The Changing Face of Poverty: Can Africa Surprise the World?

The Changing Face of Poverty: Can Africa Surprise the World?

The Robert McNamara Lecture

Dr. Ngozi Okonjo-Iweala

October 15, 2019

Harvard Kennedy School of Government

Opening remarks

Thank you all very much. It is a great pleasure to be here today and a true honor to have been invited to follow in such distinguished footsteps in giving this prestigious lecture which I have entitled, “The Changing Face of Poverty: Can Africa Surprise the World?”

Introduction

This being close to half a century since Robert McNamara’s seminal lecture which refocused the development agenda by offering a new definition of “absolute poverty,” I felt it appropriate to take this opportunity to return to this important and ever-challenging subject. Because Martin Luther King said,

“Whatever affects one directly, affects all indirectly. As long as there is poverty in this world, no man can be totally rich even if he has a billion dollars. As long as diseases are rampant and millions of people cannot expect to live more than twenty or thirty years, no man can be totally healthy, even if he just got a clean bill of health from the finest clinic in America…All this is simply to say that all life is interrelated. We are caught in an inescapable network of mutuality; tied in a single garment of destiny.”

Besides, it is really exciting and opportune to be reflecting on this subject at this time in light of Abhijit Banerjee, Esther Duflo’s and Michael Kremer’s win of the Nobel economics prize yesterday.

I know that many of you here are experts on this issue of poverty and so maybe what I say will be preaching to the choir but I do hope I can bring some fresh perspectives based on the fact that I have seen poverty from all sides and I have also seen hope and progress. I have seen poverty from my child hood in the village of Ogbe-Ofu, Ogwashi Ukwu in Delta state Nigeria, living with my grandmother till the age of 9, fetching water from a stream a couple of miles away, fetching firewood from the forest, and going with my widowed grandmother to the farm every weekend and school holidays. I have also seen poverty, hunger and malnutrition up close during my early teens from 1967-1970 when we lived through three years of the Nigeria-Biafra war. I know what it means to go hungry with one or no meals a day, seeing children dying of kwashiorkor and malaria day in, day out. As an adult with a long career at the World Bank, I have seen poverty around the globe from the small child smoking a cigarette to ward off hunger in the hills of Laos to a little girl dying from malnutrition in a rural hospital in India. And I have seen poverty from a macro and micro perspective as a two-time finance minister and minister of Foreign Affairs in my own country Nigeria. But most importantly, amidst this poverty I have also seen hope, the light and excitement in the eyes of poor girls and boys, men and women when they see the opportunity to change their lives and break out of their daily grind.

And so, I do hope that I may be able to offer some important perspectives on this subject particularly as it concerns Africa, a continent where peoples’ perception of “no hope” is often overwhelming. Picking up where Bob McNamara left off, my focus today is on the changing face of poverty globally and in Africa and what we can do about it. The numbers tell us that face is increasingly likely to be African. And rather than being that of the weather beaten and weary face of a subsistence farmer which we have long associated with poverty, today, what I see more often in my village, in the towns of Nigeria and all over Africa, is the face of an unemployed or underemployed rural or urban youth. But what I also see in that face is youthful energy and the opportunity to harness that energy productively, to create jobs and create wealth not just for that youth but also for his or her peers. But let me talk first about what you might call the “old face” of poverty and how that has changed from the seventies till now, and then turn more specifically to Africa, to examine what poverty looks like today but also what could be done about it.

The Old Face of Poverty

In 1973, Robert McNamara gave his now famous address to the Board of Governors of the World Bank in Nairobi where he coined the term “absolute poverty”, a term that has now come to define the way we measure progress and track the welfare of those at the bottom of the welfare ladder. He said,

“Despite decades of unprecedented increase in the gross national product of the developing countries, the poorest segments of their population have received relatively little benefit. Nearly 800 million individuals—40% out of a total of 2 billion survive on incomes estimated (in US purchasing power) at 30 cents per day in conditions of malnutrition, illiteracy, and squalor. They are suffering poverty in the absolute sense.”

