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Energy, economic growth, and poverty reduction: The linkages1

Background paper for F4D Conference, Accra, May 2007

Samuel Nii-Noi Ashong2

Centre for Policy Analysis (CEPA)

SARPN acknowledges United Nations Economic Commission for Africa (UNECA) as the source of this document:
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Introduction and Background

Poverty is an infringement on the fundamental human rights of society’s most vulnerable that must be frontally tackled. Moreover, poverty is a multi-dimensional concept and the forms of deprivation that it takes — economic, human, political, socio-cultural and security — are interconnected. In addition, gender equity and environmental sustainability cut across all these dimensions of poverty (OECD, 2007).

This paper focuses on one aspect of poverty – economic poverty - and how to reduce it through propoor growth. As poverty is a set of interlinked forms of deprivation, it also addresses how progress on economic poverty may contribute to and be facilitated by progress on the other dimensions of poverty. In doing so, it also explores the now well-acknowledged linkages between energy, economic growth and poverty reduction.

More than 4 billion people the world over are classified as economically-poor. Over 3 billion of them — roughly half of the human race — whose daily incomes are less than two US dollars, face enormous challenges to meet their basis needs. And for the bottom one billion people whose daily incomes fall below one US dollar, basic survival, which is often taken for granted by the non-poor, is a constant struggle that must be revisited and confronted daily (OECD, 2007). The vast majority of these vulnerable people happen to be located in developing countries where the economic growth record has been anything but impressive, with the African continent harbouring a disproportionate share. Reducing economic poverty for this group of people is crucially vital and must engage the collective effort of the global community.

In spite of the seeming complexities of economic analysis, overwhelming evidence has clearly established that sustained economic growth is a prerequisite for long-term poverty reduction. For instance, large numbers of poor women and men have been able to escape economic poverty in countries such as China and India that have sustained high rates of growth.3 Yet the experience of many African countries in achieving economic growth and reducing poverty has been far from satisfactory.

In most developing countries, growth has been low and has not enabled the poor to lift themselves out of economic poverty. In particular, sub-Saharan Africa is in danger of not meeting the poverty reduction target of the Millennium Development Goals (MDGs). Even where, on the whole, growth and poverty reduction have been satisfactory, the evidence shows that all too often a significant proportion of poor people remained marginalised in the growth process and have not been able to escape poverty, an indication that growth has not been necessarily pro-poor — i.e. pro-poor growth is not automatic or inevitable; it requires conscious effort.

The explicit link between access to energy services, poverty reduction and sustainable development is now well-established (DFID, 2002; World Bank, 2001; WSSD, 2002). Energy is central to practically all aspects of sustainable development — including access to water, agricultural and industrial productivity, health care, educational attainment, job creation and climate change impact on sustainable livelihoods. Its linkages with other sectors are thus crucial for the type of economic growth that is central to sustained poverty reduction. Energy plays a critical role in underpinning efforts to achieve the MDGs and improving the lives of poor people across the world. As mentioned earlier, over one billion people in the developing world live on less than one US dollar per day. “Affordable”, accessible and reliable energy supply is critical for halving this number by the year 2015, а lа MDG-1.1, as well as for economic growth.

  1. Background paper prepared for the Financing for Development (F4D) Conference held in Accra, Ghana from May 30-31, 2007.
  2. The authour is a Research Fellow at the Centre for Policy Analysis (CEPA), Accra, Ghana. Sincere gratitude goes to Dr. J.L.S. Abbey, Executive Director, CEPA, for reviewing the paper and providing insightful comments.
  3. This assessment is only valid at the aggregate level. The evidence also shows that the distributional aspects of growth cannot be taken for granted. For example, in the case China many of the poor in the western part of the country did not benefit from the growth process.

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