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Global poverty is decreasing, but billions of people still do not have the resources they need to survive and thrive. Economic growth can reduce poverty, but it can also drive inequality that generates social and economic problems. And efforts at domestic resource mobilization through taxation, though critical to funding the SDGs, can negatively impact the poor. In this work, CGD experts offer suggestions to improve how the world tracks and tackles poverty and the inequities the international global system creates.
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Estimating latent demand for electricity can be tricky. Are some countries too poor to consume a lot more energy? Or is income growth being held back by a lack of reliable and affordable electricity? While there is a strong relationship between energy consumption and income, the direction of causality is often far less clear. One way to estimate unmet demand may be to try to compare pairs of countries—e.g., how much additional energy does Kenya need to reach the level of Tunisia?
Another way may be to look at all countries together and see how far any individual country is from the global trendline. So, here we plot per capita energy consumption against per capita GNI (PPP$) for all available countries in the World Development Indicators. A few things to note right away: we have data for 136 countries and the relationship is extremely tight (for those who care, the R^2 is 0.84). Then, we measure each country’s distance from the predictive line. This distance is one way to think about what any one country’s energy consumption should be given their income level.
In this graphic, countries above the line consume more energy than their incomes would predict, while those below consume less. Yes, yes…the data is highly imperfect, and a lot of factors beyond income like economic structure, endowments, fuel mix, climate, geography, policy, etc., all can influence energy demand and supply. But 0.84 is pretty tight and we are only looking for ballpark magnitudes.
A few things strike us when we look closer at the sub-Saharan countries:
Nigeria is the most underpowered. Per capita energy consumption is a whopping 79 percent below what its income level alone predicts. Further, if we make the (huge) assumption that all the Nigerian projects in the Power Africa pipeline reach completion, we estimate that this would close less than one-third of the present gap.
The other initial Power Africa countries are all below the line too: Tanzania (-60 percent), Ethiopia (-47 percent), Kenya (-44 percent), and Ghana (-18 percent). Sorry, no data on Liberia.
Southern Africa is a regional outlier. Of the seven sub-Saharan countries above the line, six are in the Southern African Development Community. Most of these countries still rely on very large hydroelectric projects built long ago (e.g., Kariba completed in 1959, Inga 1 in 1972, Cahora Bassa in 1974). Mozambique is over 400 percent “overpowered.”
Togo, the only West African country above the line, has seen a 50 percent increase in electricity since 2008, largely because of the opening of one large thermal plant (with the support of OPIC).
In sum: much more analysis is needed to better understand demand. But this simple exercise does reveal, especially in West and East Africa, that there is a lot of work left to be done to close the gap between power supply and demand.
Somalia, among the poorest countries in the world, is one of three remaining countries that are eligible for comprehensive debt relief under the HIPC Initiative (the other two are Sudan and Eritrea). Somalia is estimated to have over $5 billion in external debt, with Paris Club creditors representing the largest single bloc (roughly $2.5 billion), followed by non-Paris Club bilateral creditors (roughly $1.5 billion) and multilateral creditors (roughly $1.5 billion). Much of Somalia’s debt is in arrears. Under the HIPC Initiative and the complementary Multilateral Debt Relief Initiative, virtually all of Somalia’s multilateral debt and the vast majority of its bilateral debt would be eliminated. It is important to note that none of this debt is currently being serviced, and no creditor actually expects to be paid.
While Somalia’s government should be applauded for its ambition and recognition of the importance of normalizing relations with international financial institutions and the broader financial community through the debt relief process, meeting the humanitarian and security needs of the Somali people should remain its primary focus. Diversion of time, talent, or resources from these near-term urgent priorities to the longer-term debt relief cause would be counterproductive. But there are measures that can be taken to support the debt relief process that would also support humanitarian and security objectives.
Liberia’s experience in the 2000s, as it began the process of extricating itself from over a decade of violent conflict, provides some useful lessons. While Somalia’s challenges are arguably much more difficult, the debt relief process in Liberia successfully established the building blocks for sound economic policy and basic institution building. The government of Somalia and its international partners will need to move forward in a disciplined manner, recognizing that there will be bumps, if not boulders, in the road ahead.
