Income Inequality Trends in Sub-Saharan Africa

Income Inequality Trends in sub-Saharan Africa Divergence, Determinants and Consequences Infographics from the book Planting and nurturing the seeds of equity in Africa

Increase access to basic health Invest in girls, Make urbanization Enhance data services youth and collection and women inclusive and management sustainable Invest in quality Increase education inequality- reducing power of migration Modernize Promote agriculture Institutionalize Promote affordable and raise better governance macroeconomic social yields stability protection

Reindustrialize Avoid resource curse practices

Su H p u po m Reduce total rt a Diversify the iv n e d fertility rates m e economy v h a e c Promote c l n ro o e p ra h progressive n m b c v e n n ir n ra taxation o t tio b n b la th m r u e a p ow n n o t c P Gr Raise productivity b h

a x in the informal sector n x

h x Distribute x national assets fairly Tree of Equity

Above: An aerial view of the gated community of Lake Michelle (left) which is located on the outskirts of Cape Town, Designed and printed: South Africa, and is directly adjacent to Masiphumelele Printed on FSCTM certified paper and with vegetable-based inks. township (right). The printed matter is recyclable. Cover: Policy actions that, when planted and nurtured, will increase income equality in sub-Saharan Africa.

Photography by Johnny Miller Preface

The September 2015 adoption of the 2030 Agenda for Sustainable Development and its 17 Sustainable Development Goals (SDGs) has drawn considerable attention to income inequality in sub-Saharan Africa (SSA). To achieve the goal of ‘leaving no one behind’ by 2030, the UNDP Regional Bureau for Africa feels very strongly that inequality levels, trends, determinants and consequences in the region must be documented properly. UNDP considers the 2030 Agenda to be an integrated and indivisible agenda; it must be understood that by addressing the challenge of equity, progress towards achieving the SDGs is accelerated. This book explores these issues systematically and draws relevant lessons that could help reduce inequality in SSA. To overcome problems caused by the scarcity and inconsistency of the data on inequality, this book also builds an Integrated Inequality Dataset for SSA (IID-SSA). Although the average unweighted Gini for SSA declined by 3.4 percentage points between 1991 and 2011, SSA remains one of the most unequal regions globally. Indeed, 10 of the 19 most unequal countries globally are in SSA and seven outlier African countries are driving this inequality. Between 1991 and 2011, a clear bifurcation in inequality trends existed across countries in the region. Furthermore, 17 countries (predominantly agricultural economies from West Africa and a few from other regions) experienced declining inequality, whereas 12 countries, predominantly in Southern and Central Africa and economies characterized by an important oil and mining sector, recorded an inequality rise. The basic structural drivers of inequality can be divided into three groups: (i) the highly dualistic economic structure, with limited employment of the labour elite in the government, multinational companies (MNCs) and the resource sector, whereas the majority of labour earns much lower incomes in the informal or subsistence sector; (ii) the high concentration of physical capital, human capital and land, especially in the economies of East and Southern Africa, in certain groups or regions; and (iii) the limited distributive capacity of the state, which often manifests in the ‘natural resource curse’, the urban bias of public policy and ethnic and gender inequalities. When growth occurs in sectors characterized by high asset concentration, high capital absorption and skilled-labour intensity, such as mining, finance, insurance and real estate (FIRE) and the public sector, overall inequality rises. By contrast, inequality falls or remains stable if growth takes place in labour-intensive manufacturing, construction and agriculture. This book considers inequality as a byproduct of regressive taxes, unresponsive wage structures and inadequate investment in education, health and social protection for vulnerable and marginalized groups. Indeed, the distributional impact of fiscal policies in the region has eroded, with 29 of the 47 countries where data are available showing a decline in the distributional effectiveness of their fiscal policy. Although subsidies and transfers are mostly equalizing, inequality-induced tax regressivity is a common phenomenon, where most countries with a revenue-to-GDP ratio of 20 per cent and above have Gini coefficients of 0.5 or more. This book succinctly establishes equalizing and disequalising factors. The key equalizing factors include: (i) an improved distribution of human capital (particularly secondary education), which was found to encourage state authorities to use its increased supply to build a fairer society; (ii)

