Since recalculating its gross domestic product this spring, Nigeria has become Africa’s largest economy and Lagos is its throbbing economic heart. A sprawling mass of islands, bridges, penthouses and slums, it is home to some of the most expensive real estate in the world on Banana Island, which sits within a stone’s throw of informal settlements balanced on stilts in the lagoon.
This summer, the French economist Thomas Piketty’s book, Capital in the twenty-first century, brought a huge body of research on the causes and impacts of economic inequality into the political mainstream in Europe and the US. In sub-Saharan Africa, whose development is still in train, the same issues of wild inequality are emerging, taking the shine off an otherwise positive trend of economic growth.
Capital in the twenty-first century argues that returns on capital greatly exceed the rate of economic growth in industrialised nations, meaning that income and consumption inequality will continue to rise. In the West, says Piketty, the wealthy are pulling away from the poor and the poor have few, if any, means of catching up.
Growth in sub-Saharan Africa has been rapid and sustained, underpinning a narrative widely dubbed “Africa Rising”, which supposes that the continent’s decades of economic and political turmoil are ending, replaced with rapid urbanisation, a thriving middle class and leaps towards infrastructure development and industrialisation. The region’s aggregate GDP growth increased by 4.9% in 2013 and will rise by 5.4% in 2014, according to the International Monetary Fund. Since the turn of the millennium, sub-Saharan Africa’s economies have, almost without exception, expanded.
Poverty rates have also fallen. For the first time, in 2008, the proportion of Africans living below the $1.25 a day poverty line fell below 50%, down from 58% in 1999. However, population growth means that the absolute number of people living in poverty increased from 375m to more than 400m over the same period. Per capita growth for the region is at 2.5% for 2013 and 3.0% for 2014. Over the past decade, sub-Saharan Africa’s per capita GDP growth has averaged less than 2% — below the average for developing countries.
Within the continent, the averages and aggregates also obscure big differences in how people experience growth. Between relatively stable democracies, such as Botswana, and failed states, such as the Central African Republic, there are obviously vast differences in the ability of governments to deliver services and safety nets to individuals.
BELOW THE POVERTY LINE
However, within countries there are great inequalities too. In Nigeria’s northeast, more than 70% of the population lives below the poverty line; in Kenya’s remote Turkana region, where oil was discovered in 2012, nearly 75% of people exist on food aid.
Research from the African Development Bank in 2012 showed that in all African countries the largest share of income is captured by the richest few. Anyone earning more than $1.25 a day escapes the global definition of poverty but nearly 61% of all Africans earn less than $2 a day, which is poverty in real terms. Those 61% hold 36.5% of the total wealth of the continent while the rich, earning more than $20 a day, account for less than 5% of the population and nearly 19% of the wealth.
A 2012 report by the private wealth consultancy New World Wealth forecast that countries such as Ethiopia, Cote d’Ivoire, Zambia and Ghana would be home to some of the fastest growing populations of billionaires in the world. Capital, it appears, is accumulating at the top of African societies at a rapid pace.
“The Africa Rising story is certainly a true story but it’s not a homogenous story,” says Francisco Ferreira, the World Bank’s chief economist for the Africa region in Washington DC. “There’s also an inequality that we don’t even measure in the household surveys, which is perhaps the most pernicious of all, which is the existence of a super-rich elite in a number of countries, which, not in all cases but in many, is related to corruption and the capture of rents.”
The poverty reduction statistics, viewed in the context of other regions of the world, actually tell a bleaker story than the Africa Rising narrative would suggest. According to World Bank statistics, in 1990, poverty rates were roughly equal in Africa, East Asia and South Asia. Since then, East Asia’s poverty rates have fallen by 44%, compared with Africa’s 8%. Development economists are trying to figure out why.
“That’s the six million dollar question,” Ferreira says. The World Bank has hypotheses, one of which is that the structure of growth in Africa has reinforced existing inequality between regions and between urban and rural populations.
“There are exceptions but in a large number of countries the growth has been driven by the natural resource sector, oil and mining, and those are sectors that don’t employ that many people; they have linkages to the rest of the economy that are more tenuous than services or agriculture or manufacturing,” says Ferreira. “You have a lot of growth, you have a lot of wealth being produced, you have a lot of GDP, but that doesn’t percolate to the population as much as one might hope.”
The World Bank has found that certain sectors have considerably more elasticity than others. Growth in agriculture, which still employs around 60%-70% of the population in the majority of sub-Saharan African countries, has the greatest impact. Basic services such as agricultural trading are also important, creating a bridge from farming into the rest of the economy. These, Ferreira notes, are not the kind of developments that make headlines in the financial pages.
“This kind of growth... in agriculture or basic services, is not the kind of photogenic growth that we often like — the pictures of big industrial plants,” he says. “Poverty reduction is mainly driven by agriculture and services, and we should not make light of those sectors because those are the ones that are making what little dent we have made.”
Rural populations — still a majority in most African countries, albeit a slim one — are more likely to be poor than urban populations, with their poverty rates at 56.9% and 49.6% respectively.
Investment managers and bank economists have often held out Africa’s urbanisation as a signifier of sub-Saharan Africa’s development. Megacities, such as Lagos, are attracting huge numbers of migrants and foreign direct investment projects, many of which focus on the retail industry. Global companies such as WalMart, Carrefour and H&M have made forays into the region. At the same time, financial services have expanded and, driven by the need to reduce imports and create productive jobs, countries have been pushing the manufacturing sector. However, these are also unlikely to be panaceas.
“The link between economic diversification — which is an important objective for most, if not all, African governments — and poverty reduction is not obvious,” Ferreira says. “Industry makes sense and if it’s part of their future patterns of competitive advantage then they should [industrialise], but so far the people who are able to participate in industrial activities are not really the poor.”
The signals are not all negative. In 2011, the African Development Bank estimated that the African middle class had expanded to more than 325m people but the institution’s definition of the middle class is, as Amadou Sy, a senior fellow in the Africa Growth Initiative at the Brookings Institution in Washington DC, says, “generous”.
PRECARIOUS STATUS
The majority of that middle class are earning between $2 and $4 a day. Just 14% are established, earning between $10 and $20 a day. At below $4 a day, slipping into effective poverty is a real risk should growth slow or inflation rise. Their income status and lifestyles are precarious.
This fragility, Sy says, is a big problem — at the lower end of the wealth scale, a single bad season can tip populations over the edge. Growth might not be fast enough to lift all populations, he says, but equally, some populations may simply be too far behind, lacking access to education and markets.
Education is likely to be a big part of the answer, according to Sy and Ferreira. Countries in Latin America, which also has high levels of inequality, have managed to close the gap by increasing the number of people in the labour pool with secondary and tertiary education. This, in turn, has reduced the numbers of unskilled workers in the economy, increasing their individual earnings.
More inclusive social policies are also moving the dial on inequality. Conditional cash transfers have become a huge part of the Latin American development state while minimum wages and social safety nets have been improved.
“The welfare state in Latin America a few years ago used to consist of taxing a relatively small number of relatively wealthy people and redistributing it to those same people with free universities and pensions and so on. With the redemocratisation of Latin America in the 1980s and 1990s, social contracts have been changed and there is more redistribution,” Ferreira says. “Africa is different but still there is a lot of scope for more redistribution and states that reach poorer people. The African welfare states are still truncated in the way that the Latin American ones were before.”