Inequality is good for growth, but bad for people, they say. But a smart Africa can have it all

It is possible, even necessary, “to be pro-labour and pro-business; pro-growth as well as pro-equity," a new WEF report says

AFRICAN countries have made some progress in reducing inequality and alleviating poverty, but much more needs to be done, a new report by the World Economic Forum (WEF) indicates.

The Inclusive Growth and Development Report 2015 is WEF’s inaugural publication focusing specifically on inequality and social inclusion.

In January 2014, a separate landmark Oxfam report starkly illustrated the global challenge of inequality when it indicated that the world’s 85 richest people have the same wealth as the poorest half of humanity.

It’s a shocking situation which Jay Naidoo, South African activist and chair of the board of the Global Alliance for Improved Nutrition (GAIN) termed as the “greatest threat to world peace, and indeed to the survival of the human species.”

“The increasing concentration of wealth in the hands of very few has deepened both ecological and economic crises, which in turn has led to an escalation of violence in every corner of our burning planet,” said Naidoo.

The challenge of eradicating extreme poverty is greatest in Africa, with forecasts projecting its share of the world’s extreme poor rising to 80% or above by 2030. 

If African countries continue on their current growth trajectory with no change in levels of income inequality, then the continent’s poverty rate won’t fall below three percent – the World Bank’s definition of ending poverty – until 2075, according to Oxfam.

Most commentators concede that some inequality is necessary to reward talent, and foster a willingness of innovate and take entrepreneurial risk. It means that the current debate on inequality is typically framed as a necessary trade-off between economic growth and social inclusion.

But the WEF report’s argues that framing inequality in such terms is “unduly narrow and polemical”; they argue that it is possible, even necessary, “to be pro-labour and pro-business; pro-growth as well as pro-equity.”

In fact, in countries with extreme economic inequality, growth does not last as long and future growth is undermined.

The WEF report measures inequality over 140 indicators, and across seven pillars: education and skills development; employment and labour compensation; asset building and entrepreneurship; financial inclusion; corruption and rents; basic services and infrastructure; and fiscal transfers, which would encompass the tax code and social protection.

Going to the individual country profiles, for example, the report highlights that Kenya has started to put in place some of the building blocks for an inclusive economy – bank and equity finance is relatively more accessible and affordable compared with other countries at the same income level, and the quality of the education system rivals that of economies at higher income levels.

But Kenya needs to increase education equity among income groups, and must also continue to build its infrastructure and basic services, reduce the red tape faced by businesses, and tackle pervasive corruption, WEF says.

Tunisia has developed relatively good basic services, in particular its healthcare system. Yet the country that launched the Arab Spring protest movement requires significant improvement across most other building blocks of inclusive growth, according to the report. The education system, while reaching many young people, does not provide the quality needed to prepare them for the workforce.

The country should foster an environment that is conducive to new business and job creation to meet the needs of the many young people entering the workforce, WEF says.

Ghana’s economy benefits from relatively low unemployment and a business environment that is not characterised by a stifling dominance of large incumbent firms.

Yet, median income has been slow to rise and poverty remains entrenched with just over half of the population living on less than $2 a day. Corruption is less prevalent than in many peer countries, but there’s much inequality in access and outcomes in education.

Improving infrastructure and basic services such as health will be critical, as well as developing a more inclusive and developed financial sector.

Nigeria, despite the opportunity offered by its significant oil revenues over the years, has not put in place the factors necessary for creating an inclusive growth process, WEF says. 

The picture in education remains one of low enrollment, insufficient quality, and wide divergence in student performance based on socioeconomic background. Over 80% of the population is living on less than $2 a day.

Still, the country’s relatively entrepreneurial environment could be its saving grace, but the government has to ensure growth that is sustainable and broad-based.

Rwanda has made more strides in driving inclusive growth than many other low-income countries, although it still has a long way to go with median household incomes less than $2 a day and high income inequality.

It ranks first in Africa on business and political ethics, with effective measures in place to combat corruption and bribery. Financing is more easily available for business development than in many similar countries.

To further enhance the inclusiveness of its growth process, Rwanda must upgrade its education system, and also continue to build infrastructure and increase social spending to improve adequacy of basic services, WEF indicates.

In Zimbabwe, inequality remains high, social mobility is low, and many of those in the workforce are unable to pull themselves out of poverty.

Finance is very difficult to obtain for business development, possibly related to the great administrative hindrances placed in the way of starting and operating businesses in the country, as well as poor corporate and government ethics, and a high concentration of rents accruing to a small elite of companies and individuals.

But Zimbabwe’s advantages are in high adult literacy levels, and its relatively progressive tax code, that should be able to deliver relatively good post-redistribution outcomes, WEF says.

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