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / i increased direct taxation and efficiency of tax administration, as well as increased well-targeted social expenditure, which reduced inequality; (iii) enhanced productivity in the agricultural sector, which is an important factor in labour reallocation to other sectors of the economy and has helped to reduce rural poverty, rural poverty gaps and inequality; and (iv) the process of structural transformation, which is path-dependent. A country’s current productive capabilities embodied in its export structure influence the extent to which it can shift production toward increased manufacturing activity. The most critical disequalising factors include: (i) rising foreign direct investments (FDI) in extractive industries and a surge of terms of trade in resource-rich countries, which polarize income disparities; (ii) a suboptimal structural transition of the economy from a low-inequality crop agriculture to high- inequality sectors such as livestock production, commerce, transport, and formal and informal services in both urban and rural areas, which drives inequality in a number of countries; and (iii) an unequal distribution of socioeconomic and physical facilities (e.g. roads, electricity, schools, hospitals, water and sanitation) between rural and urban areas and across regions, which drives income disparities. This book reveals issues requiring further investigation and priority attention. First, no clear link exists between resource dependence and inequality. There are, however, specific features of resource- dependent growth, which present obvious inequality risks, such as the risks of illicit outflows and weakening governance institutions that could lead to a classic case of the resource curse. Second, Africa lags behind other regions of the world with regard to the demographic transition. Although the relationship between poverty rate and population variables is positive, the relationship between population growth and inequality reduction creates a puzzle. Most countries with a fertility rate of 6.0 children per woman are associated with a low Gini (less than 0.44), while most countries classified as advanced in the demographic transition have Gini coefficients of more than 0.6. Third, the intensity of multidimensional poverty tends to drive conflicts; yet contrary to expectation, the relationship between conflicts and inequality is negative. For instance, most countries with a poverty headcount of over 60 per cent are also experiencing intense conflicts (e.g. Burundi, Central African Republic and Democratic Republic of the Congo), while countries with the highest level of inequality (e.g. Botswana, South Africa and Namibia) are categorized as non-conflict-prone countries. This finding recalls the words of the famous British political scientist, Harold Laski, who wrote “A State divided into a small number of rich and a large number of poor will always develop a government manipulated by the rich to protect the amenities represented by their property.” The determinants of income inequality in SSA are multi-dimensional and complex; there is no one ‘silver bullet' to address its challenge. Multiple responses are required. For instance, this innovative book has shown that education is key to social mobility but it cannot generate the quantum of jobs needed to tackle the ‘time bomb’ of the youth bulge without strong institutions and sound economic reforms that prioritize agricultural modernization, national and regional value chains, and industrialization. Unequal distribution of national resources is an important factor driving inequality in Africa. In this regard, the view expressed by Nelson Mandela during his 1996 State of the Nation Address is fitting: “We must work together to ensure the equitable distribution of wealth, opportunity and power in our society.” Promoting progressive taxation, addressing unequal access to land and enhancing the efficiency of social protection and distributional effectiveness of fiscal policies are vital to address income disparities in Africa.

ii / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences This book has also brought to the fore the relevance of Franklin D. Roosevelt’s conclusion on the role of the state in addressing inequality: “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” When prosperity is generated through the market, hard-to-reach communities, excluded groups and marginalized individuals do not benefit from the growth process. Ensuring that these groups do benefit from the process is vital to promoting equity. Expanding and targeting equalizing social protection mechanisms is a powerful tool to achieve Roosevelt’s objective of providing enough to those who have too little. An important solution to the equity challenge is equal treatment of ‘the unequals’. The unequal treatment of all regions, as well as urban and rural areas, is one of the causes of the rising trend of regional and spatial poverty and inequality. Equal treatment of the ‘unequal’ promotes prosperity, peace and sustained development. Lessons learned from SSA have shown that policies that help reduce poverty are not necessarily the same as those that help reduce income inequality. For instance, quality education and enhanced productivity are potent tools for poverty reduction, yet if unaccompanied by progressive taxation and well-targeted social protection, they could accelerate income disparities. Promoting complementary policies that help address poverty and income inequality are vital to shifting the current trends of diverging inequality into converging trends of falling inequality across the region. The following are key to address income disparities: accompany demographic transition with strong social protection; adopt macroeconomic policies that reverse the emerging deindustrialisation; and increase the productivity of the informal sector. To ensure that policy design is increasingly evidence-based, African governments and international agencies need to invest massively in generating regular data on inequality, including gender, ethnic and regional disaggregated inequality. Extreme inequality is detrimental to growth and development, as well as to peace and security. To achieve the SDGs of the 2030 Agenda, governments, private sector actors, civil society organizations and development partners must focus on rapidly reducing poverty and income disparities simultaneously. I would like to conclude with a quote from former President Mandela: “As long as poverty, injustice and gross inequality persist in our world, none of us can truly rest.”

Abdoulaye Mar Dieye

Assistant Administrator and Director UNDP Regional Bureau for Africa

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / iii

Contents

Infographics from the book Ayodele Odusola, Giovanni Andrea Cornia, Haroon Bhorat and Pedro Conceição

Preface i Overview: Which African countries are the least, or most, unequal? vi Chapter 1. Mapping of income inequality in Africa 1 2. An overview of main changes in income inequality in SSA since the early 1990s 2 3. Poverty-reducing power of growth is low in sub-Saharan Africa 3 4. Towards agriculture-induced accelerated reduction in rural poverty and income inequality in sub-Saharan Africa 4 5. What accelerates African manufacturing performance? 5 6. Making the extractives sector equity-oriented 6 7. Towards a pro-equity fiscal policy in Africa 7 8. Social protection is expanding in Africa, but coverage is too low to significantly reduce inequality 8 9. Understanding the link between population and equity 9 10. Inequality intensity and poverty drive conflicts in sub-Saharan Africa 10 11. Emerging facts on inequality and human development in Africa 11 12. Facts about inequality in Malawi 12 13. Ethiopia offers a good example of fast growth, rapid poverty reduction and stable inequality 13 14. Country context matters in promoting equity: Drivers of inequality are heterogeneous in Burkina Faso, Ghana and Tanzania 14 15. Seven measurement errors affecting the assessment of income inequality levels and trends 15 16. What causes within-country inequality trends in sub-Saharan Africa? 16 17. Planting and nurturing the seeds of equity in Africa 17 Income Inequality Trends in sub-Saharan Africa Divergence, Determinants and Consequences

hich African countries are the least or most unequal aiia otsana ery high Africa outh inequality Gini >.60 ooros igh aia esotho inequality A

Gini = .53-.599 he aia e of the ongo ailand anda enya uinea issau edium inequality oaique alai aeroon eychelles Verde ao udan outh Gini = .45-.529 ogo had iae doire C hana igeria iouti enin te o inequality e of the ongo e adagascar ganda aon enegal Gini = .40-.449 Angola orocco auritius anania ieria aso urina iger unisia udan ery lo inequality uinea auritania urundi eone ierra thioia ali Gini <.399 P

North West Central Eas t Southern vi / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences 1Introduction, Motivation and Overview

