Serious commitment to eliminating extreme poverty in Sub-Saharan Africa requires a three-pronged approach: Structural transformation: requires stable macroeconomic policies, infrastructure investments and inclusive growth prioritising productive employment. Cautious regional integration: inviting trade and FDI flows to support regional growth. Improved global governance: creating space for meaningful representation of African perspectives

Bicaba, Zorobabel

Brixiová, Zuzana

Ncube, Mthuli

LSE Research Online

21/06/2017 Eliminating extreme poverty in Africa: The role of policies and global governance - IGChttp://www.theigc.org/blog/eliminating-extreme-poverty-in-africa-the-role-of-policies-and-global-governance/ 1/4Authors Zorobabel BicabaResearch Analyst AfricanDevelopment BankAfrican DevelopmentBank Zuzana BrixiovaAdjunct AssociateProfessorUniversity of Cape Town Mthuli NcubeProfessor University ofOxford, Blavatnik Schoolof GovernmentAfrican DevelopmentBankPublished on: 29 Jun 2015Countries: Africa, InternationalResearch themes: Inclusive Growth,State, Trade Eliminating extreme poverty inAfrica: The role of policies andglobal governanceSerious commitment to eliminating extreme poverty in Sub-Saharan Africa requires a three-pronged approach:Structural transformation: requires stable macroeconomicpolicies, infrastructure investments and inclusive growthprioritising productive employment.Cautious regional integration: inviting trade and FDIﬂows to support regional growth.Improved global governance: creating space formeaningful representation of African perspectives.Eradicating extreme poverty for all people everywhere by 2030,is the first goal among the UN Sustainable Development Goals(SDGs) expected to guide the post-2015 development agenda.In our recent Working Paper issued by the African DevelopmentBank, we summarised key studies on eliminating povertyglobally and examined the feasibility of this goal for Sub-Saharan Africa (SSA). We found that while extreme poverty inSSA is unlikely to be eradicated by 2030, it could be reduced tovery low levels. A ‘best case’ scenario, assuming acceleratedgrowth and redistribution from the richest 10 to poorest 40percent of the population, could bring the poverty rate down toaround 10 percent of SSA population by 2030.Given Africa’s potential and track record, its povertyeradication agenda under the SDGs will likely focus on creatingprosperity and reducing inequality. Experience of other regionsindicates that maintaining and even accelerating growth shouldremain a priority for the poverty reduction agenda (Dollar etal., 2013). Sustained poverty reduction will require growth thatis not only high but of higher quality, namely inclusive andgreen, as emphasised in the Ten Year Strategy of the AfricanDevelopment Bank (AfDB, 2013). Inclusive growth will benefitthe entire population, including the poorest. Green growth willleverage SSA’s natural resources and improve adaptation toclimate change, which otherwise would most severely impactthe poorest.The question is then which policies can produce such growthand improve SSA’s poverty outcomes? African countries need tofind their own path, depending on their circumstances andpriorities. Below, we discuss some of the national and regionalpolicies that they could consider.(i) National policies – Driving growth through structural21/06/2017 Eliminating extreme poverty in Africa: The role of policies and global governance - IGChttp://www.theigc.org/blog/eliminating-extreme-poverty-in-africa-the-role-of-policies-and-global-governance/ 2/4(i) National policies – Driving growth through structuraltransformation According to Rodrik (2015) two dynamics tend to drivegrowth: fundamental capabilities and structural transformation.Industrial policy –prioritisation of high potential sectors withproper incentives – is instrumental for structural transformationin SSA. Policies of successful countries share some commonfeatures, namely a stable but flexible macroeconomicframework; incentives for restructuring, diversification andmobility; investment in physical and human capital as well astechnology adoption; and strong institutions. Working fromthat foundation, country-specific circumstances can thendetermine which areas to prioritise.Macroeconomic policies can help facilitate high, stable andbalanced growth. The global financial crisis illustrated theimportance of financial flexibility. To engineer effective fiscalpolicy requires governments to have the capacity to implementdiscretionary counter-cyclical measures to protect growthduring recessions. Going forward, SSA will need to accumulatesufficient reserves during the booms to cushion the downturns.Resource rich countries in particular can benefit from fiscalrules that would encourage them to save windfall revenueswhen commodity prices are high. Fiscal policies should becomplemented by credible but flexible monetary policyframeworks. The flexible inflation targeting frameworks are notunique to SSA; in fact all inflation targeting countries, includingthe advanced economies with quantitative easing measures,have been targeting inflation while accommodating real shocks.Structural reforms are of course critical for both inclusive andgreen growth. It is well known that the lack of efficientinfrastructure in terms of access and quality hampers Africa’scompetitiveness and productivity, reaching development goals,and participation in the global economy. Well-known estimatespoint out that in SSA, real GDP growth could increase by1- 2percentage points a year if the region’s sizeable infrastructuregap (about $50 billion a year) was closed. Infrastructure alsopromotes human development by improving citizens’ access tosocial services and fostering more inclusive societies.Besides infrastructure, what measures can support structuraltransformation, by which we mean shift to more productiveactivities? On