At that time all regions—East and South Asia, Africa, Latin America were struggling with the same problems: how to grow their economies equitably, how to tackle hunger and malnutrition, increase life expectancy, improve maternal and infant mortality and increase literacy rates. The face of poverty was pretty representative of the developing world and in that sense pretty universal– it was Chinese, Indonesian, Thai, Indian, Latino, and African. It was the face of that tired rural female or male farmer and, in fact in terms of numbers, Africa represented just 10% of the absolute poor.

More than 2 decades later in 1997, Jim Wolfensohn, then President of the World Bank gave another famous speech on poverty again to the World Bank’s Board of Governors on the occasion of the annual meetings in Hong Kong. He called it “The Challenge of Inclusion.”

In the two decades since McNamara, there had been considerable progress: the proportion of people living in absolute poverty had fallen from 40 to 29%, though the numbers of those living below the then absolute poverty line of $1 a day had grown to 1.3 billion due to population growth. Life expectancy had increased from 60 to 66.8 years[1], literacy rates had improved from 77% to 85.2%[2] and maternal and under 5 mortality had improved. Maternal mortality had declined to 353 per 100,000 live births[3] and under 5 mortality had declined to 83.2 per 1,000 live births.[4] Much of that success was due to tremendous progress in East Asia especially China.

As Jim Wolfensohn put it in his speech,

“China’s success has been truly remarkable, less than a generation ago eight in ten Chinese eked out an existence by tiling the soil for less than a dollar a day. One adult in three could neither read nor write. Since then 200 mil people have been lifted out of absolute poverty, and illiteracy has fallen to less than one in ten.”

The face of poverty was changing to be less Chinese, less East Asian and more South Asian and African. But the essence of poverty was troubling. Whilst overall there was progress, some regions and some segments of the population were not progressing as fast as others and so were being left behind. It was this that Jim Wolfensohn saw as the challenge of inclusion or put the other way, the “tragedy of exclusion.”

The New Face of Poverty

Fast forward to 2019, coincidentally another two decades later, and the world has made even more progress. The proportion of people living under the absolute poverty line now $1.90 a day has fallen to less than 8% of the world’s population or 570 million people. Life expectancy has improved to 72.38 years[5] (2017), literacy rates up slightly to 86.2%[6] (2016) and maternal and under five mortality had declined to 211 per 100,000 live births[7] and 38.6 per 1,000 live births[8] But the face of poverty has shifted even more. Poor people located not just in low income but also in middle income countries are now concentrated in Africa and especially SSA. Of the 570 million people in absolute poverty, 453 million or 79% are in Africa, 35 million or 6% in South Asia, 30 million or 5% in East Asia, another 30 million or 5% in Latin America with the remaining 5% distributed to the rest of the world. In fact, projections show that at the current slow rate of poverty reduction, close to 90% of the world’s poor will be in Africa by 2030, a far cry from the zero target in the SDGs. This phenomenon is sharply illustrated by maps and charts put together by the Brookings Institution Poverty Clock project. Using today’s absolute poverty line of $1.90 a day to enable comparisons, they have calculated the headcount rate in 1973,1997 and 2019. The numbers indicate that by this measure, the world had 1.9 billion people in absolute poverty in 1973, 1.7 billion in 1997, with a dramatic fall to 570 million in 2019. You can see how the face or if you prefer “color” of poverty has shifted over the years. And behind the numbers in Africa is increasingly the face of an unemployed or underemployed young woman or man between the ages of 15-35.

So, What Happened in Africa?

Africa made some progress over the years like the rest of the world, but that progress has not been fast enough. The proportion of people in absolute poverty fell from 58% in 1997 to 41%[9] in 2019 but the absolute numbers of poor people have increased from 353 million to 453 million in the same time period due to population growth. Only a handful of countries in Africa have gone through the demographic transition so fertility rates are still very high in most countries. Literacy rates have improved from 56% in 1997 to 64.3%[10] (2016), so has life expectancy from 50 years in 1997 to 60.8 years[11] now (2017), maternal mortality has improved to 534 per 100,000 live births as of 2017[12] and under five mortality has improved to 77.5 per 1,000 live births in 2018.[13] But these rates are still far behind those of the rest of the world as we saw earlier and even farther behind what would be needed to attain the SDGs, the world’s new universal goals. For example, maternal mortality at 534 per 100,00 live births is 2.5 times the world average and almost 8 times higher than the SDG goal of less than 70 per 100,000 live births by 2030.[14] So, with respect to most indicators of welfare, Africa is not converging fast enough with the rest of the world. In the two decades since 1997 South Asia has clearly pulled away on the absolute poverty story leaving Africa, and in particular SSA at the center of this story. People are interested in what accounts for this, and this is of course an important question which I shall come back to in a moment but a more interesting question to me is, what accounts for the progress that was made, however inadequate that has been, and can it point the way out of Africa’s poverty problem?