Mapping of income inequality in Africa

Very high Gini (>0.60)

High Gini (0.53-0.599)

Medium Gini (0.45-0.529)

Low Gini (0.40-0.449)

Very low Gini (<0.399)

No data

Source: World Bank (WDI), latest year as of December 2016

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 1 Inequality Levels, Trends and Determinants in sub-Saharan 2 Africa: An overview of main changes since the early 1990s

Poverty-reducing power of growth is low in sub-Saharan Africa An overview of main changes in income inequality in SSA since the early 1990s

Falling Inequality Rising Inequality 55 48 50 46 44 45 42 40 40 0 35 38 -0.1 30 36 -0.119 -0.14 -0.007 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -0.2 Agriculture -0.3 Traditional causes of Non-traditional factors income inequality -0.4 affecting income inequality Manufacturing • Output structure • Terms of trade gains -0.5 • Smallholder and estate • Growing remittances -0.472 agriculture • Aid flows, FDI and debt relief Elasticity -0.6 • Rural modernization, food • Growth acceleration, but with -0.7 production and threat of low poverty alleviation elasticity -0.676 climate change of growth • Expansion of mining enclaves -0.8 Falling inequality Services • Urban formal and informal Other factors -0.9 sector Rising inequality

• Tax policy and social transfers Inverted U-shaped (∩) • Negligible decline in total fertility -0.958 rate and stable population growth -1 • Impact of democratization on U-shaped ethnicity and horizontal and • Distributive impact of HIV/AIDS Sub-Saharan Africa Other developing countries vertical inequality No data • Technological shocks, including the existence of low-cost and highly divisible communication technologies

U-shaped Inverted U-shaped 55 55

50 50

45 45

40 40

35 35 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Adapted from World Bank (2014a). 2 / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences Inequality Levels, Trends and Determinants in sub-Saharan Drivers of Inequality in the Context of the Growth-Poverty- Africa: An overview of main changes since the early 1990s 3 Inequality Nexus in Africa: An overview of key issues

Poverty-reducing power of growth is low in sub-Saharan Africa

0 -0.1 -0.119 -0.007 -0.2 -0.14 Agriculture -0.3 -0.4 Manufacturing -0.5 -0.472

Elasticity -0.6 -0.7 -0.676 -0.8 Services -0.9 -1 -0.958 Sub-Saharan Africa Other developing countries

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Adapted from World Bank (2014a). Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 3 Agriculture, Rural Poverty and Income Inequality 4 in sub-Saharan Africa What accelerates African manufacturing performance?

Towards agriculture-induced accelerated reduction in rural poverty and income inequality in sub-Saharan Africa Improved Drivers of poor agricultural performance in Africa multifactor Improved productivity infrastructure Adverse resource Underinvestment and facilities, e.g. endowments undercapitalization electricit y Poor policies and Adverse trade regimes institutional failures

Impacts of increasing agricultural productivity 1% Δ Higher technology

t e e adaptation

y +.39 +.47 rt and diffusion orker Economic GIN I

of agricultur and export t t e of agricultur in e of agriculture Rural pove diversification emale employmen Share of agriculture in total employment Sha re value added in GDP Shar Shar in male employment vices in riculture value in f Ag added per w -.34 -.58 -.56 -.41 e of indust ry -.07 -.56 e of ser otal employmen otal employmen t t Shar Shar

Emerging lessons

Adopt farming Increase government Improve market access Control corruption in Quality technologies investment in in OECD countries agricultural sector Increased agriculture management education access to and skilled Increase access to land, Increase predictability Involve farmers in TARIFF Address tariff and Strong the planning and non-tariff barriers to especially for women and credibility of credit labour force implementation of agricultural policies, institutions agricultural and Improve access to agricultural policies agribusiness products processes and rules (e.g. regulatory and programmes affordable and modern farming inputs frameworks, enforcing contracts and patent laws)

4 / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences Agriculture, Rural Poverty and Income Inequality Understanding the Determinants of Africa’s in sub-Saharan Africa 5 Manufacturing Malaise What accelerates African manufacturing performance? What accelerates African manufacturing performance?

Impacts of increasing agricultural productivity 1% Δ Higher technology t e e adaptation y +.39 +.47 rt and diffusion orker Economic GIN I

Emerging lessons

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 5 Dependence and Inequality in Africa: Impacts, 6 consequences and potential solutions Towards a pro-equity based extractive sector strategy Towards a pro-equity based extractives sector strategy

Inequality-induced resource-dependent channels

Limited provision of licences in Resource curse (Dutch disease) extractive sectors exacerbates unequal development outcomes High cost of entry into extractive sector lends The sector’s high capital intensity itself to oligopolistic structures and limited employment creation

Resource revenues are Low backward and forward usually large and at integration to the rest of high risk of being taken out the economy of the country through illicit channels

Cutting the extractives - inequality link

BUDGET

VED PRO AP Effective use of Fair taxation from Progressive fiscal extractive wealth the extractive sector policies and social and regular review of transfer programmes mining contracts Continuous savings in boom periods

Strong institutions Participatory governance, and accountable including enhanced and transparent engagement of governance Civil Society Organizations

Equity Extractives

6 / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences Dependence and Inequality in Africa: Impacts, Fiscal Policy, Redistribution and Inequality in Africa consequences and potential solutions 7 Towards a pro-equity based extractive sector strategy TowardsTowards a apro-equity pro-equity fiscal policy policy in inAfrica Africa

