The World Bank reports 7 of the 10 most unequal countries in the world are in Sub-Saharan Africa (SSA). Why, some ask, has Africa’s high GDP growth of at least 5% over the past decade not taken as many people as should be the case out of poverty? The question is increasingly being raised as it is now almost certain that poverty would not have been halved by 2015 as envisaged by the United Nations’ Millennium Development Goals (MDGs). Data from the World Bank shows poverty incidence on the sub-continent in 1990 of 56.5% only reduced by 8 percentage points to 48.5% in 2010. The troubling paradox comes against the backdrop of the increasing number of US dollar billionaires on the continent. According to Forbes magazine, the wealth of Africa’s richest man, Aliko Dangote, increased more than 8 times to USD25 billion in 2014 (36% of which was acquired over the past year) from USD3.3 billion in 2008 when he debuted on Forbes’ billionaires list. Yet during that period (2008-10), poverty incidence in Sub-Saharan Africa only reduced by 0.7ppts to 48.5 in 2010 from 49.2 in 2008. Ventures Africa magazine actually reckons Africa’s billionaires have at least USD143 billion in total wealth. That is at least 11% of SSA’s 2013 GDP of USD1.3 trillion.
Incidentally, most of these estimates are quite conservative since they don’t include undocumented (or hidden) and informal wealth acquired or stolen by former dictators and corrupt government functionaries. For instance, the Tana High Level Forum on African Security estimates that at least USD1.8 trillion was illegally acquired and removed from Africa between 1970 and 2009. That is twice (2 times) SSA’s 2009 GDP of USD897 million. Another report jointly authored by the African Development Bank (AfDB) and Global Financial Integrity puts cumulative illicit flows out of Africa between 1980 and 2009 at USD1.2 trillion to USD1.4 trillion. These estimates are not inflation and opportunity cost adjusted by the way. In other words, if the inflation rate during the period were to be considered, the figure could be much more staggering. Never mind the other immeasurable and exponential benefits that could have accrued from spending on education, infrastructure and social grants during this period. In fact, if we assumed that USD1 trillion to USD2 trillion was the wealth accumulated between 1980 and 2009 and further assumed that USD33 billion to USD67 billion was the amount of wealth created each year, the future value using SSA’s average inflation rate of 18% for the same period amounts to USD26 trillion to USD53 trillion. That is 20 to 40 times SSA’s 2013 GDP (and 35% to 70% of the World’s 2013 GDP)! If you think these figures border on exaggeration, let us look at another example. Africa’s largest economy, Nigeria (39% of SSA GDP), earned at least USD643 billion (1.3 times its rebased 2013 GDP) between 1980 and 2009 from crude oil. That is 32-64% of the assumed USD1 trillion to USD2 trillion accumulated wealth in the sub-continent during the period. And Nigeria is just one of 45 countries in Sub-Saharan Africa. Clearly, the inequality gap in Africa has not been for a dearth of resources.
The staggering inequality gap in SSA is certainly a source of worry for its richest. A week before the 2014 WEF on Africa that the continent’s richest man is also co-chairing, Aliko Dangote announced an endowment of USD1.2 billion (c. 5% of his wealth) to his “Dangote Foundation” (founded in 1994) to support education, health and youth empowerment in Nigeria. The foundation’s model is largely based on a concept that is increasingly gaining attention in development circles; cash transfer programmes – according to Forbes, the Dangote Foundation disburses 50-80 US dollars in cash to Nigeria’s poor rural women and youths to start small businesses. Initiatives such as this, if emulated by the many formal (and even more informal or shadow economy) billionaires in Africa would go a long way in accelerating poverty reduction in Africa.
In its upcoming planned two-part 2015 Report on Africa, the World Bank would assess the state of poverty and inequality in Africa and also provide suggestions on how to accelerate poverty reduction on the continent. At a briefing during the Centre for the Study of African Economies (CSAE) Conference of the University of Oxford in March 2014, its officials highlighted their preliminary thoughts on how they reckon Africa’s high growth could be more broadly shared. They include the maintenance of strong macroeconomic discipline, building better human and physical capital, promoting growth in places and sectors where the poor are and the creation of social protection and promotion systems that enable them to be shared. That part about social protection and promotion systems is increasingly gaining resonance amongst officials of the bank and other development experts. Another highly regarded economist at the conference wondered if it was not an attempt at a “latin-americanization” of Africa; a not-so-veiled reference to the likely motivation of the esteemed economists for wanting to experiment with conditional cash transfers (CCTs) in Sub-Saharan Africa because of the relative success of a similar programme in Latin America (Brazil in particular). Its research showed families systematically invested part of the CCTs they received in human and physical capital and even saved as well. It is thus likely the Bretton Woods institution is now convinced the same policy could be adapted for Africa. Simply put, the World Bank reckons CCTs are a real policy option; in addition to sustained economic growth and increased agricultural productivity of course. A significant caveat though is that the potential success of such a policy would be contingent on good governance. Incidentally, that caveat may actually be the key to accelerating poverty reduction in Africa. Most (if not all) of past poverty reduction interventions in Africa have failed principally because of poor governance and corruption.
Cash transfers wouldn’t necessarily constitute an innovation in Africa, however. South Africa devotes a significant portion of its yearly budget to social assistance programmes. Its success with these programmes remain mixed with some critics arguing it has created a culture of dependence and remains a significant point of difference between the country’s ruling and opposition parties. According to South Africa’s Economic Policy Research Institute, social grants helped reduce the poverty rate in the country – for its lowest poverty line set at 131.27 South African Rand (ZAR131.27) in 1993 and ZAR497.45 (approximately 50 US dollars) in 2013 – to 38 percent in 2013 from 45 percent in 1993. So, there is evidence that supports the case for CT/CCT interventions. However, in the same period, South Africa’s unemployment rate increased to 25 percent in 2013 from 20 percent in 1994. A balanced view therefore would likely be that it should be one of a bouquet of policy interventions aimed at accelerating poverty reduction on the continent. To one’s mind, however, the focus should be on good governance. It is the foundation that all policy interventions must build on if they are to succeed.