How to help Africa escape poverty trap

By Martin Wolf

Financial Times

Published: January 12 2005

The earthquake and tsunamis that hit Asia on December 26 2004 reminded us of our shared humanity. It has also stirred a rivalry among official donors, whose promises of assistance now exceed $3bn. Yet this disaster must not divert attention from habitual calamities: Asia's disaster has left thousands of orphans, but Africa contains some 12m children orphaned by Aids.

A generation ago, anybody concerned with the challenge of destitution and disease would have focused on Asia. Many outsiders believed obstacles to progress were insuperable. They were wrong. Asia, which contains over half the world's population, has been outstandingly successful. The continent that has failed is sub-Saharan Africa. It is unique in suffering declining average incomes per head, falling life expectancy and exploding poverty.

The consequences for the rest of the world are both morally and practically repugnant. It is morally repugnant to allow a region containing 700m fellow human beings to fall ever further behind the rest. It is practically repugnant, because the consequences will be felt elsewhere, in the spread of disease and in mass emigration. The rest of the world will be unable to protect itself forever from the plight of an entire continent in crisis.

What then is to be done? Answering that question is the task set for the Commission for Africa, established by the British government. The 17 commissioners, nine of whom are Africans, are preparing a report aimed at the summit of the group of eight leading high-income countries in Scotland in June. It is expected to conclude with a call for doubling aid to the troubled continent, which amounts to at least an extra $20bn a year.

This report is not yet in the public domain. But another detailed analysis, which also calls for vastly more aid, is already available. This is a paper by Jeffrey Sachs of Columbia University and a number of co-authors.* The core of their argument is three-fold: first, the world has agreed to the "millennium development goals", a set of targets that are to be achieved by 2015; second, Africa has no chance of meeting such goals, because it is stuck in a "poverty trap"; third, a large increase in external resources, married to a comprehensive development programme, would allow Africa to escape the trap.

The argument for a "poverty trap" is that Africa's current poverty leads to very low national savings which, given population growth, generate low or even negative growth in real incomes per head. In this situation, argue the authors, no plausible action by African countries alone can start the sustained rapid growth on which Asia's success has been built.

Creating this trap, argue Prof Sachs and his colleagues, are five structural handicaps: Africa's very high transport costs and small market size; its low-productivity agriculture; an exceptionally high disease burden; a long history of malign external interventions; and very slow diffusion of technology from abroad. Given all these constraints, not to mention the fastest population growth in the world, a gross national savings rate of about 11 per cent does not begin to be enough. Rapid resource depletion may even make net investment close to zero. Africa, in short, is stuck.

What is needed to exit the trap, it is argued, is a "big push" that would last some two decades. The push would come in seven areas: raising rural productivity; tackling the disease burden; making primary education universal and expanding secondary education; financing urban development; mobilising science and technology; gender equality; and regional integration.

What would all this cost? The aid, argue the authors, will need to be between 20 and 30 per cent of gross domestic product in many countries. For the whole of sub-Saharan Africa, the authors talk of an additional $25bn a year over and above the $19bn provided in 2002. If the whole of sub-Saharan Africa were to receive 25 per cent of GDP, the total would be $90bn - and so a quadrupling of current net flows.

How far should we accept this argument? Critics would question whether a poverty trap exists. It is true that about one-third of the population live in land-locked, resource-poor countries. Their populations have, at present, little hope for better lives. In a reasonable world, they would move. Yet about one-third of the population lives in countries with significant natural resources and another third in countries that are coastal. It is not obvious why the latter two categories should be unable to grow. Indeed, the evidence is against this gloom: a number of countries have grown quite strongly over the past decade or so, Mozambique and Uganda among them.

Again, critics would argue it is Africa's kleptocrats, tyrants and brigands who are to blame for the continent's plight. That same poor governance would, moreover, guarantee that additional assistance would be stolen, wasted, or both. Against this, the authors argue that governance in Africa is no worse than one would expect for such poor countries. Yet the quality of governance determines the income levels here used to justify the quality of governance. More important, even if African governance is no worse than might be expected, it may still be too bad to use greatly increased aid.

Yet even if the poverty trap is not inescapable, the hole in which much of Africa finds itself is deep. Moreover, even if Africa's governance has too often been criminal, we can see ever more exceptions. Above all, the plight of Africans themselves cannot be denied. If an additional 0.1 per cent of the GDP of the rich countries could make a difference, it would be wrong to deny it.

The big question for advocates of additional aid is not whether the rich can afford it, but whether the poor can use it. There are at least two big dangers: the first is that aid will crowd out the exports on which longer-term growth depends; the second is that high levels of aid will encourage corruption, bad policy and waste. Yet the option of doing nothing is worse. Greater aid does carry risks. But its absence brings dreadful certainties. Let us manage the risks, not live with the certainties.

* Ending Africa's Poverty Trap, Brookings Papers on Economic Activity, 2004, vol.1

Sources for charts: World Bank; Sachs and others ‘Ending Africa’s Poverty Trap’ (Brookings Papers, 2004)