EXTREME POVERTY ERADICATION IN THE LDCs AND THE POST-2015 DEVELOPMENT AGENDA

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1 EXTREME POVERTY ERADICATION IN THE LDCs AND THE POST-2015 DEVELOPMENT AGENDA For presentation at the Special Event Launch of the OHRLLS Flagship Report State of the Least Developed Countries 2014 Thursday, 23 October 2014, UN Headquarters, NY By Augustin K. FOSU Professor, ISSER University of Ghana, Legon, Ghana

2 Outline Introduction LDCs progress on extreme poverty Accounting for poverty progress in LDCs: Improvements in income vs. inequality Factors influencing poverty progress Eradicating poverty - A policy foundation for sustainable progress Toward a post-2015 development agenda for LDCs

3 Introduction Importance: Extreme poverty eradication is enshrined as goal 1 in the Millennium Development Goals (MDGs). With more than 75% of their citizens living on less than US$2 a day and nearly 51% on less than US$1.25 a day, the LDCs are the poorest and the most vulnerable countries in the world (UN, 2011). These compare with developing countries (DCs) generally of 39% and 21%, respectively. Note, however: Even among LDCs, there are considerable differences (based on our present sample of 29 countries), with a range of: 2% (Bhutan) to 81% (Burundi).

4 Progress on Extreme Poverty: LDCs (vs. DCs) Since the 1990s, there has been a steady progress in all three measures of poverty for both LDCs and the DCs generally. During for LDCs: Poverty Headcount (Incidence): fell by 27% (compared with 49% for DCs) Poverty Gap (Spread): fell by 32% (compared with 54% for DCs) Poverty Gap Squared (Severity): fell by 33% (compared with 54% for DCs) Thus, progress on poverty has been even faster among DCs generally Furthermore, the LDC-DC relative poverty rate is actually larger for the spread (3.0) and severity (3.5) than for the incidence (2.3)

5 Progress on Extreme Poverty (Incidence): Some Country Differences among LDCs Top 2 quintiles: Bhutan, Cambodia, Nepal, Gambia, Timor-Leste, and Togo Ethiopia, Guinea, Mali, Mauritania, Senegal, and Uganda Bottom quintile: Burundi, Madagascar, Sierra Leone, Tanzania, Yemen and Zambia (poverty increase for only Madagascar, Yemen, and Zambia)

6 Accounting for Progress on poverty: Improvement in income and inequality? On average, income growth has been the main mechanism for progress on poverty (consistent with the global evidence). However, inequality was consequential in many countries In most cases it was complementary In certain cases it reduced the progress attributable to income growth And, in some cases it was mainly responsible for the limited progress on poverty

7 Factors influencing LDCs poverty progress Four main thematic determinants: Institutional frameworks Gender equality Infrastructural development and service delivery External factors

8 Factors influencing poverty progress, cont d Institutional Quality (IQ) (analysis based on the 29 LDCs) Progress on poverty is positively correlated with Institutional Quality (IQ) measures: rule of law, government effectiveness, control of corruption and political stability For example, Bhutan, the LDC with the highest progress on poverty, is also ranked in the topmost quintile on IQ Also, Senegal, ranked in the second top quintile on poverty reduction, is in the topmost quintile on IQ Similarly, Burundi and Yemen both fall in the lowest quintile on IQ and also in the lowest bottom quintile on poverty progress (and Angola, CAR, and G-Bissau were all ranked in the bottom quintile on IQ and in the penultimate bottom quintile on poverty progress)

9 Factors influencing poverty progress, cont d Gender Equality Constraints on women empowerment and gender parity in LDCs are due to a variety of factors, which are indicated in the report and are to be better articulated by others Casual Empiricism: Bhutan, Cambodia and Nepal, all top performers on poverty progress also display relatively low values of the gender inequality index (GII) (UNDP, 2013) In contrast, Tanzania, Sierra Leone and Yemen, all bottom performers on poverty, exhibit high values of GII. (UNDP, 2013)

10 Factors influencing poverty progress, cont d Infrastructure and Service Delivery Infrastructure development is a key to achieving economic development and eradicating poverty, through growth, but also by reducing inequality (Estache, Foster and Wodon 2002; Estache and Wodon, 2011; Ogun, 2010). Improvement in public service delivery would enhance household incomes by allowing time currently spent on domestic activities to be used for generating income (Barwell, 1996).

11 Bhutan: A development success story Among the countries assessed, Bhutan is the most successful on all the three measures of poverty reduction, and on per capita GDP growth, income growth and on reduction in inequality. The explanation? Enhanced public service delivery (IMF, 2010a) Resulting from decentralization, and improved political and administrative capacities Relatively high gender equality Structural transformation toward higher industrial shares How? As part of effective five-year plans with the support of various donors and development partners

12 Ethiopia: Agriculture takes the lead Ethiopia, ranked in the second top quintile on poverty reduction, has relied on agricultural development Agriculture, increasing sector share of GDP and currently the leading sector share How? In 1994, the Agriculture Development Led Industrialization strategy adopted by the Ethiopian Government became the basis of more than a decade of reforms, policies and strategies, e.g., increased investment in (Berhanu, 2012): National research centres Rural infrastructure Farming training centres Facilities for vocational education on crop production Water use and management.

13 Tanzania: Growth with greater inequality and limited progress on poverty Tanzania s high economic growth began in 2000, following economic reforms, driven mainly by relatively capitalintensive sectors, generating little in the way of employment. Consequently, there has been limited income growth, with increased inequality (bottom quintile). With little change in the agricultural sector, the source of livelihoods for 80% of Tanzanians, household income increased little (penultimate bottom quintile), and poverty fell only slightly (bottom quintile on all three poverty measures). Upshot: The industrial and service sectors are the main contributors to GDP. Yet, employment generation in both sectors remains low (World Bank, 2014).

14 External factors keep LDCs on the margins Global economic integration remains incomplete in LDCs, due to: The gradual erosion of the marginal trade preferences extended to the LDCs Structural difficulties (supply constraints) Barriers to international market access Existence of tariff and non-tariff trade barriers Agricultural support and subsidies in OECD countries Financial flows (e.g. ODA, FDI and new sources of innovative finances) remain modest. ODA continues to be the largest and most critical source of external financing FDI flows to the DCs have risen steadily since the turn of the century; yet LDCs are at a relative disadvantage in attracting FDI.

15 Concluding: Eradicating poverty - a a policy foundation for sustainable progress Eradicating poverty in LDCs Raising income growth Reducing income inequality Policies likely to accelerate and sustain growth would comprise not only those that expand the factors of production, but also those that enhance total factor productivity (TFP). Redistributive strategies, with careful attention to each national context.

16 Concluding: Eradicating poverty - a policy foundation for sustainable progress, cont d Enhance institutional quality (IQ) Reduce market imperfections and improve service delivery Reduce gender inequality at all levels (by improving women s access to economic opportunities through vocational and managerial skills, and access to land, technology and finance). Improve domestic resource mobilization

17 Concluding: Eradicating poverty Toward a post-2015 development agenda Accelerate infrastructure development for creating an enabling environment for structural transformation and accelerated growth. Strengthen productive capacity in all sectors through technological capabilities and greater value addition (including gender equality). Improve the capacity of LDCs statistical agencies to collect, process, store and disseminate accurate and reliable data. Improve institutional quality (IQ) for ensuring a supporting policy framework. Strengthen international development cooperation. These should form the basis for the post-2015 development agenda.

18 Thank you!