Targeted Policies Mean True Transformation in Africa

IMF Blog, May 8, 2014

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Author: Antoinette M. Sayeh
Date: May 8, 2014
Central question: What concrete policies can make growth in sub-Saharan Africa more inclusive and reduce poverty?

Growth in sub-Saharan Africa over the past 15 years has on average been quite strong.
Several human development indicators, including infant and maternal mortality, primary school enrollment and completion rates, have improved.
Despite improvements, many countries will not be able to meet the United Nations Millennium Development Goals, especially that of halving poverty.
Conclusion: Strong growth is necessary to generate revenue for clinics, schools, and qualified nurses and teachers, but growth has not been sufficiently inclusive in many countries.

Both Mozambique and Vietnam delivered remarkably similar growth in GDP per capita over extended periods and both transitioned from centrally planned economies after prolonged wars.
Divergence in poverty reduction:
- Vietnam managed to more than halve its poverty between 1992 and 2004.
- Mozambique made progress but fell well short of Vietnam’s achievement.
Two key drivers of Vietnam’s stronger poverty reduction:
- Sustained increases in agricultural productivity in staple crops (rice) and cash crops (coffee).
- Significant generation of employment outside agriculture, especially in low-skill manufacturing and services.
Productivity comparison (agriculture, 15-year period):
- Vietnam: total factor productivity in the agricultural sector improved by 50 percent.
- Mozambique: total factor productivity in the agricultural sector improved by less than 15 percent.
Mozambique’s high economic growth has largely emanated from “mega-projects”—aluminum smelters, coal mines—which are capital intensive and typically do not employ many people, limiting direct poverty-reduction impacts.

Maintain macroeconomic, financial, and social stability as prerequisites for sustained improvements in income and social indicators.
Create physical infrastructure and incentive structures that allow the economy to create more productive jobs.
Prioritize absorption of a rapidly growing young labor force:
- By 2020 more than a third of the working-age population in sub-Saharan Africa will be below the age of 25.
- Absorbing these people into productive activities is crucial to avoid social tensions and political instability.
Support household enterprises (largely in agriculture and services) to increase their productivity, because:
- This is where most people in sub-Saharan Africa are—around 60–70 percent of the population.
Promote financial inclusion to foster more inclusive growth by:
- Encouraging savings and removing financing obstacles to entrepreneurial activities.
- Lowering transaction costs for the poor (for example, mobile money transfers) facilitates financial inclusion more rapidly than creating specialized financial institutions.

Targeted policies that promote structural transformation—raising agricultural productivity and expanding non-agricultural employment—can make growth more inclusive and accelerate poverty reduction.
Complement public-revenue-generating mega-projects with policies that increase labor productivity for a broad segment of the population.
Financial inclusion and support to household enterprises offer high returns in terms of poverty reduction and inclusive growth.
Shared growth is described as more likely to be stronger and more durable, making inclusivity both a moral and pragmatic imperative.

Source: Antoinette M. Sayeh, "Targeted Policies Mean True Transformation in Africa", May 8, 2014.