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Poverty in Egypt (2009)

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Poverty in Egypt (2009) Arab Development Challenges Background Paper 2011/11 Heba El-Laithy The ADCR 2011: Poverty in Egypt (2009) Heba El Laithy i United Nations Development Programme Arab Development Challenges Report Background Paper 2011/11 The ADCR 2011: Poverty in Egypt (2009) Heba El-Laithy* Heba El-Laithy is professor of Statistics at Cairo University E-mail: [email protected] Comments should be addressed by email to the author i Acronyms and Abbreviations CAPMAS Central Agency for Public Mobilization and Statistics FHH Female-headed Household GDP Gross Domestic Product HIECS Household Income, Expenditure and Consumption Survey ILO International Labour Organization IMF International Monetary Fund MHH Male-headed Household SE Standard Deviation UNDP United Nations Development Programme ii Introduction Poverty alleviation has been given high priority on the agendas of international organizations, governments and civil society organizations in different parts of the globe. In view of the nexus of growth, employment and poverty alleviation, it has been increasingly acknowledged worldwide that an effective poverty reduction strategy requires increasing the access of the poor to productive and decent employment; for although the causes of poverty worldwide are many, the most important are unemployment, underemployment, informal employment and low wages. These phenomena are, in turn, the outcome of low rates of investment leading to slow rates of growth and the misallocation of scarce resources resulting in jobless growth. As for the supply side of the labour market, policies would need to be geared toward enhancing the human capital of the poor, through increased social investment in health and education. For Egypt, particularly, previous studies on labour market and poverty revealed that the unemployed are not necessarily the poor or the illiterate, and rather, the overwhelming majority of the unemployed are certificate holders. Meanwhile the informal sector has been increasingly growing and absorbing a high percentage of poor workers working informally, without social protection, with low wages, low productivity, and working under bad conditions. This is not surprising given that, too often, the poor cannot afford to be without work and must reconcile with whatever type of employment opportunities are available. Thus, effective poverty reduction policies must also target under–employment and informal employment. Rapid growth in jobs and incomes in the late 1990s, reversing the patterns of the slowdown in growth since 1987, led to a drop in poverty for the first time since the early 1980s. Over this period, poverty patterns changed from the urban-rural divide that had characterized the past to a geographical/regional pattern.1 Moreover this growth of the late 1990s was obtained through domestic fiscal and monetary expansion policies that were not fully sustainable. Hence, the budget deficit grew from 1% to 4% of GDP, and credit to the private sector averaged well over 25% between 1996 and 1999. The period 2000 to 2004 was a bottle neck in terms of Egypt’s economic performance. After the slowdown in the Egyptian economy during the period 2000-2003, certain signs of recovery in the year 2004, were notable. Furthermore, the currency floatation and resulting devaluation, starting in January 2003, do not bode well for poverty rates, which are likely to increase as a consequence in the following years. Since 2000, growth rates have slumped. A slowdown in domestic stimulus (especially credit) has also slowed the construction industry, and tourism has fallen drastically after 9/11 and because of instability in the region. Given that poverty in Egypt is fairly shallow, with much of the poor clustered just below the poverty line and much of the non-poor just above the poverty line, many of those who escaped poverty during the 1995-2000 period may have slipped back into poverty during the successive five years. During 2005-2008 Egypt experienced high GDP growth, accompanied by high inflation, which damaged the living standards of the poor. However, until the food crisis hit in late spring of 2008 the trend of living standards was clearly positive. World Bank 2009 demonstrated that rapid economic growth had [a] strong poverty reduction effect, and poverty and near-poverty incidence fell during February 2005-February 2008 by around 20%. But these gains have been short-lived due to the food, fuel and financial crises. 