Emerging facts about fiscal policies and income inequality in Africa

Most countries with a Fiscal policies are Taxation in Africa is Inequality-induced resource-dependent channels revenue-to-GDP ratio of powerful tools to make mostly regressive – its a dent in income incidence falls more on Limited provision have 3 1 2 the poor than on the >20% inequality in Africa of licences in Resource curse (Dutch disease) income rich extractive sectors exacerbates unequal inequality>0.5 development outcomes (Gini) of Low levels of taxes and social spending limit High cost of entry into The sector’s high capital intensity Total natural resource rent as a share of the distributional impact of scal extractive sector lends policies in Africa itself to oligopolistic structures and limited employment creation GDP as a result of: 5 1. the prevalence of Dutch disease 4 that is job-rich, skills-enhanced and human Resource revenues are Low backward and forward 2. concentration of asset ownership Growth development-driven usually large and at integration to the rest of 3. associated inefficiencies tend to drive inequality reduces inequality the economy 6 high risk of being taken out of the country through illicit channels 8 7 Effectiveness 6 5 Cutting the extractives - inequality link of fiscal 4 3 distribution 2 BUDGET 1

VED varies across 0 PRO AP Mal i Togo Niger Egypt countries in Beni n Keny a Ghana Guinea Angol a Tunisi a Effective use of Algeri a Nigeri a Zambi a Burundi Uganda Lesotho Ethiopi a Senegal Rwanda Namibia Morocco Progressive fiscal Tanzani a Mauritius

Fair taxation from Botswana Cameroon Zimbabw e extractive wealth Africa Seychelle s Madagasca r South Africa Côte d’Ivoire Sierra Leone Gambia, The Burkina Faso the extractive sector policies and social Mozambique and regular review of transfer programmes Congo, Dem. Rep . mining contracts Continuous savings Central African Republic in boom periods Making fiscal policies pro-equity in Africa Strong institutions Participatory governance, including enhanced and accountable Enhancing progressive taxation Diversifying government revenues away from the engagement of and transparent by increasing marginal tax rates and extractive sector to personal and corporate taxes Civil Society Organizations governance 1 focusing more attention on personal and 2 corporate taxes Equity Extractives Enhancing quid pro quo Improving the design Investing in skill in tax management and operational acquisition programmes 3 helps to boost revenues and 4 effectiveness of 5 for the unskilled; promoting promote predictability subsidies and quality education and higher transfers through better transition rates from primary to targeting secondary education

Targeting public spending on poor families, the Adopting an appropriate elderly, the unemployed and the marginalized fiscal policy mix to shift the 6 7 frontier of fiscal distribution

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 7 Social Protection and Inequality in Africa: 8 Exploring the interactions Understanding the link between population and equity Social protection is expanding in Africa, but coverage is too low to significantly reduce inequality Most countries with high How to harness Facts on African population fertility rate have low population growth WHAT ARE THE ECONOMIC, SOCIAL PROTECTION WHAT DRIVES THE INEQUALITY- growth and structure Gini Coefficient for enhanced equity SOCIAL AND POLITICAL REDUCING POWER OF SOCIAL INDEX FOR AFRICA Fertility rate Gini coefficient FACTORS DRIVING SOCIAL PROTECTION IN AFRICA? South Africa South Africa 0.80 1 Africa’s population will quadruple 2.54 1 Invest heavily in child and Comoros PROTECTION IN AFRICA? 4.84 Mauritius 0.69 from about 1.19 billion in 2015 to 4.39 Namibia youth development through 3.63 Zambia Botswana 0.69 billion in 2100, accounting for 5.77 appropriate education and health Better targeting of Central A high GDP 39.12 per cent of the global African Rep. 4.78 policies and programmes Liberia 0.63 Lesotho social protection 3.41 growth rate does Tanzania 0.60 population Swaziland 3.65 Keep more girls in school and to the Rwanda 2 not necessarily translate into Lesotho 0.53 poorest quintiles 4.66 112 Africa will account for 82.8 per cent Kenya take concrete actions to 4.71 increased social Swaziland 0.52 The Gambia of the world’s net population change 5.79 drastically reduce infant mortality Mauritania 0.50 Malawi protection spending between 2015 and 2100 5.66 rates Ghana 0.49 to Togo 5.47 Volume transfer Mozambique 5.61 Uganda 0.48 the 3 The youngest population group (0-14 Uganda 3 Expand the skill content of Democratically targeted population 2.10 Gabon 0.47 Congo (Dem. Rep.) 2 years) is projected to double, the 5.32 African educational systems to are Cabo Verde governed countries Zambia 0.35 working age (15-64 years) to triple 2.63 promote employability of the Benin 5.25 more likely to invest Namibia 0.30 and the elderly (65 years and above) Chad working population 2 An increase 6.73 Côte d'Ivoire a larger share of Burkina Faso 0.29 to quadruple by 2050 5.02 in the value of Nigeria Cameroon 0.27 5.87 4 Increase overall productivity to their GDP in public Ghana transfer to the 4 Africa’s share of the global working 4.32 leverage demographic Cabo Verde 0.26 3 Gabon social expenditure population will rise from 12.6 per 4.13 dividends in Africa Sierra Leone 0.25 poorest quintiles Morocco 2.51 Cameroon rather than improvement cent in 2010 to 41.2 per cent in 2100 5.12 Malawi 0.23 Madagascar 4.79 5 Implement progressive taxes Middle Income Congo, Rep.of 0.23 Mauritania in coverage rates 5 Africa is the most youthful region, 4.92 and transfers through marginal Countries tend to spend Senegal 0.21 Senegal 5.20 with a median age of 19.4 years, Congo tax rates and well-targeted social 6.51 more than Low Income Benin 0.21 compared with 29.6 globally Djibouti protection that favour the 3 A combined increase in the 3.64 Burkina Faso Countries on social Kenya 0.21 5.99 bottom 40 per cent coverage of the Liberia protection Côte d'Ivoire 0.19 6 Between 2010 and 2014, the average 5.17 Togo 0.18 poorest quintile and fertility rate in Africa stood at 5.4, Tanzania 6.28 6 Promote labour-intensive 4 Tunisia 4.96 compared to 1.6 in Europe and Guinea Bissau manufacturing, labour market Mozambique 0.17 an increase in the unit 5.19 Non-resource Sierra Leone Rwanda 0.16 Central Asia and 1.7 in Eastern 5.36 flexibility, entrepreneurship growth value of transfers Sudan 4.77 dependent countries Ethiopia 0.16 Europe and the Pacific Sao Tome & and infrastructural development to lead to a significant Principe 4.86 Guinea create more jobs spend more on Comoros 0.15 5.46 reduction in inequality Of the five subregions in the Ethiopia 4 7 5.18 Mali 0.12 social protection Burundi continent, only Southern Africa has 6.43 7 Ensure that growth concentrates Mali than resource- Niger 0.08 6.60 started to experience early Niger where the bottom 40 Nigeria 0.07 7.67 dependent countries demographic transition Egypt percentiles make their livelihoods Congo, Dem. Rep. 0.07 3.15 to promote inclusive growth Gambia, The 0.07 0610 20 30 40 50 0 70 Madagascar 0.04

