Global Poverty: Recent Trends and Prospects for the Future Will We Achieve to Eradicate Extreme Poverty by 2030? Prof. Dr. Michael Grimm University of Passau, Erasmus University Rotterdam, RWI Essen, IZA Bonn and DIW Berlin University of Bonn, January 26, 2017 1
Outline 1. Global Poverty Trends Poverty remains and will largely remain concentrated in SSA 2. Drivers of Poverty Reduction in SSA so far How to make growth and poverty reduction in SSA sustainable? 3. How to Achieve Structural Change in SSA? 4. Conclusion 2
Readings Chen, S. and M. Ravallion (2008), The developing world is poorer than we thought, but no less successful in the fight against poverty. World Bank Policy Research Working Paper # WPS 4703, World Bank, Washington D.C. Cimoli, M., G. Dosi and J.E. Stiglitz (eds.) (2009), Industrial Policy and Development. The Political Economy of Capabilities Accumulation. Oxford University Press. Cruz, M., J. Foster, B. Quillin and P. Schellekens (2015), Ending extreme poverty and sharing prosperity: Progress and Policies. World Bank Policy Research Note, World Bank, Washington D.C. Rodrik, D. (2014), An African Growth Miracle? NBER Working Paper #20188, NBER, Boston, M.A. Szirmai, A., W. Naudé and L. Alcorta (eds.) (2013), Pathways to Industrialization in the Twenty-First Century. New Challenges and Emerging Paradigms. Oxford University Press. 3
Introduction SDG1: End poverty in all its forms everywhere Targets By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day [now $1.88] By 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions according to national definitions Social protection... Create sound policy frameworks at the national, regional and international levels, based on pro-poor and gender-sensitive development strategies, to support accelerated investment in poverty eradication actions 4
1. Global Poverty Trends
Global Poverty Trends In what follows poverty concept of the World Bank, i.e. Monetary poverty in terms of income per capita (or consumption per capita) Absolute global poverty line (the dollar line) 6
World Bank s poverty estimates The World Bank computes poverty trends world wide since the 1980s (Chen and Ravallion, 2008, 2010, 2015; Cruz et al., 2015). The Bank uses more than 900 surveys covering 130 countries (in 2008 already 90% of the population of all low and middle-income countries). Although their numbers seem relatively consistent, they are still dependent on the assumptions made regarding The comparability of the survey data The purchasing power parities Price differences between urban and rural areas The limits of the used welfare indicator. and of course also on the density of surveys for each year. 7
World Bank s poverty estimates The World Bank use primarily three poverty indicators The poverty headcount The number of poor people The poverty gap (but considers many others in addition, see Cruz et al., 2015) The Bank uses an absolute poverty line which currently stands at $ 1.88 PPP. This line is converted to local currencies in 2011 and then converted in prices prevailing at each survey date using the country specific consumer price index. The $ 1.88 PPP line corresponds to the mean of the national poverty lines found in the poorest 15 countries in terms of consumption per capita. 8
These are still the countries and lines used today, just inflated to 2011 using local inflation rates. 9
World Bank s poverty estimates The poverty line is continuously updated as new and improved PPP estimates become available. PPP exchange rates are currently produced by an independent consortium called the International Comparison Program (ICP), which periodically revises its estimates reflecting both changes in relative price levels across countries and methodological changes. The dollar-a-day line, created by Ravallion et al. (1991), used 1985 PPPs. Year of PPPs Poverty line $ PPP 1985 1.00 1993 1.08 2005 1.25 2011 1.88 10
World Bank s poverty estimates Improvements in PPPs refer in particular to a better account for quality differences in goods consumed in different countries. Previous estimates had often under-estimated the cost of living in poor countries. Newer PPPs are also based on price data covering more countries than previous rounds (China was not in for a long time). Incorrect estimates of China s PPP led also to an overestimate of the size of China s economy in the early 2000s (now 40% smaller). Despite these improvements over time the quality and reliability of PPPs is still subject to intense debates (see e.g. Pogge, T. and S. Reddy (2005), How Not to Count the Poor). 11
World Bank s poverty estimates Yet, trends over time are rather robust to the change in PPPs. Source: Ferreira et al. (2015). But even poverty levels are robust to it. Why? The nominal poverty line increased sharply? Since, it just reflects a weaker dollar relative to the currencies of most poor countries (i.e. $1.90 in 2011 buys approximately the same things as $1.25 did in 2005 in poor countries). 12
World Bank s poverty estimates (based on the $1.25 line) 13
World Bank s poverty estimates ($1.88) 14
World Bank s poverty estimates 15
World Bank s poverty estimates Conclusions Significant reduction in the number of people below the $ 1.88 PPP poverty line. Halving of the 1981 poverty rate of 52% by 2005. Reductions by two thirds between 1990 and 2012. Strong weight of early 1980s China. Poverty incidence and depth of poverty is markedly higher in Sub- Saharan Africa than elsewhere. 16
Eradicating extreme poverty by 2030 means to focus on SSA 17
Population projections log scale (in millions) 18
2. Drivers of Poverty Reduction in SSA so far
