Poverty in Africa is Falling…Fast

According to a recent study by two economics professors, both poverty and level of inequality have fallen considerably since 1995:

The picture of Africa as a place of collapse, hunger, disease and death is slowly fading. Both official statistics and the popular press acknowledge a nascent “African Renaissance”, as the continent is enjoying its longest and strongest growth spurt since independence.

Nevertheless, it is still widely believed that this growth is primarily driven by oil and natural resource prices, and that it is confined to well-connected elites in geographically advantaged countries. The popular image is that the poor majority in all African nations and many African nations as a whole are stuck in “poverty traps” created by unfortunate geography and calamitous history. For example, the prospects of meeting first Millennium Development Goal of “halving, between 1990 and 2015, the proportion of people earning an income less than $1 a day” seem to appear bleak for Africa; the UN writes in its latest Millennium Development Report that “little progress was made in reducing extreme poverty in sub-Saharan Africa” (UNDP 2008).

We disagree. The sustained African growth of the last 15 years has engendered a steady decline in poverty that puts Africa on track to meet the Goals by 2017. If peace is established in the Democratic Republic of Congo, and it returns to the African trend (which is what happened to other African nations that were formerly at war), Africa will halve its $1/day income poverty rate by 2013, two years ahead of the 2015 target.

Moreover, African poverty reduction has been extremely general. Poverty fell for both landlocked and coastal countries, for mineral-rich and mineral-poor countries, for countries with favourable and unfavourable agriculture, for countries with different colonisers, and for countries with varying degrees of exposure to the African slave trade. The benefits of growth were so widely distributed that African inequality actually fell substantially.

This seems like a big find, if it is the case.  Per capita GDP is a poor indicator of poverty rates in any country (the top 1% of Americans own 26% of the wealth in the country, the highest level since 1929.  That is why something call the Gini coefficient was created to quantify levels of income inequality in a country.  From the graphs below, you see that the percentage of people living on less than $1 a day and the Gini coefficient have declined, while the GDP per capita has increased:

There are other reasons that could explain this trend.  Family planning and population control might mean that fewer people are sharing the same amount of GDP (which is an indicator of poverty reduction).  If you were looking at this graph alone, it doesn’t tell you much.  That is because GDP per capita is calculated by dividing total country revenues by the total population.  If the elite get all the wealth, GDP per capita still goes up and the statistic is misleading.  That is why the decline in the Gini coefficient, which is an indicator of income inequality in a country, is so important:

So during the same period that the continent experienced growth in GDP, income inequality declined.  This is a good thing.  The question that everyone would like to answer is why.  Is it because of foreign direct investment?  Smarter aid policies?  Reduced corruption?  Organic growth in domestic industries?  I’m not sure.  But if I had to guess, it has more to do with the broader regional stability that has come about in the last two decades and a subsequent rise in foreign investment as developed nations increasingly turn to Africa to satiate their voracious appetite for raw materials.  I wonder if it has anything to do with development. (H/T Andrew Kitchell)

Here is a not-so-convincing academic semi-rebuttal from the Chief Economist for Africa with the World Bank (Sarah Palin would have something to say about a title like that).

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