8 / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences Social Protection and Inequality in Africa: Income Inequality and Population Growth in Africa Exploring the interactions 9 UnderstandingUnderstanding the the linklink between between population population and equity and equity

Most countries with high How to harness Facts on African population fertility rate have low population growth growth and structure Gini Coefficient for enhanced equity

Fertility rate Gini coefficient South Africa 1 Africa’s population will quadruple 2.54 1 Invest heavily in child and Comoros 4.84 from about 1.19 billion in 2015 to 4.39 Namibia youth development through 3.63 Zambia billion in 2100, accounting for 5.77 appropriate education and health Central 39.12 per cent of the global African Rep. 4.78 policies and programmes Lesotho 3.41 population Swaziland 3.65 Keep more girls in school and Rwanda 2 4.66 Africa will account for 82.8 per cent Kenya take concrete actions to 2 4.71 The Gambia of the world’s net population change 5.79 drastically reduce infant mortality Malawi between 2015 and 2100 5.66 rates Togo 5.47 Mozambique 5.61 The youngest population group (0-14 Uganda Expand the skill content of 3 2.10 3 Congo (Dem. Rep.) years) is projected to double, the 5.32 African educational systems to Cabo Verde working age (15-64 years) to triple 2.63 promote employability of the Benin 5.25 and the elderly (65 years and above) Chad working population 6.73 Côte d'Ivoire to quadruple by 2050 5.02 Nigeria 5.87 4 Increase overall productivity to Ghana Africa’s share of the global working 4.32 leverage demographic 4 Gabon population will rise from 12.6 per 4.13 dividends in Africa Morocco 2.51 Cameroon cent in 2010 to 41.2 per cent in 2100 5.12 Madagascar 4.79 5 Implement progressive taxes Mauritania 5 Africa is the most youthful region, 4.92 and transfers through marginal Senegal 5.20 with a median age of 19.4 years, Congo tax rates and well-targeted social 6.51 Djibouti compared with 29.6 globally 3.64 protection that favour the Burkina Faso 5.99 bottom 40 per cent Liberia 6 Between 2010 and 2014, the average 5.17 fertility rate in Africa stood at 5.4, Tanzania 6.28 6 Promote labour-intensive Tunisia 4.96 compared to 1.6 in Europe and Guinea Bissau manufacturing, labour market 5.19 Sierra Leone Central Asia and 1.7 in Eastern 5.36 flexibility, entrepreneurship growth Sudan 4.77 Europe and the Pacific Sao Tome & and infrastructural development to Principe 4.86 Guinea create more jobs 5.46 Of the five subregions in the Ethiopia 7 5.18 Burundi continent, only Southern Africa has 6.43 7 Ensure that growth concentrates Mali 6.60 started to experience early Niger where the bottom 40 7.67 Egypt demographic transition 3.15 percentiles make their livelihoods to promote inclusive growth 0610 20 30 40 50 0 70

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 9 Inequalities and Conflict in Africa: 10 An empirical investigation