First, on the causes of poverty, there are what I term the familiar causes. I already mentioned the issue of demography, and a delayed demographic transition on the continent. This is a very delicate subject not often discussed by policymakers, and best approached by focusing on strengthening girls’ education. With fertility rates still quite high at 4.7 births per woman[15], population growth rates are high averaging 2.68%[16] in 2019 so that per capita GDP growth rates are not high enough to lift people faster out of poverty. There is gender inequality. The lack of access by women to the services and means of production (including finance) needed to improve their lives and that of their households is a significant factor. Agricultural productivity in SSA is approximately 1/3^rd that in East Asia and Latin America.[17] The abundance of natural resources, its mismanagement, and the lack of transparency and accountability it has oftentimes engendered is another factor, and above all the lack of human and physical infrastructure—access to basic health, access to education-particularly quality education and skills acquisition relevant to today’s economy and society, access to power, roads, ports and telecommunications are important.

Key as a fundamental cause of poverty is a school of thought that argues that Africa’s poverty is due to a lack of progress on industrialization and its inability to undergo the model of structural transformation experienced by the East Asian countries and China. This model was based on large scale industrialization and export-led growth, in turn premised on education, skills and a competitive labor force. In fact, Africa’s share of manufacturing as a percentage of GDP has stagnated around 10% and the share of workers employed in manufacturing has peaked below that level.[18] This phenomenon has been termed premature deindustrialization by African scholars such as Lopes and Coulibaly. According to Coulibaly, its causes could be “the role of technological innovations in making manufacturing more capital and less labor intensive, as well as the impact of “globalization and competition.” As a result, labor moves from low productivity agriculture to low productivity services by passing the industrial sector.”

Furthermore, there is mounting pessimism about the likelihood of Africa being able to replicate the East Asian model. According to Joe Stiglitz, the reason the East Asian model cannot be replicated is that “manufacturing is the victim of its own success. Developments in the sector have done so much to improve productivity in terms of output per man hour that productivity has increased faster than demand. The result is that employment in manufacturing is now declining around the world which means that it can no longer support large scale employment creation.”[19]

Now, added to these familiar and fundamental causes of poverty are issues of conflict and fragility, terrorism, climate change and pandemics. Although the number of conflicts on the continent has decreased, there are still significant areas of fragility and conflict in Burundi, DRC, CAR, South Sudan, and the Horn of Africa. In addition, new forms of conflict have emerged in the form of terrorism in Libya, Mali, northern Nigeria, and Somalia. Climate change is accelerating the frequency and impact of certain weather based phenomena such as droughts now so frequent in southern Africa and the Sahel, and of course cyclones and floods such as we saw recently with cyclone Idai in Mozambique, Malawi and Zimbabwe where close to $1 billion in damage[20] was caused and 600,000 people displaced.[21]

Pandemics are also now added to the mix. We saw the 2014 Ebola pandemic in West Africa cause $2 billion in GDP losses in Liberia, Guinea and Sierra Leone while the recent outbreak in DRC has already led to more than 1000 lives lost. The combination of new and old causes of poverty is leading to displacement, migration to cities and migration outside the continent largely to Europe. Young people are increasingly willing to risk their lives in the Sahara Desert or the Mediterranean to seek a better future.

So, What Are the Solutions and How can Africa Surprise the World?

Africa offers the seeds to halt the increasing numbers of poor people, to reverse the tide, and change the face of poverty permanently. This brings me to the point I made earlier that, what is more interesting in the Africa poverty story is seeking to understand what was behind the progress that was made, understand the fresh progress being made now and the promising approaches for the future so we can build on all these to change the Africa story. It is possible for the poverty map to show Africa in lighter colors like the rest of the world in three decades from now by 2050, if we understand the successes and build on them and also tackle the difficult challenges.

