Poverty and inequality remain rife in Africa despite steady growth
African Development Bank report says only about a third of countries on the continent achieved inclusive growth in recent years
While Africa’s economies are growing strongly, the continent will not meet its target to eliminate poverty by 2030 if current growth trends persist, according to a report by the African Development Bank (AfDB).
The AfDB will present the report at the AU summit on Friday. The weeklong summit taking place in Addis Ababa, Ethiopia, will focus on creating conducive conditions for Africa’s development. Egypt will also hand over the AU presidency to SA at the summit.
“Ending extreme poverty by 2030 remains a challenge in most African countries. Countries with active inequality-reducing policies have better prospects of reducing extreme poverty more by 2030.
“If historical trends persist, Africa will not eliminate extreme poverty by 2030,” the authors of the report said.
Extreme poverty broadly refers to people living on less than $1.90 (R28.12) a day.
The extreme poverty rate (weighted by population) would fall from 33.4% in 2018 to 24.7% in 2030 but remain far above the 3% target.
In this case, the number of extreme poor would fall slightly by close to 8-million people, from 429.1-million in 2018 to 421.2-million in 2030. In addition, poverty rates in all regions but North Africa are expected to remain well above the 3% target by 2030.
AfDB president Akinwumi Adesina said to make Africa’s growth more inclusive, countries need to deepen structural reforms to diversify their productive base and build resilience to extreme weather conditions by adopting climate-smart agricultural techniques. They must also create more fiscal spaces to expand social safety nets and remove obstacles to the movement of workers to more productive opportunities within and across countries.
“Fostering more inclusive growth would also require building Africa’s human capital and creating more jobs in high-productivity sectors,” he said.
The bank’s 2020 African Economic Outlook report published this week states that Africa’s economic growth stabilised at 3.4% in 2019 and was expected to pick up to 3.9% in 2020 and 4.1% in 2021, but to remain below historical highs.
Leading the way are six countries among the world’s 10 fastest growing economies: Rwanda, Ethiopia, Ivory Coast, Ghana, Tanzania and Benin. In Southern Africa, growth slowed from 1.2% in 2018 to 0.7% in 2019, dragged down by cyclones Idai and Kenneth and the devastation of infrastructure and agriculture in Malawi, Mozambique, and Zambia combined with weak growth in SA, Zimbabwe, Angola and Namibia.
Growth in SA remained lacklustre, slowing to 0.7% in 2019. It was dragged down by the slow recovery in commodity prices and the financial risks associated with unbudgeted bailouts for ailing parastatals, the bank said.
Growth in the South African economy — mainly driven by the services, manufacturing and mining sectors — has been slow since 2011, when it recorded 3.3%. Since then, growth has generally been trending downward to below 2% from 2014.
According to the AfDB report, while the continent’s economy as a whole is growing steadily, growth has not been inclusive — as reflected in persistently high inequality.
Moody’s Investors Service, the last remaining credit ratings agency to hold SA at investment grade, recently warned that rising income inequality could curtail growth, potentially compromising a country’s credit profiles. Moody’s noted that SA has the highest reported income inequality worldwide, and inequality in the country has increased over the past decade, where it has decreased in emerging markets more broadly.
The AfDB report found that only about a third of African countries have achieved inclusive growth in recent years, including Ghana, Ivory Coast and Togo. Growth is generally considered inclusive if its benefits are widely shared across all the segments of the population — that is, if it simultaneously reduces extreme poverty and inequality. Growth will reduce poverty if the mean income or consumption of the poor rises and if the welfare of the poor grows faster than that of the rest of the country, the bank said.
Countries with better education outcomes and higher rates of structural change are more likely to achieve inclusive growth.
Meanwhile, public and publicly guaranteed debt levels are high and rising in most African economies, with the median ratio of government debt-to-GDP climbing over 56% in 2018, up from 38% 10 years earlier. The continent’s total external debt burden reached nearly $500bn with Eurobonds more than a fifth of that.
The AfDB said the upward trend in external debt ratios is partly a by-product of the end of the commodity super cycle, and slowing growth and export revenues, especially among commodity producers.
But it also stems from a more stable macroeconomic and governance environment, which allowed more African countries to tap international bond markets for the first time, some at 30-year maturities.