Africa in focus

Why is the number of poor people in Africa increasing when Africa’s economies are growing?

Laurence Chandy

This is a question I hear asked a lot.

2015 marks the 20th year since sub-Saharan Africa started on a path of faster economic growth. During that period, growth has averaged 5.2 percent per year. Meanwhile, the number of people on the continent reportedly living under $1.25 a day has continued to creep upwards from 358 million in 1996 to 415 million in 2011—the most recent year for which official estimates exist.

What can explain these divergent trends? 

The most obvious explanation would be if all the benefits of growth were captured by the rich, resulting in ever-increasing inequality within each country. But the data don’t show much evidence of that, thankfully. Distribution trends within African countries are a wash: The distribution is widening in about as many countries as it is narrowing. And in most countries the distribution isn’t changing much at all. It might be that the very richest people—the top 1 percent—are enjoying more than their share of the spoils of growth but that this is missing from the data, as this rarified class tends not to participate in household surveys from which distributions are derived. Yet, in the absence of supplementary data to back this theory up, such as the tax records used to measure top incomes in rich countries, this is mere speculation. Moreover, there is certainly evidence of rising average incomes for the people who do participate in surveys. 

Instead, there are five factors that can account for sub-Saharan Africa’s disappointing poverty numbers.

The first is the region’s rapid population growth of 2.6 percent a year. While African economies are generating more income, that income has to be shared among an ever-increasing number of people. Since the region’s income is growing faster than its population, average incomes are rising and the share of Africans living in extreme poverty is falling—from 60 percent in 1996 to 47 percent in 2011. But the rate at which poverty is falling is less than the rate at which the population is rising, so the number of people living in poverty continues to grow. More generally, sub-Saharan Africa’s record on economic growth looks much less impressive in per capita terms. The World Bank has just released a revised growth forecast for the region in 2015 of 4.0 percent. When you lop off 2.6 for population growth, you’re left with per capita income growth of only 1.4 percent. Compare that with the world average where projected economic growth of 2.9 percent combined with population growth of 1.1 percent results in per capita income growth of 1.8 percent in 2015. So, in per capita terms, Africa’s growth this year is expected to be below the global average.

The second factor is the depth of Africa’s poverty compared to poverty elsewhere. In other words, poor people in Africa start further behind the poverty line. So even if their income is growing, it is rarely enough to push them over the $1.25 threshold. In 2011, the average person living in extreme poverty in Africa lived on 74 cents a day, whereas for the rest of the developing world, it was 98 cents. I’ve written before about the implications of this trend for poverty reduction in Africa here.

The third factor is that even though inequality isn’t rising in most African countries, inequality is already at unusually high levels. Where initial inequality is high, it is to be expected that economic growth delivers less poverty reduction, since the absolute increases in income associated with rising average incomes will be that much smaller for the have-nots versus the haves. Moreover, the degree of inequality that exists on the continent is worse than it looks. The fact that Africa is divided into so many countries masks big differences in income between them. If Africa were a single country, its inequality would look much worse—worse even than Latin America. Since incomes across African people vary so widely, only a fraction of people are likely to cross the poverty line at any one time. That contrasts with India where a concentration of people immediately below the $1.25 mark means that even a small increase in incomes can result in a sudden flood of people moving above the poverty line.

The above three factors explain why you would expect relatively little poverty reduction for a given amount of growth in Africa compared to elsewhere (in technical terms, a lower poverty elasticity). But they can’t explain why the number of poor people in Africa has actually increased since the start of the century. For this we need the two final factors.

The fourth factor is that there is a degree of mismatch between where growth is occurring and where the poor are on the continent. To be sure, the region’s growth acceleration has benefited some of its poorest countries, including Ethiopia, Mozambique, and Rwanda. Yet others such as the Democratic Republic of the Congo and Madagascar have recorded little or no growth over the past 20 years, and the number of poor people in these countries has risen accordingly. So long as a handful of the region’s fragile states struggle to build and sustain economic momentum, the number of poor people in Africa need not fall. 

The fifth and final factor concerns data quality. Poverty estimates are drawn from household surveys which in most African countries are conducted infrequently. Those that do take place often suffer from operational glitches that affect the credibility of the results. Take Nigeria, which accounts for a quarter of the people on the continent living in poverty. There are some well-documented flaws with its most recent national survey of living standards (not to be confused with the issues concerning the country’s national accounts, which were recently rebased). When new data become available, be prepared to discover that Nigeria’s poverty rate is considerably lower and has been falling at a faster pace than previously thought. As a general rule, aggregate poverty numbers for Africa should be handled with care, and small increases or decreases should not be taken too seriously.

The dissonance between Africa’s growth performance and its poverty numbers is a striking phenomenon that demands an explanation. While intuition may lead us to call into question the region’s growth—it only benefits the rich, the quality of growth is deficient, the growth numbers are exaggerated—the above five factors suggest that the answer can instead be found by analyzing Africa’s poverty data more closely.  

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The same five factors can explain why this dissonance is unlikely to go away any time soon. The World Bank anticipates much of the same for the next few years: The number of poor people in Africa is expected to remain close to 400 million until 2020, despite a forecast of ongoing robust economic growth.