First, Africa grew for one and half decades from 2000-2015 at 4-6% per annum higher than average global growth rates of 3.08%.[22] While part of this growth was due to favorable global demand for its primary products particularly from China, a large part of the growth was due to good macroeconomic management, sensible fiscal policies that held fiscal deficits down, prudent debt management strategies following the internationally supported HIPC initiative that brought SSA debt burdens down; monetary and exchange rate policies that led to single digit inflation and largely market determined exchange rates. African policymakers created the right macro-economic environment for investment and real sector growth, and this enabled them to weather the head winds and storms of the Great Recession of 2008-2009 better than expected.

Today, six of the ten fastest growing economies in the world are in Africa (Senegal, Rwanda, Ethiopia, Ghana, Cote d’Ivoire, Tanzania with GDP growth rates ranging from 6.6 to 8.3% per annum; the range of growth rates Africa needs if it is to pull people out of poverty and meet the SDGs). These countries are implementing sensible macroeconomic policies that are encouraging to the private sector and we need to encourage other countries to follow suit. We need to focus on three countries—Nigeria, South Africa and Angola that account for up to 53% of SSA GDP (2019) and a fourth, DRC which along with Nigeria drives SSA poverty headcounts. For all the good progress we may see in other countries, if these four countries do not improve their performance, socio economic indicators for the continent will continue to lag.

All countries need to save more and invest more as a percentage of their national income. Policy makers must focus on improving domestic resource mobilization because much of the investment needed to lift people out of poverty must come from domestic private and public resources. Africa has to lift tax to GDP ratios higher from an average of 18.2% in 2016. The IMF estimates that there is room for a 4% point increase in tax/GDP ratios in most SSA countries that could move them closer to the best performers in the region like Senegal and South Africa with ratios of 22 – 28%[23] Countries must focus on prudent debt management including transparent accounting for both domestic and external debt. The increase in the SSA debt to GDP ratio from 25% in 2007 following HIPC to 49% in 2018[24] is worrying if borrowing is not being productively used. When I focus on prudent debt management, I do not mean that countries that have the fiscal space should not borrow. In these times of low interest rates in international capital markets, countries that have the fiscal space could borrow to finance productive physical and human infrastructure. It is just that many countries that can ill afford it are plunging into capital markets and borrowing and they are not using it productively. They need to be more careful.

Second, African policymakers are more successfully combining macroeconomic reforms with micro and sectoral level reforms. There is an increasing realization that it is not enough to grow but the growth has to be inclusive, job creating growth aimed at putting the millions of young people entering the job market to work and improving their health, nutrition, education and welfare. To attract the private sector especially the millions of SME entrepreneurs on the continent to invest and create jobs, policymakers have embarked on business related reforms. In a recent Project Syndicate opinion piece “The High Growth Promise of an Integrated Africa”, Landry Signe and Ameenah Gurib-Fakim note,

“Political leaders are implementing reforms aimed at improving business conditions. In the World Bank’s 2019 Doing Business Index, five of the ten most improved countries are in Africa, and one third of all recorded reforms occurred in SSA. Already, returns on investment and entrepreneurship are rising fast. Over 400 African companies now boast annual revenues of $1 billion or more, and 700 more report revenues of over $500 million. An assessment of 360 companies from 32 African countries reveals an impressive average compound annual growth rate of 46% in 2019, up from 16% last year.”

These impressive numbers from a McKinsey study on Africa “Lions on the Move” concern companies in an array of sectors—food and agri processing, wholesale and retail, financial services, light manufacturing, and construction for example, where the study highlights important investment and job creating opportunities to service growing household and business consumption, Household consumption reached an estimated $1.4 trillion in 2015 and is projected to grow to $2.1 trillion per annum by 2025. The growing Business to Business market (companies selling to each other) reached $2.5 trillion in 2015 and is projected to reach $3.5 trillion in 2025.

