Financial Daily from THE HINDU group of publications
Monday, Sep 30, 2002
Unctad report Why poverty is still endemic in Africa
THE adoption of market-led economic growth model so assiduously advocated across the world by multilateral development and lending agencies the last two decades has not led to any distinct improvement in the standard of living of millions of people in the developing world, generally, and in Africa, particularly and palpably.
Even as the so-called Washington Consensus has been aptly derided by development economists and non-governmental organisations and civil societies for the miseries it brought in its train, criticism of the processes of globalisation and deregulation has always been muted and tinged with a sense of helplessness.
But the United Nations Conference on Trade and Development
(Unctad) does not seem to have any problems indicting the insufficient institutional arrangements that were erected to soften the blows of the market-led development models that were purveyed with magnificent obsession by donor agencies and developed countries.
Beginning 1999, poverty reduction has become the prime aim of programmes and operations of global financial institutions in low-income countries. The strategy seems to make a sharp departure from the earlier emphasis on correcting macroeconomic imbalances and market distortions through stabilisation and structural adjustment programmes.
Poverty Reduction Strategy Papers (PRSPs) became part and parcel of the main documents defining the strategies to be pursued and are prepared by national authorities in developing countries with broad-based participation of civil society organisations, stakeholders in enterprises and the poor.
Consequently, the IMF's Enhanced Structural Adjustment Facility
(ESAF) has been replaced by the Poverty Reduction and Growth Facility (PRGF), with the PRSPs becoming an integral component of the Heavily Indebted Poor Country (HIPC) initiative and a pre-condition for access to the Poverty Reduction Support Credit (PRSC) in 2001. As a result, bilateral grants, concessionary loans and debt relief have all become inexorably linked to poverty reduction policies and strategies.
A new study released on September 26 by the Geneva-based Unctad, titled From Adjustment to Poverty Reduction: What is New, makes a distressing reading as it assesses how inadequate the efforts of the multilateral financial institutions to tackle endemic poverty in Africa have been. As Unctad so candidly puts it, this new policy orientation of focussing on poverty has had its genesis in the deep-seated dissatisfaction with the progress made in resolving the chronic problems facing developing countries despite well-nigh two decades of policy reforms.
The World Bank estimates that by 1998 a fourth of the population of the developing world that is, 1.2 billion people were living below the poverty line, or on less than $1 per day in 1993 purchasing power parity terms. Excluding China, the number has risen from 880 million in 1987 to 986 million in 1998. The corresponding figures for sub-Saharan Africa (SSA) are 217 million and 291 million respectively, averaging around 46 per cent of the total population over the period.
A more recent study by the Unctad Secretariat, using the World Bank's definition but a different methodology (bringing together household survey and national accounts data), estimates that the proportion of the population living on less than $1 a day in the least developed countries of Africa has increased continuously since 1965-69, rising from an average of 55.8 per cent in those years to 64.9 per cent in 1995-99.
Unctad says that over the past two decades, income growth in SSA has barely kept pace with the population growth. After attaining a moderate increase in per capita income during the 1970s, growth in the region remained below 2.5 per cent per annum in both the 1980s (2.1 per cent) and the 1990s (2.4 per cent). Despite a recovery after the mid-1990s, the per capita income in SSA at the turn of the millennium was 10 per cent below the level reached 20 years earlier. Besides, the recovery has proved to be short-lived and longer-term growth projections are well below the levels required to meet poverty alleviation targets.
A worrisome development is that slow and erratic growth in SSA has also been accompanied by `regressive' changes in income distribution. On the one hand, the poorest segments of the population have experienced steeper declines in their per capita incomes than the economy as a whole; the decline in average per capita income for the poorest 20 per cent of the SSA population is estimated to have been twice that of the population as a whole between 1980 and 1995.
On the other hand, in some countries there has been a process of "equalising downwards" across much of the personal income distribution as real wages have fallen and the rural-urban gap, measured in terms of the ratio of wage earners' incomes to that of farmers on small holdings, has disappeared, pushing a large number of urban workers below the poverty line.
A close scrutiny of the macroeconomic and structural adjustment policy contents of the PRSPs reveals that there is no fundamental departure from the kind of policy advice espoused under what has come to be known as the Washington Consensus. Current policy advice continues to contain all the main elements of the first generation of economic reforms, designed to "get prices right".
The second generation of reforms now advocated, rather than revisiting and improving the economic policy framework so far pursued, adds new elements, emphasising the importance of "getting institutions right" or simply "good governance". As Unctad rightly remarked, good institutions cannot always eliminate or make up for shortcomings in economic policy or prevent market failures.
The report hits the nail on the head by stating that the current approach, emphasising poverty reduction, appears to continue to be based on the premise that liberalisation and rapid and close integration into the global economy hold the key and sustained growth. "It is not clear how policies emphasising the primacy of the market mechanism in such areas as trade, finance and agriculture can be reconciled with the improved access of the poor to productive assets," Unctad said.
Pertinently Unctad warns against "quick poverty fixes" that redirect pubic spending to social sectors at the expense of other types of public investment. "Where there are trade-offs between public spending in priority and non-priority areas, they should be closely scrutinised from the point of view of their overall impact on growth," Unctad observes. In this context, the study notes that social impact analysis has not yet been included as an integral part of PRSPs.
Given their structural weaknesses, the small size of their domestic markets and the dependence on imports for capacity utilisation and accumulation, the extent to which poor countries can generate the required resources depends very much on how far they can translate their unexploited natural resources and surplus labour into export earnings, imports and investment.
But the pity is that these countries continue to face significant trade barriers in their more affluent trading partners, notably the industrial countries, in the two sectors which could make the greatest contribution in these respects agricultural and labour-intensive manufactures.
It is germane to recall that two years ago, the Unctad Secretariat estimated that a net additional capital inflow of at least $10 billion per annum would need to be maintained for a decade or so to lift SSA onto a faster growth path.
It was argued that an admixture of a doubling of official capital inflows with policies designed to raise the efficiency of investment and the propensity to save could set off an accelerated growth path that would reduce in a decade or so both the resource gap of the region and its reliance on aid.
New pledges have since been made in the wake of the UN Conference on Financing for Development held in Monterrey, Mexico and, more recently, in the context of the G-8 Africa Action Plan. Even as they go some way towards filling the external financing gaps of the poorest countries, the sums involved unfortunately do not add up to the additional financing needed.
The Unctad report pithily states that in the last resort, greater domestic policy effort, even of the right sort, and good governance cannot make up for inadequate external financing and the adverse effects of protectionism in industrial countries, a point which appears to be the right remedy for Africa as much as for other developing countries too.
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