Inequality intensity and poverty drive conflicts in sub-Saharan Africa The perpetuation of SSA experienced more Between 2010 and 2014, more inequalities Intensity of conflict fell from 55 per cent 7 highlights about the conflict- rapid growth in the than 90 per cent of Human Development 2 SSA countries reduced 3 in income, health and in 2002 to 24 per cent in 2011 inequality relationship in Africa 1 Index between 2000 and health inequality: close to education outcomes is Of all global conflicts, substantial improvements linked to complex mixes of 2010, rising at an annual 50 percent reduced were seen in average of 1.68 per cent. education inequality; and discriminatory social Most countries with a poverty headcount of more norms (especially for Seychelles Zimbabwe 1 than 60.0 per cent experienced intense conflicts. However, progress is less than 40 per cent Cabo Verde Côte d’Ivoire uneven across countries reduced income women) and a skewed and groups. inequality. distribution of service The influence of more democratic governance provisions. 2 leads to more peaceful societies. Central African Republic 10 Afghanistan 10 Ethnic and religious polarization plays a strong South Sudan 10 3 role in driving conflicts. For instance, a 1.0 per cent The loss of human potential due to Gender inequality and human Syria 9.86 rise in religious polarization index could increase inequality is higher in sub-Saharan Africa conflicts by between 1.19 and 2.53 per cent. development are inversely related Ukraine 9.59 4 Africa than in all other regions 5 accounts Somalia 9.46 The measurement of conflicts matters in determining 35 33.3 Countries with a lower level of gender for 11 Nigeria 9.45 the impact of inequality. Conflict measured as death 4 30 28.7 inequality of the 20 Yemen 9.25 per capita reveals the impact; the cumulative conflict 25.4 25 23.7 (e.g. Mauritius, Algeria and South Africa) Sudan 8.94 and conflict intensity do not. 19.4 countries 20 tend to have higher levels of human with the Iraq 8.93 15 13.0 development, while those with higher levels highest Mexico 8.62 Contrary to expectation, vertical inequality does 10 5 of gender inequality Congo (Dem. Rep.) 8.54 5 not drive conflicts in Africa, but inequality intensity likelihood 0 (e.g. Central African Republic, Chad and Niger) does. Three of the most stable countries in Africa Europe and East Asia and Latin America Arab South Asia Pakistan 8.42 Sub-Saharan have Gini coefficients of more than 0.60 (Botswana, Central Asia the Pacific and the States Africa have lower levels of human development. of conflict Caribbean globally Myanmar 8.35 Seychelles and South Africa). Mali 8.09 Libya 7.95 Multi-dimensional poverty drives the various Uganda 7.59 6 measures of conflicts in Africa. Ethiopia 7.57 Tackling the root causes Investing in youth development, gender equality and Kenya 7.55 Additional research on within-group of gender inequality is a and 7 income inequality and conflict triggers is needed. way to improving the lives 7 women’s empowerment India 7.52 6 of both women and men. building economic, social, political and environmental 0 2 4 6 8 10 resilience are key to accelerating human development.

10 / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences Inequalities and Conflict in Africa: Inequality, Gender and Human Development in Africa An empirical investigation 11 Emerging facts on inequality and human development in Africa

The perpetuation of SSA experienced more Between 2010 and 2014, more rapid growth in the than 90 per cent of inequalities 1 Human Development 2 SSA countries reduced 3 in income, health and Index between 2000 and health inequality: close to education outcomes is linked to complex mixes of 2010, rising at an annual 50 percent reduced average of 1.68 per cent. education inequality; and discriminatory social However, progress is less than 40 per cent norms (especially for uneven across countries reduced income women) and a skewed and groups. inequality. distribution of service provisions.

The loss of human potential due to Gender inequality and human inequality is higher in sub-Saharan development are inversely related 4 Africa than in all other regions 5

35 33.3 Countries with a lower level of gender 30 28.7 25.4 inequality 25 23.7 (e.g. Mauritius, Algeria and South Africa) 19.4 20 tend to have higher levels of human 15 13.0 development, while those with higher levels 10

5 of gender inequality

0 (e.g. Central African Republic, Chad and Niger) Europe and East Asia and Latin America Arab South Asia Sub-Saharan Central Asia the Pacific and the States Africa have lower levels of human development. Caribbean

Tackling the root causes Investing in youth development, of gender inequality is a gender equality and women’s empowerment and 6 way to improving the lives 7 of both women and men. building economic, social, political and environmental resilience are key to accelerating human development.

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 11 The Dynamics of Income Inequality in a Dualistic Economy: 12 Malawi over 1990-2011 Ethiopia offers a good example of fast growth, Facts about inequality in Malawi rapid poverty reduction and stable inequality

Poverty rate The shift from low-inequality The Starter Pack Programme agriculture to high-inequality 47.5 for small-scale farmers, a 45.5 Rural inequality depends on decline in HIV/AIDS sectors such as services, Inequality is path dependent commerce, transport and incidence and the differences in: and characterized by dualism construction and urban migration stabilization of international between small subsistence worsened income inequality terms of trade helped reduce 33.2 1 Access to land and irrigation, farm farms and large estates. since 2005. 30.4 inequality (1993-2005). 29.6 size and share of land under extensive cultivation 25.7 2 The incidence of female-headed households, dependency rates and employment in public sectors and rural manufacturing Gini 3 Taxes, subsidies and public 65 expenditure

55 NATIONAL RURAL URBAN Ethiopia offers useful policy lessons 50 1996 2011 for other African countries facing low 45 agricultural productivity, high 40 population growth and weak Gini coefficient 35 distributive institutions: 30 0.32 Agricultural Development -led

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2002 2003 2003 2004 2004 2005 2006 2007 2008 2009 2010 2011 1 0.31 industrialization – a strategy that modernized agriculture, opened up agricultural markets and invested in infrastructure – made a significant 0.30 contribution to the country’s success. 2 The pattern of structural 0.29 transformation focused on labour-intensive and The shift from crop production Weak economic policies Addressing inequality calls less skill-intensive activities to livestock production and such as low manufacturing for a transition to a modern, 0.28 had a moderate impact on inequality. informal non-farm activities transformation, poor input-intensive and 1995 2000 2005 2011 3 Policy research must focus on in urban and peri-urban areas economic governance, low environmentally accelerating decline in fertility rate, contributed to a rise in the spending on secondary sustainable agriculture and reforming rental agricultural overall Gini. education and unaffordable a decline in population and fertilizers for the poor growth. contracts developing rural contributed to a rise in Gini. non-agricultural activities including manufacturing.