Third, Africa is the world’s fastest urbanizing region. According to the McKinsey study, between 2015 and 2045, an average of 24 million additional people per annum will be added to Africa’s cities compared to 11 million in India and 9 million in China. Urbanization properly managed is strongly correlated with higher productivity and higher GDP growth. Africa’s Achilles heel is its poor infrastructure and low human capital indicators. Urbanization permits agglomeration economies often making it easier and cheaper to provide such services as electricity, transportation, health, education, financial services lacking in rural areas. Better management of urbanization can unlock Africa’s slums, enabling job creation vital to the youth who make up the largest category of the urbanizing population.

Fourth, some scholars in observing the success in combining macro, micro, sectoral and spatial level reforms to spur growth have noted that horticulture, tourism, creative industries, ICT, financial services are some of the fastest growing sectors in leading growth countries on the continent. A major research effort by the Brookings Institution’s Africa Growth Initiative, and the United Nations University World Institute for Development Economics Research (UNU-WIDER) looks at what it terms “industries without smoke-stacks” and wonders whether based on the patterns seen in these service sectors, Africa might be undergoing a different type of structural transformation than what we normally think of. The research has underscored that services, exports from Africa grew more than 6 times faster than merchandise exports between 1998-2015. Ethiopia, Ghana, Kenya and Senegal have become players in the global horticulture value chain; Rwanda, Senegal and South Africa have significant footholds in the ICT sector whilst tourism is now 30% of Rwanda’s total exports.[25]

In a piece by Coulibaly on Africa’s alternative path to development, he points out that John Page, one of the researchers and editors of the forthcoming “Industries without Smoke-Stacks” posits that these growing service sectors share the same characteristics as the manufacturing-export led growth in East Asia. They are tradable, they have higher productivity and can absorb large numbers of moderately skilled workers; and they benefit from technological change and economies of scale and agglomeration. The thinking is this: that if African policy makers can encourage and support these smoke stack less industries, they might offer a pathway out of the premature deindustrialization conundrum and enable Africa to transform and surprise by creating jobs, creating wealth and eradicating poverty faster than expected.

Fifth, Technology. I mentioned ICT earlier but wanted to dwell more on the potential role of technology. Africa is transforming in an era of rapidly changing technology and so can leapfrog and solve many of its development challenges through digitalization. Technology can be a powerful tool for poverty eradication. New diagnostic techniques such as the spatial targeting of poverty hotspots developed by Brookings allows more granular identification than before of where poor people live at community and district level, within urban and rural areas, so that better tailored interventions and services can be delivered to them improving poverty eradication outcomes. Biometrics gives people identities making it easier to identify and target poor people, especially women and children, with services. This to me is interesting because it mirrors the kind of microeconomic work done by Banerjee, Duflo and Kremer, to study problems and solutions for poverty from the vantage point of targeting and seeing what works at the ground level for poor people.

African governments and citizens are embracing new technology in a way that promotes inclusion. This is made possible by the ubiquitousness of mobile phones. There are now 750 million mobile phones in a population of 1.2 billion on the continent.[26] Their availability makes it possible to deliver a range of services from financial, to health and education services. The best known example is in mobile money where Kenya has led the way with the development of M-Pesa now also common in Tanzania, Uganda, and I was pleasantly surprised to see it being used as far afield as India among the Self Employed Women’s Association (SEWA) in Ahmedabad. Close to half (48.7%) of Kenya’s GDP is now transferred via mobile money.[27] Similar services are spreading over the rest of Africa such as Stellar in Nigeria bringing access to micro payments, remittances and other financial services to those previously excluded especially women and youth. This enables them to pursue the development of medium and micro businesses.

GAVI the Vaccine Alliance of which I am Board chair has supported Rwanda to pioneer a drone delivery service for vaccines, blood and other supplies in partnership with Zipline and UPS two American companies. This is enabling the government to strengthen primary care services in difficult to reach areas. Ghana has adopted the same approach with an extensive network that reaches 2,000 health centers and serves a population of 12 million people.[28] In education, there are many EdTech applications that are promising for example in Malawi, Onebillion’s One course, a software application that teaches reading, writing and mathematics to grades 1-3.