1 Measuring Poverty in Egypt Methodologies for constructing a poverty line for Egypt The ‘money metric’ measure of poverty usually used by the various researchers is expenditures, as calculated from the various HIECS 2 , to construct a ‘poverty line’ that differentiates between those who have an adequate level of welfare and those who do not. In this report, consumption expenditure is used as the welfare indicator in the estimation of the poverty line and in making poverty assessments. For each household in the sample, this paper uses data from the 2005 and 2009 HIECS to construct its own food poverty line. This line satisfies the particular household’s minimum nutritional requirements depending on age and gender composition, as well as location.3 Of course, this also leads to a variation in the appropriate poverty line, depending upon the location and composition of a particular household. Thus the ‘household-specific’ methodology used for this report attempts to account for differences in regional prices, differences in needs of household members as well as economies of scale. In doing so, the estimated poverty lines ensure that regional differences, relative prices, as well as differences in size and age composition of households are accounted for. This results in a rank distribution which is consistent with the chosen indicator of household welfare. Poverty measurement and trends, 2005-2009 In 1995/96, poverty stood at 19.4%, declining significantly to 16.7% in 1999/2000. The gains achieved in reducing poverty from 1995-2000 were offset by the increase in poverty from 2000-2004 back to 19.6%. Finally, as shown in table 1, in 2008-09 overall poverty in Egypt stood at 21.6%, representing approximately 16.1 million, who could not obtain their basic food and non-food needs. The poverty gap index also increased from 3.6 to 4.2% (refer to Notes of table 1 for an explanation on indices). Table 1: Overall poverty measures, 2005 and 2009 Headcount rate (P0) Poverty gap (P1) Squared poverty gap (P2) 2005 2009 Change 2005 2009 Change 2005 2009 Change Urban 10.1 11.0 0.9 1.8 2.0 0.2 0.5 0.6 0.1 Rural 26.8 28.9 2.1 5.0 5.6 0.6 1.4 1.7 0.3 Total 19.6 21.6 2.0 3.6 4.1 0.5 1.0 1.2 0.2 Source: Authors calculations using HIECS, 2004-05 and 2008-09. Notes: P0 represents the incidence of poverty, and is calculated using the absolute poverty line. P1 represents the poverty gap index, measuring the depth of poverty, which captures the percentage of shortfall below the poverty line for the whole population. P2 represents the severity index of poverty, which accounts not only for the depth of poverty but also for inequality of income or consumption among the poor, Table 2: Urban-rural poverty decomposition, 2008-09 Absolute change Percentage change Change in poverty (P0) 2.46 100 Total Intra-sectoral effect 2.01 81.8 Population-shift effect 0.39 15.73 Interaction effect 0.06 2.46 Intra-sectoral effects: Urban 0.23 9.19 Rural 1.78 72.61 Source: ibid 2 At the sub-national level, during the increase in poverty over the period 2000-2004, rural residents were net losers as poverty incidence; gap of poverty and its severity were higher in 2004. During 2005-2009, both urban and rural areas experienced increases in poverty incidence, although of different magnitudes (changes were 0.9% in urban areas and 2.1% in rural areas). Overall change in poverty is due to changes in poverty within urban and rural areas rather than population shift from rural to urban areas (Table 2). Figure 1: Growth incidence curve, 2005 and 2009 Source: ibid. Notes: The horizontal axis shows the expenditure group arranged in 2 percentile increments from poorest to richest: 1 was the poorest 2% of the region’s population; 49 was the second richest group, with expenditures between the 96th and 98th percentiles. The vertical axis shows growth in expenditures for the particular expenditure group between 2005 and 2009, in%. The dashed line shows the mean growth in expenditures between 2005 and 2009. Average per capita expenditure showed a decrease during the period 2000 to 2004 and a further decrease during 2004-05 to 2008-09 (Table 3). On a national level, the average per capita expenditure in 2008-09 (at 2004-05 prices) was L.E. 2510 per annum, compared to L.E. 2529 in 2004-05, pointing to an annual decrease in real average per capita expenditure between 2005 and 2009 of -0.75%. Despite the overall decrease in per capita expenditure, the average per capita for the poorest three quintiles of the population experienced increases, with the highest increase amongst the poorest quintile. Indeed, the decrease in overall per capita expenditure is driven by losses of the richest two deciles of the population reflecting improvement in income distribution. However, the substantial increases in food prices, which outweighed increases in the prices of non-food items, have had significant negative ramifications on those under the lower poverty line for whom food represented 74% of their expenditures. Per capita consumption deflated by poverty line had declines by -5.1% (-1.3% per annum) and by -3.7% (-0.9% per annum) for the poorest quintile, (Figure 1). This trend explains trends on poverty during the period 2000-2004: poverty increased coupled with the overall decrease in real per capita expenditure.
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