Reducing poverty requires effort

By Donasius Pathera:

Poverty reduction is not a process that is done based on theoretical assumptions. It has to be fought using home-grown solutions or customised ones based on the situation each country is facing.

For a long time, most African countries have had policies or adopted policies that are meant to reduce poverty; however, the results have been awful.

The problem may not be necessarily that the policies are bad. It could be that the policies do not suit the local context. Not all countries need similar solutions to their problems. The fight against poverty is not a business-as-usual concept. For sure, there has been a Washington Consensus that has been considered as ‘sacred economic guide’ for over 40 years.

The Washington Consensus that is deemed as a mother of economic policies had a commanding voice, especially for developing countries.

They had typical policy prescriptions to developing countries facing serious large balance of payment problems, debt sustainability challenges, a shortage of external financing, and a low growth in the 1980s and were aimed at restoring domestic and external balance by putting them back on the path of long sustainable growth. These were designed by the Bretton Woods institutions and encapsulated in structural adjustment programmes (SAPs), which combined lending exchange reforms.

Structural adjustments programmes were meant to ensure that developing countries have stable economy and that their inflation is lowered, and there is reduction of account deficit, restored external competitiveness and limit the loss of international reserves.

Now, looking at policies that most African countries adopted, we seem to be far from the dream and poverty has humbled us from all corners. There were basically ten crucial policies that were supposed to be adopted and these are; fiscal discipline, reordering public expenditure priorities, tax reforms, liberalisation of interest rates, a competitive exchange rate, trade liberalisation, liberalisation of inward foreign direct investment, privatisation, deregulation and property rights.

Honestly, all these policies look reasonable but a policy package for low income countries-that are by definition at different levels of development and therefore exhibit different endowment structures, comparative advantages, and capabilities, generic, one size fits all economic strategies with a predetermined sequencing-may not yield the same expected results.

For example, how has privatisation of state-owned enterprises benefitted Malawi? Much as this policy worked in some countries, it is evident that as a country we need to do a soul searching if this policy helped in reducing poverty or not.

We must understand that poverty reduction has been a song for along time among the experts; however, there are some small things that miss in their quest to fight poverty. In the early 2015, ‘eradicating extreme poverty for all people everywhere by 2030’ topped the list of UN Sustainable Development Goals (SDGs) expected to guide the post-2015 development agenda.

Given Africa’s potential and the track record, its poverty eradication agenda beyond the MDGs should focus on wealth creation and prosperity, together with reduced inequality. These goals can be achieved through growth that is high, but also of higher quality, namely inclusive and green.

In other words, the African Development Bank says, as Africa becomes a global growth pole in its own right, its growth should benefit all segments of the population and be environmentally sustainable.

The importance of eradicating poverty by 2030 has been widely recognized and gained consensus among international organisations as the UN post- MDG goals have been discussed. Further, in 2013, the World Bank and its Governors endorsed two inter-linked goals: to end extreme poverty by 2030 and to promote shared prosperity in every society.

The specific targets are: To bring the share of global population living below this threshold to less than 3 percent; and to foster the per capita income growth of the poorest 40 percent of the population in each country.

Several studies pointed out that bringing the extreme poverty below 3 percent of the global population by 2030 would be challenging but achievable. On a positive side, the poverty rate could be brought down to low levels – around 10 percent of SSA population in 2030.

In ensuring that Malawi moves out of poverty, let us consider our competitive and comparative advantage.

There some steps as a country we can take to ensure that the fight against poverty is effective. Let us consider our latent sectors; sectors that do not need much capital but can help us move faster on international market.

The aquaculture sector has been underrated for a long time, no much of value addition that can make us competitive on the market. As a country we need to do a sectoral shift that is shifting our economy’s resources out of traditional agriculture and other low productivity activities and expanding the modern sectors (that’s including non-traditional agriculture) for the economic development.

Margaret Mc Millan and Dan Rodrik observed that the countries that manage to pull out of poverty and get richer are those that are able to diversify away from agriculture (this means adding value to the agriculture products not selling them as raw) and other traditional products.

As labour and other resources move from agriculture into the modern economic activities, overall productivity rises and incomes expand.

Finally, the production structure is critical. The changing of factor endowments (mainly physical and human capital) are an important first element of structural change. For the export composition; considering that many developing countries rely on trade to sustain dynamic growth, the composition of the export basket is an important variable to structural change.

Lastly, technological upgrading and innovation are indispensable ingredients for long run productivity growth. Do we want to move out of poverty?

Let us try a new way of doing things.