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Mind the Gap

26th April 2013

By: Terence Creamer
Creamer Media Editor

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Although the outlook for economic growth across sub-Saharan Africa remains robust for the forthcoming three years, a new World Bank analysis has put its finger on a key policy problem now confronting just about all countries in the region. Its latest Africa’s Pulse publication shows that poverty is not declining at a similarly robust pace, particularly in those African economies that are considered to be resource rich.

The bank expects the economies of the region to expand by 5% a year on average between 2013 and 2015, having expanded by 4.7% in 2012 – a figure that would have been 5.8% had slow-growing South Africa, which remains the territory’s largest economy, been excluded.

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However, policy attention would need to be given to harnessing that growth to support efforts to alleviate poverty in a region where half of the citizens still subsist on as little as $1.25 a day.

Outgoing chief economist for Africa Shanta Devarajan, who has been appointed chief economist for the Middle East and North Africa, says the relationship between growth and poverty reduction in resource-rich countries is particularly weak.

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In fact, bank lead economist for Africa Punam Chuhan-Pole, who is also co-author of the biannual analysis of economic trends on the continent, indicates that growth in resource-poor countries has been more effective in reducing the poverty headcount than is the case in minerals-producing countries.

The poverty headcount between 1996 and 2011 fell from 65% to 49% in resource-poor countries, while the decline was far more modest for resource-rich countries, where the poverty headcount fell from 47% to 40% over the same period.

In fact, Africa’s Pulse shows that, while resource-rich countries grew on average 2.2 times faster than their resource-poor counterparts, “poverty declined substantially more” in resource-poor countries.

Agriculture production growth, by contrast, has been found to be the most potent form of growth when it comes to its poverty- alleviating effectiveness.

The bank is, therefore, urging African policymakers to pay far closer attention to ways of narrowing the prevailing gap between growth and poverty reduction, particularly given that it expects only four or five countries in the region not to be involved in some form of mineral exploitation by 2020.

Devarajan argues that it will be important to improve the trans-parency of minerals contracts to ensure that deals are not overly favourable towards miners.

But strategies are also required to improve the spending of minerals-related revenues to help reduce poverty.

Spending, in the bank’s view, should be directed towards improved economic infrastructure, raising the quality of education and health outcomes, and even towards cash transfers that cushion poor people from economic shocks and also give them a direct link to the resources- related revenues.

Overall, Africa’s Pulse indicates that Africa’s growth outlook remains “tilted to the upside”, with the main downside risks associated with the weak global economic recovery. The bank is projecting global growth of only 2.4% in 2013.

However, it will not follow automatically that this growth will be shared.

In fact, without active intervention, the benefits will be narrowly based and resentment towards miners and the political and economic beneficiaries will grow – a level of resentment that was already reflected in some of the robust journalist questioning of the bank during the recent Pan-African teleconference hosted to launch the latest Africa’s Pulse publication.

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