12 / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences The Dynamics of Income Inequality in a Dualistic Economy: Inequality and Growth in an Agricultural-led Development Malawi over 1990-2011 13 Model: The case of Ethiopia over 1995-2011 Ethiopia offers a good example of fast growth, Ethiopia offers a good example of fast growth, rapid poverty rapid povertyreduction reduction and stable and inequality stable inequality Poverty rate

47.5 45.5 Rural inequality depends on differences in:

33.2 1 Access to land and irrigation, farm 30.4 29.6 size and share of land under extensive cultivation 25.7 2 The incidence of female-headed households, dependency rates and employment in public sectors and rural manufacturing 3 Taxes, subsidies and public expenditure

NATIONAL RURAL URBAN Ethiopia offers useful policy lessons 1996 2011 for other African countries facing low agricultural productivity, high population growth and weak Gini coefficient distributive institutions: 0.32 1 Agricultural Development -led 0.31 industrialization – a strategy that modernized agriculture, opened up agricultural markets and invested in infrastructure – made a significant 0.30 contribution to the country’s success. 2 The pattern of structural 0.29 transformation focused on labour-intensive and less skill-intensive activities 0.28 had a moderate impact on inequality. 1995 2000 2005 2011 3 Policy research must focus on accelerating decline in fertility rate, reforming rental agricultural contracts and developing rural non-agricultural activities including manufacturing.

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 13 Drivers of Income Inequality in Burkina Faso, Ghana and 14 the United Republic of Tanzania: A comparative analysis

Country context matters in promoting equity: Seven measurement errors affecting the assessment Drivers of inequalityCountry arecontext heterogeneous matters in Burkinapromoting Faso, equity: Ghana and Tanzania Drivers of inequality are heterogeneous in Burkina Faso, Ghana and Tanzania of income inequality levels and trends

Burkina Faso 49.9 reduced inequality 50 48.1 Differences in statistical between Burkina Faso 43.3 and data 1998-2014. 45 assumptions on 40.6 40.9 Incomes earned Inequality has 39.8

Gini (%) Ghana 40 38.8 harmonization been rising in 37.3 40.3 1 assets held abroad by SSA 35.4 36.0 35.3 Ghana since 1987. Tanzania 37.8 across countries 35 37.3 nationals are ignored 35.3 5 30

1987 1988 1991 1994 1996 1998 2000 2002 2003 2005 2007 2008 2009 2011 2013 2014 Differences over time in The distributive impact of survey design differences in price Drivers of inequality in 1 Low job-creating capacity of growth and low worker productivity for the same country the three countries 2 Regressive fiscal policies that place a greater tax burden on 2 dynamics between food the poor quintiles 6 3 Gender inequalities, high demographic pressures prices and overall (e.g. high fertility rates), educational disparities and low skill gaps Consumer Price Index 4 Wage disparities within and across sectors HBS increasingly 5 Low agricultural productivity underestimates is ignored 6 Unequal access to health, education and related services capital incomes and the 7 Low coverage and funding of social protection 3 8 Rising inflation rates total net value added The distributive impact of the provision of Emerging lessons from 1 Promote quality and inclusive growth – job-rich growth the three countries 2 Boost agricultural productivity social benefits across 3 Add value to primary commodities 7 Top income earners countries is ignored 4 Address regional disparities in distribution of infrastructural facilities 5 Promote equal access to education and health services are undersampled 6 Adopt and implement comprehensive strategies to address gender-based inequalities 4 7 Institutionalise progressive fiscal system and scaling up well-targeted social protection 8 Increase the productivity of remittances and ODA 9 Protect assets of the poor from being debased by inflation

14 / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences Drivers of Income Inequality in Burkina Faso, Ghana and Building an Integrated Inequality Dataset and the ‘Seven Sins’ the United Republic of Tanzania: A comparative analysis 15 of Inequality Measurement in sub-Saharan Africa

Seven measurement errors affecting the assessment of income inequality levels and trends

Differences in statistical assumptions and data Incomes earned on harmonization 1 assets held abroad by SSA across countries 5 nationals are ignored

Differences over time in The distributive impact of survey design differences in price for the same country 2 dynamics between food 6 prices and overall HBS increasingly Consumer Price Index underestimates is ignored capital incomes and the 3 total net value added The distributive impact of the provision of 7 social benefits across Top income earners countries is ignored 4 are undersampled

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 15 Econometric Investigation of the Causes of the Bifurcation 16 of within-Country Inequality Trends over 1991-2011 in sub-Saharan Africa What drives within-country inequality trends in sub-Saharan Africa? What causes within-country inequality trends in sub-Saharan Africa?

West Africa 55 Central 65 outperforms 51 60 other SSA Southern (right axis) regions in 47 55 Right axis reducing West

income Left axis 43 50 East inequality 39 45

35 40 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Immediate and underlying causes of inequality in SSA

Immediate causes Underlying cases

The pattern of growth matters. In Progressive public policies particular, a rise in land yields and such as a rising share of direct manufacturing reduces inequality taxes in total revenues, improved or keeps it low, but growth in and effective social spending and mining or oil increases it. stable prices and exchange rate – are equalising.

Policies aimed at reducing fertility Political and health shocks – rates, as implemented in Ethiopia such as war intensity and HIV/AIDS and Rwanda, could be equalising. incidences – raise inequality.