In her excellent article on “A Digital Africa” (Finance and Development June 2019) Vera Songwe cites the potential for a digital economy to open up service sectors from Business outsourcing to trade. According to her there are already more than 22,000 people employed in business outsourcing services across the continent in Nigeria, Ghana, Liberia, Sierra Leone, Burkina Faso, Chad and Niger and Mauritius. With respect to trade, she says,

“the advent of the newly ratified African Continental Free Trade Area (AfCFTA), will offer a framework for developing technology standards, harmonization and interoperability to support cross border commerce. Digital technology will play a dual role in turbo charging the free trade area. It will spur cross border trade by speeding implementation, automating processes, and reducing costs. New areas of digital commerce and services will open up including unlocking the supply chain logistics nightmare in many parts of Africa. Mobile devices, broadband networks, cloud services, the internet of things, and big data analytics could significantly lower the cost of planning, scheduling, tracking, delivering and managing goods, opening up a massive opportunity to create jobs.”

Songwe also cites Brookings Institution estimates that mobile technologies and services in Africa have generated more than $150 billion in economic value as of 2015 while the mobile ecosystem has supported 3 million jobs and contributed almost $14 billion in tax revenues in 2017.

In infrastructure, new solar, wind and geothermal technologies on and off grid are helping break the electricity access bottleneck in Africa helping households and businesses become more productive. As an example, three solar power companies in East and West Africa Mkopa, Solar Sisters, and Lumos have reached collectively more than 4 million people and are hoping to double that no within the next few years.

The examples I have cited here are just a few ways that technology is making and will make a difference to the eradication of absolute poverty in Africa. I could go into more detail on the promise of biometrics and digital identities which have made such an impact on access to services for the excluded in India especially women and children and promise to do the same in Africa.

Don’t get me wrong, I know some people will say I am getting carried away. After all, though mobile phone ownership is high, internet penetration is still low averaging 20% on the continent. But among young people, at 40%, internet penetration is double and likely to increase.[29] This means that those who will form tomorrow’s workforce and tomorrow’s policymakers will be more digitally connected and therefore better placed to use technology to change the face of poverty. This is another avenue in which I believe Africa can and will surprise!

Ladies and Gentlemen, Friends, I earlier said that Africa has the seeds to eradicate poverty. The conduct of good macroeconomic management, the effective use of appropriate microeconomic policies and the ability to reform and transform certain sectoral sources of growth—the so-called smoke stack less industries among others, offers a clear pathway. When combined with the promise of technology to transform service delivery whilst creating jobs, this offers Africa that opportunity to surprise the world. Our job as development experts and partners is to support Africans with the knowledge and encouragement, and where possible, resources to deliver. Friends, Africa has planted the seeds for poverty eradication. Policy makers must water the garden and our young people must nurture the plants and flowers and harvest the fruit because it is on this that their future depends.

Let me conclude by quoting Nelson Mandela who once said,

“Like slavery and apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the action of human beings.” … “Overcoming poverty is not a gesture of charity. It is the protection of a fundamental human right, the right to dignity and a decent life.”

I strongly subscribe to Madiba’s words and I know so do all of you. Let us then join hands to ensure Africa surprises!!

Thank you for listening.

[1] World Bank. https://data.worldbank.org/indicator/SP.DYN.LE00.IN?end=1997&locations=1W&start=1973

[2] World Bank. https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?end=2016&locations=1W&start=1976

[3] WHO, UNICEF, UNFPA, World Bank Group and the United Nations Population Division. https://www.who.int/reproductivehealth/publications/monitoring/maternal-mortality-2015/en/

[4] World Bank. https://data.worldbank.org/indicator/SH.DYN.MORT?end=2016&locations=1W&start=1976

[5] World Bank. https://data.worldbank.org/indicator/SP.DYN.LE00.IN?locations=ZG-8S-ZJ-1W

[6] World Bank. https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=ZG-1W

[7] World Bank. https://data.worldbank.org/indicator/SH.STA.MMRT?locations=1W

[8] World Bank. https://data.worldbank.org/indicator/SH.DYN.MORT?locations=1W

[9] Brookings.

[10] World Bank. https://data.worldbank.org/indicator/SE.ADT.LITR.ZS?locations=ZG