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United Nations Economic Commission for Africa (UNECA)

Financing development in Africa: Trends, issues and challenges1

Hakim Ben Hammouda, Patrick N. Osakwe

United Nations Economic Commission for Africa (UNECA) - African Trade Policy Centre

December 2006

SARPN acknowledges UNECA as the source of this document: www.uneca.org/atpc
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Introduction

The reduction and eventual eradication of poverty, hunger, and starvation in Africa is one of the main challenges facing African leaders and the international community. According to the March 2005 report of the Commission for Africa, “African poverty and stagnation is the greatest tragedy of our time.” Understanding the nature of this tragedy requires and examination of poverty statistics for the developing world in the last three decades. In 1970 there were 1.2 billion poor people in the developing world. Of this number there were 104 million in Sub-Saharan Africa, 830 million in East Asia, 208 million in South Asia, 36 million in Latin America, and 27 million in the Middle East and North Africa (Cooper 2005). Between 1970 and 2000, there was a tremendous reduction in the number of poor people in the developing world. More specifically, the number fell from 1.2 billion in 1970 to 647 million in 2000. However, most of the reduction came from East Asia where the number of poor people fell from 830 million in 1970 to 114 million in 2000. Sub-Saharan Africa happens to be the only sub-region where there was a tremendous increase in the number of poor people during the period. With a head-count ratio of 54.8 percent in 2000, it also has the highest proportion of domestic population that is poor.2

Several attempts have been made to explain why Africa has such a disproportionately high number of poor people and, more generally, determine the causes of poor economic performance in the sub-region (Collier and Gunning 1999; Sachs et al. 2004). What is emerging from this literature is that the lack of high and sustained economic growth in the region is a critical factor responsible for the region’s inability to make significant progress in the fight against poverty. It is also becoming clear that the nature and character of growth is important in terms of increasing prospects for poverty reduction. In particular, for growth to have a significant positive impact on poverty it has to be pro-poor in the sense that a higher percentage of the benefits accrue to the poorest segments of society. With regards to the historically poor growth record of the region, the literature suggests that the following factors are important: Political instability and poor governance; macroeconomic instability exacerbated by policy reversals; poor investment climate; geography; legacy of colonialism; and an inhospitable external environment as reflected in, for example, trade policies in OECD countries that make it difficult for exports of African countries to penetrate their markets.


Footnotes:
  1. We thank Amal Elbeshbishi for comments on an earlier version of this paper. The authors are responsible for any errors and the views expressed here do not represent those of the United Nations Economic Commission for Africa.
  2. The head-count ratio discussed here is based on Purchasing Power Parity and a poverty line of $1.50 per day.


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