Growth, Poverty and Inequality Interactions in Africa: An Overview of Key Issues

Africa’s poverty challenge is well-known and widely researched. Approximately a third of the world’s poor live in Africa. More recently, evidence shows that inequality may indeed be a more significant challenge in Africa than in other regions of the developing world. High levels of poverty and inequality persist in Africa in spite of it being one of the fastest growing regions in the last decade. In particular, six of the world’s ten fastest growing economies during 2001-2010 were in sub-Saharan Africa (SSA) (The Economist and IMF, 2011). Specifically, the fastest growing economy in the world in this decade was Angola, followed by Nigeria, Ethiopia, Chad, Mozambique, Rwanda and Equatorial Guinea. For Africa, the period from the 1970s through to the late 1990s can in general be considered lost decades since independence. This period has been characterized by: a combination of serious governance failures; low and sub-optimal investment in health, education and other social services; significant macroeconomic imbalances; poor infrastructure; and structural trade deficits. The post-2000 African economic boom, in contrast, has been built on a composite of factors, including technology (mobile in particular), demographic growth, urbanization and the rise of new dynamic African cities, improved macro-economic policy, enhanced regional cooperation and integration, better targeted social policy, and significant increases in the quality of governance and institutions. In turn, these factors have enabled the growth momentum on the continent to be maintained. Africa’s socio-economic variables have not, however, matched this impressive economic performance; poverty and higher levels of inequality remain a feature of many African economies. Within this context, this paper aims to look more closely at the evolution of inequality on the continent over time, as well as some of its key drivers. There are three stylized facts about the growth-poverty-inequality linkages that have emerged out of studies on developing economies, summarized well by Ferriera and Ravallion (2008). First, growth rates among developing countries are virtually uncorrelated with changes in inequality. Second, in the absence of the above relationship, there must be a strong relationship between growth and changes in poverty. Empirical evidence has strongly shown that faster growing economics reduce poverty more rapidly. Finally, high initial inequality reduces the poverty-reducing power of growth, and more so if inequality rises through the growth process. This paper will build on these stylized facts to shed light on the nature and size of, the changes in, and the drivers of inequality in the African context. The structure of the paper consists of the following: Section I, which provides the introduction; Section II, which provides a brief review of the international literature on growth, poverty and inequality interactions; Section III, which explores the growth-poverty-inequality interactions in the African context and focuses on describing the shape and size of inequality in Africa; Section IV, which investigates in more detail the potential drivers of inequality in Africa; and Section V concludes.