Inclusive Growth

Luc ChristiaensenOffice of the Chief Economist, Africa Region, World Bank

Presentation at Research Institute Meeting Lusaka, 19 Sept, 2014

Source: World Bank, Africa’s Pulse vol. 9Note: average growth between 2003-2014 for SSA (5.1%), SSA excl. South Africa (5.9%) and Developing countries excl. China (4.7%)

In the last decade, African growth proved resilient…Annual growth in GDP, 2003-2013: selected country groupings

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-2

0

2

4

6

8

10

5.12529164596962

6.25834639997169

4.33254624739081

Sub-Saharan Africa

Sub-Saharan Africa excl South Africa

Developing countries excl China

Perc

ent

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-2

0

2

4

6

8

10

2.42

3.464364322763992.79257821530022

Sub-Saharan Africa

Sub-Saharan Africa excl South Africa

Developing countries excl China

Perc

ent

… at around 2.4% p.a. in per capita terms.

Annual growth in GDP per capita, 2003-2013: selected country groupings

Source: World Bank, Africa’s Pulse vol. 9Note: average growth between 2003-2014 for SSA (2.4%), SSA excl. South Africa (3.2%) and Developing countries excl. China (3.1%)

As a result, Africa’s poverty incidence fell, but not spectacularly

In the last ten, extreme poverty fell by ten percentage points in Africa,.

1990 1993 1996 1999 2002 2005 2008 20100

10

20

30

40

50

60

70

East Asia and Pacific12.5

ECA 0.6

LAC 5.5MENA 2.4

South Asia31

56.5 59.4 58.1 58.055.7

52.349.2 Sub-Saharan Africa

48.5

$1.2

5 a

day

head

coun

t (%

)

Source: PovcalNet.

This “poverty reduction – growth gap” reflects the region’s low growth elasticity of poverty…

Bigger impact of each percentage point of growth on poverty reduction

Egyp

t, Arab

Rep.

Turke

y

Ukraine

Yemen

, Rep

.

Kazakh

stan

Argentina--

Urban

Peru

Philippines

Tunisia

Morocco

Vietnam

ColombiaNep

al

Bangla

deshIndia*

Indonesia*

Nigeria

Ethiopia

China*

Uganda

Iran, Is

lamic R

ep.

Tanzan

ia

Thail

and

Brazil

Mexico

Romania

Pakist

an

South Afri

ca-15

-10

-5

0

5

10

15

Growth elasticity of poverty reduction, 2000-2010Five most populous countries by region, except Poland and Sri Lanka

Source: estimates based on PovcalNet and WDI.

… which in turn reflects high inequality…Most African countries have high levels of consumption or income inequality, relative to the rest of the

world. Seven of the ten most unequal countries in the world today are in SSA.

NER

SDN

SLE

TGO

TCD

SEN

CIV

AGO

MDG ZA

R

MO

Z

COG

CPV

RWA

LSO

NAM SY

CIn

com

e S.

..

0

10

20

30

40

50

60

70

Gini

coeffi

cient

Source: PovcalNet

…and a growth pattern that is often not inclusive

Between 2004 and 2010, average p.c. household consumption grew by 6.5% in Malawi. But whereas the top 5% of the population experienced annual growth rates of almost

8%, the bottom 5% grew by between 1% and 3%.

0.5 4 7.5 11 14.5 18 21.5 25 28.5 32 35.5 39 42.5 46 49.5 53 56.5 60 63.5 67 70.5 74 77.5 81 84.5 88 91.5 95 98.50

1

2

3

4

5

6

7

8

9

Growth Incidence Curve, Malawi 2004-2010

Percentile

Perc

ent

Source: estimates based on household surveys from “Survey-based Harmonized Indicator Program (SHIP)”

For inclusiveness, the source and location of growth matters - Evidence from modeling

Growth from agriculture more poverty reducing, but also substantial heterogeneity in poverty reducing effects in growth from nonagricuture

Source: Dorosh and Thurlow, 2013

All

sect

ors

Agr

icul

ture

Non

-agr

icul

ture

Indu

stry

M

inin

g an

d uti

lities

M

anuf

actu

ring

Co

nstr

ucti

on

Serv

ices

Tr

ade

and

tran

spor

t

Fi

nanc

e an

d bu

sine

ss

Co

mm

unity

ser

vice

s

-1.2

-1

-0.8

-0.6

-0.4

-0.2

0

Poverty to growth elasticity (Malawi, Mozambique, Tanzania, Zambia)

Insights from Uganda (2005-2009)

Dynamic occupational changes

Pop. Share

Poverty headcount (%)

Share (%)nat. pov. reduction

Cons/adult equiv. ('000 constant UG

SH)

Annual growth

(%)

Share (%) national

cons growth

2009 2005 2009 2005

Total 100 24 28 100 776 697 2.7 100

Source: Christiaensen and Kaminski, 2014

For inclusiveness, the location and source of growth matters - Evidence from micro data

Insights from Uganda (2005-2009)Dynamic occupational changes

Pop. Share

Poverty headcount (%)

