Beyond Growth: the Importance of Inclusion

IMF Blog, July 7, 2011

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Author: Antoinette M. Sayeh
Publication date: July 7, 2011
Central question: While growth is necessary for poverty reduction and employment creation, is it sufficient to ensure that benefits accrue broadly across populations?

Inclusive growth creates jobs and raises income, which:
- Advances social justice, peace, and political stability.
- Can start a virtuous growth circle: the poor spend most of additional income on basic needs, supporting demand, which fuels further income and profit growth.
- Larger-scale production and better health and nutrition improve worker productivity, reducing costs and increasing output.
Empirical suggestion: high income inequality, especially in low income countries, inhibits growth.
Link to development goals: progress on inclusion matters for progress toward the Millennium Development Goals by 2015.

Resource-concentrated growth:
- Growth concentrated in natural resource sectors (mining, oil) tends to be capital intensive, creating little domestic employment.
- These sectors can be difficult to tax and often result in only a small share of profits being retained domestically and used to reduce poverty.
Persistent reliance on small-scale/subsistence agriculture:
- Majority of population in most African countries depends on small-scale or subsistence agriculture.
- Limited public infrastructure investment and limited access to financing have kept agricultural productivity low and households cash poor.

Policies to create jobs, increase productivity, and diversify activity:
- Mozambique: new poverty reduction action plan increases spending for job-creation in agriculture.
- Uganda: earmarked public savings to finance a new hydro-electric project.
- Tanzania: intensified efforts to eliminate red tape impeding private enterprise.
- Emphasis: public infrastructure (transportation, water, energy) and regulatory reforms.
Strengthening social safety nets:
- Ethiopia: cash and food transfer program that improved food security and retained livestock holdings.
- Rwanda: cash transfer and public works programs that reduced extreme poverty dramatically.
- Purpose: reduce income inequality and protect vulnerable people during economic downturns.
Managing natural resource revenues:
- Countries reviewing or changing tax regimes for natural resources to retain more profits domestically, including Democratic Republic of the Congo and Liberia.
- Simultaneous introduction of more transparent procedures to manage these resources.

Program and policy advice:
- Reinforce countries’ efforts to boost productivity and diversify production.
- Support processes to identify and select investment projects with widespread returns.
- Promote simple and transparent rules for starting businesses.
Technical assistance for natural resource management:
- Redesigning tax systems.
- Establishing sovereign wealth funds as special accounts to manage and safeguard monies until needed.
- Advising on rules for spending and mandatory public monitoring.
Social protection design and financing:
- Support for designing and financing social safety nets to provide social protection and create automatic stabilizers that rapidly expand government spending to contain impacts of economic shocks.

The IMF’s next Regional Economic Outlook for Africa will explore these questions in more depth (to be released in October of this year).
Near-term priority for many countries: establish economic stability and create conditions for robust economic growth.
For an increasing number of countries, the distribution of the benefits of growth has become a dominant policy agenda item as they strive to meet the Millennium Development Goals by 2015.

Source: Beyond Growth: the Importance of Inclusion — Antoinette M. Sayeh, July 7, 2011