16 / Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences Econometric Investigation of the Causes of the Bifurcation Conclusions and Policy Recommendations of within-Country Inequality Trends over 1991-2011 17 in sub-Saharan Africa What drives within-country inequality trends in sub-Saharan Africa? Planting and nurturing the seeds of equity in Africa

Increase 55 Central 65 access to West Africa basic health Invest in girls, Make urbanization outperforms Enhance data services youth and 51 60 collection and women inclusive and other SSA Southern management sustainable (right axis) regions in 47 55 Right axis Invest in reducing West quality Increase education inequality- income Left axis 43 50 East reducing power inequality of migration Modernize Promote agriculture 39 45 Institutionalize Promote affordable and raise better governance macroeconomic social yields 35 40 stability protection 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Reindustrialize Avoid resource curse practices

Su H p u Immediate and underlying causes of inequality in SSA po m Reduce total rt a Diversify the iv n e d fertility rates m e economy v h a e c Promote c l n ro o e p ra h Immediate causes Underlying cases progressive n m b c v e n n ir n ra taxation o t tio b n b la th m r u e a p ow The pattern of growth matters. In Progressive public policies n n o t c P Gr Raise productivity b h

such as a rising share of direct r

particular, a rise in land yields and a x in the informal sector

n x

c taxes in total revenues, improved x

manufacturing reduces inequality h Distribute x or keeps it low, but growth in and effective social spending and national mining or oil increases it. stable prices and exchange rate – assets fairly are equalising.

Improved migrant remittances are Improved distribution of production equalising while foreign direct assets, including human capital investments (FDIs) are (e.g. secondary and tertiary concentrated in mining are education), reduces inequality. disequalising. Tree of Equity Policies aimed at reducing fertility Political and health shocks – rates, as implemented in Ethiopia such as war intensity and HIV/AIDS and Rwanda, could be equalising. incidences – raise inequality.

Income Inequality Trends in sub-Saharan Africa: Divergence, Determinants and Consequences / 17

LIFE ON LAND United Nations Development Programme Regional Bureau for Africa One United Nations Plaza New York, NY 10017

africa.undp.org

Sub-Saharan Africa (SSA) recorded a remarkable economic “Globalization and technological progress fostered extraordinary performance in the first 15 years of the 21st century, which economic growth and created conditions for unparalleled reversed the decline of the prior 25 years. This achievement was reduction of extreme poverty and generalized improvement of accompanied by a perceptible, modest, but uneven decline in living standards. But their unbalanced nature led to high income aggregate poverty driven by, the variation of inequality levels concentration and extreme inequality, and made exclusion even and trends among the African countries. This book, an outcome more intolerable.” – António Guterres, Secretary-General of the of a comprehensive study of income inequality in SSA, provides United Nations a thorough documentation of inequality levels and trends in the region in order to better understand the slow and varying “It is critical that, across the world, we focus on those furthest rate of poverty reduction. It proposes hypotheses to account behind first. Because in all regions, the rising tide of optimism for this experience and draws relevant lessons that could help and empowerment, has not yet reached everyone.” – Amina accelerate reduction in income disparities. Mohammed, United Nations Deputy Secretary-General

The book proposes an equity pathway built on four “When women are able to live in a safe and secure environment, pillars: promoting inclusive growth pattern such as raising they can participate effectively in the economy and society. This productivity in the informal sector, diversifying the economy, helps overcome poverty, reduces inequalities and is beneficial for re-industrializing and modernize agriculture, and raising yields, children’s nutrition, health and school attendance. Every woman which is central to reducing income disparity; addressing and girl has the right to live in safety in her home and community.” population pressure (promote virtuous population policies, – Helen Clark, former UNDP Administrator increase inequality-reducing power of migration and make urbanization inclusive) is key; accelerating human development “Two decades of underinvestment in agriculture, growing including investing in quality education, increasing access to competition for land and water, rising fuel and fertilizer prices, and basic health service, and investing in girls, youth and women; climate change have left smallholders less able to escape poverty.” and finally, institutionalizing a supportive macro-economic – Achim Steiner, UNDP Administrator environment, especially fair distribution of national assets, “As remarkable as economic growth has proven to be in Africa, promoting progressive taxation, avoiding the resource curse, the effectiveness of growth in reducing poverty in Africa has been institutionalizing better governance and enhancing data historically low, as initial income distribution plays a dramatic role collection and management. on the impact of growth on poverty reduction. Slow productivity The quotations below from selected African and the United growth in the rural sector – where the majority of the labour force Nations leadership provide the value addition of this book. in the region still works – is a key factor of the lack of diversification and limited impact of growth on poverty.” – Tegegnework Gettu, “As long as poverty, injustice and gross inequality persist in our UNDP Associate Administrator world, none of us can truly rest……. We must work together to ensure the equitable distribution of wealth, opportunity, and “Extreme inequality is detrimental to growth and development, power in our society.” – Nelson Mandela, former President of as well as to peace and security. To achieve the 2030 Agenda, South Africa governments, private sector actors, civil society organizations and development partners must focus on rapidly reducing poverty “There remain huge disparities between and within countries. and income disparities simultaneously.” – Abdoulaye Mar Dieye, Within countries, rural poverty remains unacceptably high UNDP Assistant Administrator and Director, Regional Bureau while urban poverty is extensive, growing, and underreported for Africa by traditional indicators”….”Inequality can be tackled. Public spending on high-quality education and health care reduces “Inequality is the defining issue of our time. When people are inequality.” – Uhuru Kenyatta, President of Kenya treated unequally in terms of their rights, capabilities and opportunities, human rights are violated, human development is “A lack of viable institutions, the lack of diversity in economies, shrunk and human potentials are stunted. In the ultimate analysis, the lack of mature political institutions, the lack of equity in many inequality is an issue of social justice.” – Selim Jahan, Director, of the societies, managing endowment of natural resources well. UNDP Human Development Report Office All of these create the inequalities in society that leads to the descent, and could lead to a breakdown in the social order.” – Ellen Johnson-Sirleaf, President of Liberia

“Fighting poverty and social inequalities also means ensuring national solidarity to support those among us who are most in need, and to improve access to health care for all”. – Macky Sall, President of Senegal