Economic growth in SSA 20
Africa s growth performance: selected countries 2000 1800 Ethiopia Ghana 1600 1400 Rwanda Niger 1200 1000 800 600 400 200 0 Source: World Development Indicators, World Bank. 21
Drivers of poverty reduction in Sub-Saharan Africa Whereas in Asia economic growth was driven by massive industrialization with a strong focus on manufacturing, African economic growth is still largely driven by the export of natural resources, subsistence agriculture and a migration of the workforce from the agricultural sector to the urban informal sector. 22
A low quality of Africa s growth The export of natural resources generates little value added and comes with a high price volatility and a long-term decline of the price of many of these goods. Unlike in Asia, agriculture in SSA has not yet seen a significant rise in total productivity. There is only little use of fertilizer, pesticides, high yield varieties, irrigation and other modern technology. Agricultural growth has in most African countries been driven by an expansion of land. Yet, limited availability of further land for conversion, climate-change induced erosion and a deterioration of soil quality render this strategy unsustainable. Finally, the influx into the urban sector - although it comes with income gains for those who migrate - has not triggered any significant industrialization in the classical sense and it is also not sustainable given the limited market size for informal products. 23
On the positive side - Macroeconomic stability has been restored in most countries - Exchange rate management has been improved - Governance and political institutions have been improved - Massive investments in basic education and health. - There are also fewer conflicts 24
Fewer conflicts 25
What about manufacturing an engine of unconditional convergence What is missing is the emergence of manufacturing industries. Because, the good thing about manufacturing industries is that they have shown to be able to converge to the global productivity frontier regardless of geographical disadvantages, lousy institutions or bad policies (Rodrik, 2014). 26
27
Among many problems: A lack of infrastructure For example, the problem of power 28
Rodrik s growth typology Structural transformation/industrialisation Slow Rapid Slow No growth Episodic growth Investment in fundamentals (human capital and institutions) Rapid Slow growth Rapid and sustained growth 29
Example Burkina Faso
Sustained economic growth, but only moderate poverty reduction 0.56 0.62 On average 2.95% growth per year Real GDP per capita (1994=100) 0.47 0.44 Food crisis Poverty heatcount (1994=100) 31
Sectoral GDP over time 32
Rural and urban population growth 33
Sectoral GDP per capita over time 34
Rural and urban employment dynamics 35
The development of land use, production and productivity in food and cotton production 36
Conclusion on Burkina Faso A doubling of the population since 1985, rapid urbanization and absence of any substantial structural change today 6.5 million people below the poverty line, i.e. about 1 million more than in 1994. Without substantial structural change Burkina Faso will not be in a position to absorb the 0.3 to 0.5 million men and women that enter each year the labour force.
3. How to Achieve Structural Change in SSA?
How to Achieve Structural Change in SSA? Governments in SSA should consider to engage, as many of the Asian countries did, in more ambitious industrialisation strategies, as markets alone cannot trigger the needed structural change. China or Vietnam as more recent examples where industrialisation, subsequent to agricultural modernisation, and the related policies have played a major role for poverty reduction, job creation and an integration into global value chains. For agriculture, this entails complex choices between consequential modernisation of small-holder farming and areas where industrial agriculture may be sustainable. 39
How to Achieve Structural Change in SSA? A growing number of studies freshly identify concrete opportunities for Africa to attract agro-industrial and light manufacturing industries. Hence, manufacturing industry, either in agro-industrial or mineralresource value chains ( beneficiation ) or as stand-alone greenfield industry is back on the African development agenda. Target selected industries that have the potential to create employment and/or innovation and technological learning, with positive spillover effects 40
How to Achieve Structural Change in SSA? Organise collective search for such industrial self-discovery, in structured and inclusive public-private dialogue, with both the domestic and the foreign private sector. Systematically identify the most binding constraints for new ventures, which are industry-specific and have to be overcome by policy support measures (example: rare technical skills, unnecessary regulation, excessive bureaucracy). Combine well-calibrated protective and competitive elements, thus ensuring policy coherence among industrial and trade policy. The spatial turn of industrial policy comprises the use of the Regional Economic Communities in Africa as arenas to establish economies of scale, firm competitivity and regional value chains, prior to full exposure to global competition. 41
4. Conclusion
Conclusion A lot has been achieved, but there is a need for more fundamental changes. The demographic burden and climate change make this change even more difficult. Success will depend on Governments that are committed to make fundamental changes possible and on the international community to support this (government, international organizations and private firms) 43