Tackling Inequality in sub-Saharan Africa Could Yield Mileage on Growth
IMF Blog, November 16, 2015
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- Authors: Antoinette M Sayeh
- Published: November 16, 2015
Overview
- Rising inequality in sub-Saharan Africa is both a moral and economic issue with implications for prosperity and growth.
- The region remains one of the most unequal in the world, on par with Latin America.
- Over the last 15 years of high growth, per capita incomes in sub-Saharan Africa have risen, but income inequality within countries has remained broadly stable and gender inequality has declined more slowly than in other regions.
Findings on inequality and growth
- Research by the IMF’s African Department finds that inequality has an adverse effect on growth in the region.
- Real per capita GDP growth in sub-Saharan African countries could be higher by close to one percentage point per year if income and gender inequalities were reduced to the levels observed in the fast-growing economies of Southeast Asia (Indonesia, Malaysia, the Philippines, Thailand and Vietnam).
- This potential increase is as much as half of the growth gap between those Asian countries and sub-Saharan Africa.
Heterogeneity across country groups
- The finding does not apply uniformly to all 45 countries in sub-Saharan Africa:
- Low-income and fragile countries (e.g., Niger and Mali):
- The drag on growth is stronger from infrastructure and human capital gaps and, to a lesser degree, from prevailing gender barriers.
- Policy priority: address infrastructure and human capital gaps to raise growth.
- Middle-income countries (e.g., South Africa):
- There could be a larger growth dividend from policies directly aimed at reducing inequality.
- The growth payoff from reducing income and gender inequalities to the Asian countries’ level appears higher than that of closing the infrastructure gap.
- Oil exporters (e.g., Angola and Cameroon):
- Legal restrictions on women’s participation in economic activities combined with the infrastructure gap are the most important factors explaining the growth differential with the Asian countries.
Policy recommendations
- Fiscal policy reforms:
- Phase out Value Added Tax (VAT) exemptions and reduced rates for basic goods that weaken the VAT’s yield and mainly benefit the better off.
- Transform expenditure policy into a sharper tool for addressing inequalities.
- Abolish fuel subsidies, which mainly benefit middle and higher income households, and replace them with transfer schemes targeted at poor households.
- Financial inclusion:
- Improve access to financial services to help address inequalities.
- Establish credit bureaus that centralize information to encourage banks to lend to new customers.
- Scale mobile banking approaches that have expanded access in some countries (example: Kenya, where nearly 60 percent of the adult population has access to mobile money).
- Removing legal barriers for women:
- Abolish legal restrictions on women’s economic participation (examples include inability to open a bank account or start a new job without a husband’s consent).
- Eight countries in Sub-Saharan Africa still have ten or more such restrictions.
- Removing these restrictions can yield quick gains in labor force participation and growth (example cited: Namibia).
Implications for sustainable growth
- More inclusive and better-distributed growth supports sustainable development.
- With growth slowing down in the region, prioritizing measures that both lift growth and reduce inequality is increasingly important.
Antoinette M. Sayeh, "Tackling Inequality in sub-Saharan Africa Could Yield Mileage on Growth", November 16, 2015.
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- Staff Discussion Note