Overcoming Persistent Poverty and Hunger in Africa:

How Business Can and Does Help

Chris BarrettCharles H. Dyson School of Applied Economics and Management

March 11, 2015Cornell Club of Sarasota

Rapid, large-scale poverty reduction is possible … as demonstrated by a generation of rapidly falling

global poverty rates, especially in East Asia.

Source: World Bank, PovCalNet

Uneven, rapid progress

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1975 1980 1985 1990 1995 2000 2005 2010 2015

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World: 2.8 bn in 1981, 2.9 in 2010

Africa: 320 mn in 1981,667 in 2010

Poverty: Per Capita Expenditure < $2.50/day

East Asia: 1.3 b in 1981, 0.8 in 2010

South Asia: 0.9 bn in 1981, 1.3 in 2010

But until the past decade, little real progress in sub-Saharan Africa.

The big challenge is the persistence of concentrated ultra-poverty … in Africa,

where it almost doubled in a generation.

In 1981 Africa was home to 12% of the world’s ultra-poor … now >75%.

The ultra-poor are African

Source: World Bank, PovCalNet

The persistence of African ultra-poverty

Longitudinal data reinforce the story

- In the US, the median poverty spell length (pre-Great Recession) was only 4.5 months. Most US poverty is transitory. - In rural Africa, we

don’t know the median spell length because we don’t have data where half have exited poverty! Most rural African poverty is chronic.

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Continuous years in poverty

Comparative Poverty Dynamics

United States 1993-94 ($15.05)

Sources: USA: Naifeh (1998), others: Barrett et al. (2006 JDS). Poverty line levels are all in inflation-adjusted 2002 US dollars.

Ngambo, Northern Kenya 2000-2 ($0.25)

Fianarantsoa, Southern Madagascar 1997-2002 ($0.25)

Vakinankaratra, Central Madagascar 1997-2002 ($0.25)

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Continuous years in poverty

Comparative Poverty Dynamics

United States 1993-94 ($15.05)

Sources: USA: Naifeh (1998). Poverty line levels are all in inflation-adjusted 2002 US dollars.

Reasons:

Humanitarian/ethical- Golden rule

Economic - Future markets/suppliers

Security/geo-political - Prospective source of insecurity

Environmental- Conservation of forests, wildlife

Health - Controlling pandemics

Why care about ultra-poverty?

How do people escape chronic ultra-poverty?

- Market access- Finance: savings,

insurance, credit- Education- Early childhood health and nutrition

… empower the poor to invest in human capital and grow richer

Escaping ultra-poverty

Net aid given by governments: only ~7.5 ¢/day pc (overstated due to “tying”)

Private gifts (foundations, companies and NGOs):only ~ 6 ¢/day pc

The BIGGEST benefits come from new technologies, remittances, private investment, better institutions … mostly from private enterprise and individuals

It requires more than aid

Index-based livestock insurance to protect vs. drought

- Individuals buy policies to protect their herds- Private underwriters, global reinsurers- Commercially piloted in Kenya in 2010- Now spread to Ethiopia, going nationwide in Kenya- Major, positive effects in both countries: 10x the

marginal benefit/cost of cash transfer programs

Example 1: IBLI

Cell phones and the internet rapidly improving lives:

- Improved early warning systems, delivery of emergency aid

- Small farmers/traders can find best prices: ECX- Agricultural extension/health message delivery- Call centers and back office data entry

Example 2: ICT

Vibrant commercial distribution of farm inputs and outputs is transforming parts of rural Africa:

- Contract farming and retail revolution- Rapid spread of fertilizer, agrochemicals and

improved seed- Post-harvest loss rates falling

Example 3: Agro-inputs

“Most of the people in the world are poor, so if we knew the economics of being poor we would know much of the economics that really matters. Most of the world’s poor people earn their living from agriculture, so if we knew the economics of agriculture we would know much of the economics of being poor.”- Theodore W. SchultzOpening sentences of 1979 Nobel Prize in Economics lecture

Dyson School/CALS has great capacity to help

The Dyson School:Our Business is a Better

World