This article is part of UNU’s “17 Days, 17 Goals” series, featuring research and commentary in support of the United Nations Sustainable Development Summit, 25-27 September 2015 in New York City.
Goal #1: End poverty in all its forms everywhere
On 25th September, 15 years after the Millennium Summit, world leaders will reconvene to decide a new set of global development targets: the Sustainable Development Goals (SDGs). Their primary objective, or Goal 1, will be to ‘end poverty in all its forms everywhere’ by 2030. The previous goal of halving the 1990 extreme poverty rate by 2015 was reached five years early in 2010, so policymakers will likely feel a historical momentum. In this blog post we argue that while the old goal may have been set too low, the new goal may turn out to be too ambitious. To end extreme poverty by 2030 we need higher economic growth than in the past and more growth that disproportionally benefits the poor, in particular in Sub-Saharan Africa.
Let’s take a step back first. What do we mean by extreme poverty? An extremely poor person lives on less than $1.25 a day (or about $38 per month) in 2005 purchasing power parity adjusted international dollars. The last part of this sentence is very important in order to understand how low this threshold actually is. Purchasing power parities (PPPs) adjust for real cost of living differences across countries. One international dollar buys roughly the same standard of living everywhere and can be loosely compared to the buying power of a US dollar in the United States. Can you imagine living on $38 per month? How about $60 per month or about $2 a day? Clearly, we are talking about a very basic standard of living. Both the UN and the World Bank (which is in charge of tracking global poverty) have been criticised for drawing the line so low and have usually responded that this form of extreme poverty needs to be addressed first. Clearly though, proclaiming the ‘end of poverty’ depends on where you draw the line.
Poverty reduction at the $1.25 a day line has been rapid over the last two decades at least in relative terms. Extreme poverty rates in the developing world fell to the tune of about one percentage point per year. While about 43% of the people in the developing world were ‘poor’ in 1990, this rate had fallen to around 20% by 2010. Yet there are two important caveats to these numbers. First, China and India are responsible for a majority of this global reduction in extreme poverty rates. Second, due to rapid population growth the number of poor people has fallen much less. There are still about 1 billion extremely poor people left today. The developing world outside the two biggest countries has been doing badly on this metric. If we ignore progress in China and India, then the rest of the developing world only lifted about 150 million people out of poverty between 1990 and 2010. In fact, there are now 120 million more poor people in Sub-Saharan Africa today than in 1990.
So is the end of poverty nigh? If we simply extrapolate past trends to 2030, then we end up in what can be called the ‘zero zone’. Similarly, if per capita consumption in the entire developing world would grow at about 4.5% per annum the new target could be reached. However, history is not likely to repeat itself for a number of reasons. Much of world poverty is now concentrated in Sub-Saharan Africa and South Asia. Consumption growth in Sub-Saharan Africa has been faster since 2000 than in the 1980s and 1990s, but still lags behind growth in other developing countries. Per capita consumption in the developing world grew at about 4.5% from 2000 to 2010, but only about 2.4% per annum in Sub-Saharan Africa. Even within Africa, poverty is increasingly concentrated in fragile states. Maintaining the current pace of poverty reduction requires ever faster growth in countries that have yet to show that they can grow quickly for a sustained period of time without losing the gains again in the next crisis.
So where do we expect to land? In a recent UNU-MERIT working paper, we showed that we still expect about 8-9% of the developing world’s population to be poor in 2030 even under very optimistic growth assumptions. We simulate three different growth scenarios and three different redistribution scenarios. Leaving the details aside, the story is best told with a picture:
The black line is our central growth scenario, the grey lines are the optimistic and pessimistic growth scenarios, and the dotted lines represent the extent of distributional change. Clearly, the pace of poverty reduction slows down in every scenario. This is precisely due to the ‘composition effect’. Countries that have been growing particularly fast have fewer and fewer poor people left, while countries that have historically grown more slowly are contributing more to global poverty. Lifting this remainder out of poverty will prove a much harder challenge than many anticipate. Even with moderate pro-poor growth we still expect 7-8% of the developing world population (roughly 6-7% of the total world population) to remain poor.
To clarify, let’s ‘zoom in’ on four countries in Sub-Saharan Africa. In a forthcoming report for the European Commission, we examine poverty and inequality trends in the region as a whole and in Malawi, Nigeria, Tanzania and Uganda in particular. These four countries are representative of the broader situation in Sub-Saharan Africa. We make the optimistic assumption that per capita consumption in each country grows at the accelerated pace of the 2000 to 2010 period. We simulate two distributional scenarios: a distribution-neutral (DN) scenario and a pro-poor (PP) scenario. In the pro-poor scenario consumption of the bottom 40% grows half a percentage point faster than the average and consumption of the upper 60% grows correspondingly more slowly. Once again, a picture speaks louder than words:
What you see are plots of the (logarithmic) expenditure distribution of the baseline survey and the two simulated distributions per country. The dashed lines are the $1.25 a day and $2 a day international poverty lines. The area under the curve to the left of one of these lines is the fraction of the population that is poor. The initial extreme poverty rates range between 38% in Uganda and 72% in Malawi. Distribution-neutral growth brings these rates to 62% in Malawi, 20% in Nigeria, 11% in Tanzania and 15% in Uganda. Clearly, none of these estimates are close to the ‘zero zone’. Pro-poor growth further lowers the poverty rate by about 1-3 percentage points, depending on the country, but it could do much more if the extent of pro-poorness exceeds our assumption. In other words, we need to focus on both growth and distribution to improve the lives of those that are worst off.
Where does this leave us? There is much more to the first SDG than we can discuss here. The UN and international community want to expand access to social protection, ensure equal access to economic resources, and much more. There is nothing wrong with setting very ambitious goals. We only hope that policymakers realise that achieving these goals requires a large concentration of development efforts on Sub-Saharan Africa – and a good dose of luck. Without strong growth, that benefits the poor more than the rest, many people on the African subcontinent will be left behind. The upside is that extreme poverty will be much less pronounced in the rest of the developing world. Still, in 15 years more than 1 billion people will be living on less than $2 a day, and many more will have less than $3 or $4 dollars a day. So 2030 will not mark the end of poverty on any sensible measure – but we can make great strides until then.