a good starting point. Of about a billion people who left the ranks of the extremely poor since 1990, three-quarters were Chinese. The reason was because China’s economy grew at unprecedented rates, averaging 10.88% a year from 1989 to 2010, and enabling hundreds of millions of rural poor to move into urban centers to work in industrial factories.
With the majority of the rest of the world’s poor concentrated in Sub-Saharan Africa and Southeast Asia, continued higher growth rates in these two regions, especially in labor-intensive sectors such as manufacturing and agriculture, is crucial in further reducing global poverty. Rapid and sustained growth rates usually lead to better development indicators. Parents with income are able to provide enough nutrient foods for their families and send their children to school. The World Bank reckons that in “all regions of the world, rapid growth has been systematically associated with sharp declines in absolute poverty”. Economic growth has been the most powerful means in reducing poverty levels to historical lows.
But that progress is now in peril as economies slow down.
Global commodity price slump and economic slowdown in China has hit African economies hard, especially those that rely on exports of commodities such as Nigeria, South Africa and Angola. Nigeria, Africa’s largest economy and most populous country, contracted by an estimated 1.7% in 2016 as oil prices hit record lows and energy shortages continued to plague economic activity. Nigeria enjoyed economic growth above 6% as recently as 2014. This was the first recession in Nigeria since the early 1990s.
Angola’s economy, once Africa’s fastest growing, is beset by a financial crisis and last year asked the International Monetary Fund for a bailout or, to put it nicely, economic assistance. The reason for this crisis is the same in Angola as is in Nigeria: lower crude oil prices. Angola’s economy plummeted from 22.6% in 2007 to a projected 0.4% in 2016. Even while it was still growing fast, Angola’s economy wasn’t inclusive and so it left many Angolans behind.
Ghana, long viewed as an economic success story and a model in political stability, is beset by a similar economic crisis fueled by over-reliance on exporting gold, oil and cocoa. When prices of these commodities were high, Ghana’s economy boomed, expanding as high as 14% in 2011. When global commodity prices came crashing down, government revenue dwindled and paying bills became impossible, prompting officials to seek a 1 billion dollars in bailout from the IMF.
These three are some of Africa’s largest economies and their impact on overall Africa’s growth is significant. One thing they have in common: their economies rely heavily on commodity exports. The IMF projects that the combined growth of Sub-Saharan Africa in 2016 would be the lowest it has ever been in 20 years (1.4%).
The impact of the fall of commodity prices on African economies illustrate their fragility, and that of the ubiquitous and premature “Africa Rising” narrative, which doesn’t distinguish between Mauritius and Congo. Africa’s growth in recent years was to a significant extent due to export of commodities and other raw materials, and major economies like Nigeria and South Africa were most exposed to these structural weaknesses.
The trouble with commodity-driven growth is that it’s at the mercy of external forces and shocks. So when global markets sneeze, Africa’s major economies seem to catch Malaria. Some are calling this “Africa Reeling,” the very same people who coined and cheered for the “Africa Rising” narrative.
Real economic development springs from adding value to resources, not merely exporting them crude. Economic growth alone doesn’t reduce poverty levels until its benefits are spread among the larger population. People don’t eat GDP growth, after all. This is why Angola’s economy grew at 11.1 percent for the decade of 2001-2010, the fastest on earth, much of it from oil exports, while more than half of Angolans live under extreme poverty. In fact, almost of all of Angola’s exports (97%) are from crude oil and about 95% of all government revenue comes from oil.
But all is not bleak. Countries that do not rely on commodity exports for revenue, such as Rwanda, Ivory Coast and Ethiopia, are showing strong resilience to external shocks and continue to thrive. The IMF projected non-resource intensive countries in Sub-Saharan Africa to grow 5.6% in 2016, an impressive growth rate, while resource-rich countries were expected to grow a mere 0.3%.
The big challenge for Africa’s resource-rich countries is to diversify their economies away from exports of commodities to other sectors so that higher growth can be sustained over the long-run. Resource-rich countries should also save in boom times to cushion themselves from inevitable future price fluctuations. Nigeria, Ghana, Angola and others are learning this lesson the hard way.
This article was first published in The Huffington Post. Image Credit: Unseen Benin