Share (%)nat. pov. reduction

Cons/adult equiv. ('000 constant UG

SH)

Annual growth

(%)

Share (%) national

cons growth

2009 2005 2009 2005

Ag-Ag 538 509 1.4 18

Ag-Nonag 808 691 4.0 20

Nonag-Ag 615 742 -4.6 -14

Nonag-Nonag 1443 1146 5.9 66Residual category 881 807 2.2 10

Total 100 24 28 100 776 697 2.7 100

Source: Christiaensen and Kaminski, 2014

Nonagriculture drives consumption growth

Insights from Uganda (2005-2009)Dynamic occupational changes

Pop. Share

Poverty headcount (%)

Share (%)nat. pov. reduction

Cons/adult equiv. ('000 constant UG

SH)

Annual growth

(%)

Share (%) national

cons growth

2009 2005 2009 2005

Ag-Ag 49 31 36 70 538 509 1.4 18

Ag-Nonag 13 17 27 35 808 691 4.0 20

Nonag-Ag 9 28 21 -16 615 742 -4.6 -14

Nonag-Nonag 17 10 9 -2 1443 1146 5.9 66Residual category 11 24 29 13 881 807 2.2 10

Total 100 24 28 100 776 697 2.7 100

1) 2/3 of growth due to income growth among people in nonag (Kampala); 2) > 2/3 of poverty reduction due to increase in ag incomes

Source: Christiaensen and Kaminski, 2014

Agriculture drives poverty reduction growth

Insights from Uganda (2005-2009)Dynamic occupational changes

Pop. Share

Poverty headcount (%)

Share (%)nat. pov. reduction

Cons/adult equiv. ('000 constant UG

SH)

Annual growth

(%)

Share (%) national

cons growth

2009 2005 2009 2005

Ag-Ag 49 31 36 70 538 509 1.4 18

Ag-Nonag 13 17 27 35 808 691 4.0 20

Nonag-Ag 9 28 21 -16 615 742 -4.6 -14

Nonag-Nonag 17 10 9 -2 1443 1146 5.9 66Residual category 11 24 29 13 881 807 2.2 10

Total 100 24 28 100 776 697 2.7 100

1/3 of poverty reduction due to rural income diversification (mainly rural self employment) and 20% of income growth

Source: Christiaensen and Kaminski, 2014

Together with rural nonfarm employment

Increasing productivity of rural household enterprises along with agricultural productivity is key for poverty reduction

In sum

-0.8

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

-0.70-0.66

-0.15

0.02

-0.48

-0.16

Growth semi elasticity of poverty Uganda 2005-09

Not all agricultural growth is equally poverty reducing

World Bank: Africa’s Pulse Vol 9, 2013

Not all agricultural policies are equally poverty reducing

Zambia

• 2006-2011: doubling of maize & cereal output; > 50% through yield increase

• Poverty – remained virtually stagnant

• Policies: above market floor prices and fertilizer subsidies

Rwanda

• 2006-2011: tripling of cereal output, 73% increase in cereal yield, 52% increase in R&T yields

• Poverty declined by 12%point, 45% coming from agriculture (productivity and marketing)

• Crop Intensification Program (concentrated support on smallholders, focused on one crop; fertilizer subsidized 1 yr) Elaborate the strategic goals – focus on the staples

Evidence based policies necessary

Agriculture drives poverty reduction in Rwanda(14% points between 2001 and 2011)

Figure 7: Agriculture Accounted for the Bulk of Rwanda’s Poverty Reduction 2001-2011

Source: World Bank (2013b)

Increased Agricultural Production

35%

Increased Agricultural

Commercialization10%Decreased

Dependency Ratio9%

Non - Farm Self Employment

13%

Non - Farm Wage Employment

3%

Other Factors and Unexplained Part

30%

And growth that takes place “away from the poor” can also be harnessed

• The natural resource sector is seldom directly pro-poor• The rents it generates should typically be re-invested

– Building other forms of capital to replace the natural capital being depleted

• Cash transfers targeted to the poor have a place in that investment portfolio

Equatorial Guinea*

Angola Republic of Congo

Mozambique Nigeria Uganda Tanzania

8,365.7

3,263.4

1,788.3

642.5298.1 52.8 48.9

Annual per capita transfer to poor individuals from 10% of annual estimated natural resource fiscal revenues

Note: The poverty line is US$1.25 at PPP exchange rates, except for Equatorial Guinea , where the national poverty line was used. Perfect costless targeting is assumed. Estimates of fiscal revenues from natural resources are from De-varajan and Giugale (2013)

The “CCT revolution” in social protection…

Since the late 1990s, conditional cash transfers have shown that:(i) Good targeting is possible(ii) Transfers to increase family incomes and reduce poverty(iii) Households use the transfers to improve nutrition,…

…is coming to Africa.

…increase investments in human capital;

Source: Baird et al. (2013)

Thank you for your attention

http://www.worldbank.org/en/region/afr/brief/office-of-chief-economist-in-the-africa-region-afrce