the supply side of the labour market, the policiescould aim at raising access to and quality of education andhealth services. This would enhance quality of human capital,productivity and well-being. On the demand side of the labourmarket, private sector development is critical. Together withefficient and effective social protection, it could go a long waytowards improving Africa’s labour market outcomes.Structural transformation can drive reduction in inequality andpoverty. The sources of growth clearly matter for povertyreduction and inclusion: new jobs need to be created inproductive and employment-intensive sectors. In particular,based on lessons from Latin American and other countriessuccessful in reducing poverty, growth needs to generateproductive jobs for large segments of the population. Thelessons from China suggest that to reduce poverty Africancountries should focus on raising productivity of agriculture,21/06/2017 Eliminating extreme poverty in Africa: The role of policies and global governance - IGChttp://www.theigc.org/blog/eliminating-extreme-poverty-in-africa-the-role-of-policies-and-global-governance/ 3/4countries should focus on raising productivity of agriculture,which in turn facilitates structural transformation, asmanufacturing absorbs workers from rural areas. Equallyimportant, Brazil has shown that the government can helpreduce poverty through well-designed redistributive programsand social protection, so far missing in most of Africa.In the era of increased frequency of extreme weather conditionsas well as gradual climate change, SSA countries’ prioritisationof transition to green growth will help reduce economic, socialand environmental risk. African priorities in reaching greengrowth include building resilience to climate shocks, climate-proof infrastructure, and efficient management of naturalresources especially water, among others (AfDB, 2013).(ii) Regional policies: Trade policy and the importance ofregional integrationRegional integration has gained momentum recently in severalregional economic communities (RECs), as evidenced byincreased intra-regional trade and flows of foreign directinvestment, as well as announcements aiming to formalise therelations and bring them to higher levels. Successful regionalintegration would indeed allow countries to draw on theircomparative advantages, leading to higher efficiency andgrowth as well as integration to global value chains, andreduced ‘among countries’ inequality. It would also provideplatforms for collective insurance (for example against foodinsecurity) and facilitate regional solutions to collectivechallenges such as climate change.Despite these payoffs, regional integration, in particularestablishments of monetary unions should not be rushed, as theexperience of the Euro zone indicates. Structural reforms mustsuccessfully address infrastructure gaps, harmonisemacroeconomic outcomes, and synchronise business cyclesbefore further monetary integration can occur among AfricanRECs. Regional strategies should initially focus on developingareas of industrial complementarity to raise countries’ capacityto trade, supported by building regional infrastructure tofacilitate movement of products, services, capital and, last butnot least, people.(iii) Global Policies: Reforming governance structures forinclusive growthIn the literature on growth and poverty reduction, policyrecommendations typically focus on actions, either individual orcollective, of African countries. Less attention is being paid tothe role that global governance should play.How are then influential institutions such as the G20 faring onsupporting inclusive and green growth, and hence povertyreduction, in Africa? Following the Seoul Consensus onDevelopment in 2010, the G20 placed development and lowincome countries once again at the centre of its post-2015agenda. Specifically, inclusive growth – or rather strong,sustainable, balanced and inclusive growth –has been a keyobjective of the G20 for some time. However, green growth isnot among the key priorities of the year, and gradually fadedfrom the agenda already in 2013 and 2014. Lastly, the G20group could also better link various development priorities (e.g.21/06/2017 Eliminating extreme poverty in Africa: The role of policies and global governance - IGChttp://www.theigc.org/blog/eliminating-extreme-poverty-in-africa-the-role-of-policies-and-global-governance/ 4/4group could also better link various development priorities (e.g.agricultural productivity with infrastructure, etc.) rather thantreating them as separate issues.Another related issue is Africa’s representation at the globaleconomic forums such as the G20. Voices of SSA countries areoften not heard on issues that impact them, reflecting theirlimited representation in the key global bodies. This can beaddressed only through reforms of the governance structures. Inother words, Africa needs to be well represented, as an equalpartner, in the key policy and decision making global structures.Only a global partnership with strong African representationcan tackle challenges as important as eliminating the region’sextreme poverty.   Further readingAfrican Development Bank (2013), At the Center of Africa’sTransformation: Ten Year Strategy 2013 – 2022, AfDB: Tunis.Bicaba, Z.; Brixiová, Z. and Ncube, M. (2015), ‘EliminatingExtreme Poverty in Africa: Trends, Policies and the Role ofInternational Organizations’, AfDB Working Paper #223.Dollar, D.; Kleineberg, T. and Kraay, A. (2013), ‘Growth is StillGood for the Poor’, World Bank Policy Research WorkingPaper 6568.Rodrik, D. (2015), ‘The Past, Present and Future of EconomicGrowth’, in Towards a Better Global Economy (edited by F.Allen et al.), Oxford University Press.

Eliminating extreme poverty in Africa: the role of policies and global governance

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