Five recommendations for Somalia’s debt relief process
I offer the following five recommendations for the government of Somalia that should help pave the way toward a successful HIPC process:
Work closely with the International Monetary Fundon a macroeconomic policy framework that would lead to a Staff Monitored Program (SMP) with upper credit tranche standards. While the current Somalia SMP serves as a useful starting point, it will need to be significantly strengthened, and sustained performance observed, before Somalia fulfills the HIPC condition of demonstrating a track record of reform and sound policies. In the case of Liberia, the period from agreement on the SMP to HIPC decision point was two years, but in Somalia’s case it is likely to be much longer given the protracted insecurity, weak institutions, and current drought-related challenges.
Secure agreement with the international donor community on a medium-term strategy for economic management that reflects a coherent approach to basic public financial management, including measures to fight corruption. Many of the pieces already exist under the World Bank’s Multi-Partner Fund, but there does not appear to be any agreed overarching strategy, and there is no reference to fighting corruption, despite reports on the severity of the problem. In the case of Liberia, the government and its international partners established the Governance and Economic Management Assistance Program, which provided donors and creditors with the confidence that their resources would be effectively used and measures would be applied to mitigate the risk of corruption.
Maximize use of pre-arrears clearance grants, including through donor-supported trust funds. Trust funds, such as the Multi-Partner Fund and the UN Multi-Partner Trust Fund, are playing a critical role in supporting Somalia’s development and reconstruction needs. Moreover, despite Somalia being in arrears to the World Bank and African Development Bank, both institutions provide for pre-arrears clearance grants for capacity building and other urgent needs. Demonstrated success in meeting the objectives of these smaller operations will provide evidence of Somalia’s ability to effectively utilize much larger amounts when arrears are cleared.
Work with donors to establish a National Development Plan (NDP) that can serve as the Poverty Reduction Strategy Paper required for HIPC debt relief. The current NDP is an excellent start but it needs improvement, including addressing issues related to fiscal federalism and plans for increased domestic resource mobilization. Measures to monitor and assess progress on the NDP also need to be established.
Begin to develop a debt relief roadmap that identifies the potential sources and uses of funds for arrears clearance and debt relief. Arrears clearance at the international financial institutions should be fairly straightforward. Unlike at the time of Liberia’s arrears clearance, the World Bank and the African Development Bank have set aside resources under the IDA and African Development Fund replenishment agreements that should cover the cost. IMF arrears clearance, which is likely to follow the Liberia model, is more complicated but feasible. The Paris Club element could be a problem since the United States, which is a large creditor to Somalia, may find it difficult to come up with the money needed to cover the cost of debt relief given proposed cuts to US foreign assistance by the Trump administration. But this is a problem that does not need an immediate solution, since it is highly unlikely that Somalia will be ready for the HIPC decision point within the next two years, despite its government’s wishes.
Most discussions of the linkage between forests and poverty—including one last week at the United Nations Forum on Forests (UNFF)—focus on how to increase income to poor households from the harvest and sale of forest products. But at least as much attention should be paid to forest destruction as a pathway to the further immiseration of poor people. As forests are destroyed, poor people often lose access to the forest goods and services they depend on. And because deforestation contributes to the emissions that cause climate change, forest destruction impacts the development prospects of poor countries as well.
Can forests provide pathways out of poverty?
On May 2, I participated on one of several panels at the UNFF12 meeting in New York on the relationship between forests and selected Sustainable Development Goals (SDGs). The UNFF is a subsidiary body of the United Nations, established in 2000 to promote “. . . the management, conservation, and sustainable development of all types of forests and to strengthen long-term political commitment to this end.”
It’s great that UNFF is focusing on the linkages between forests and the SDGs; as I wrote two years ago in a blog about SDG15 (the one that includes forests), the many contributions of forests to objectives such as food, water, and energy security (depicted in Figure 1) are inadequately reflected in the SDG targets overall.
The UNFF panel on the contributions of forests to SDG1 (“End poverty in all its forms everywhere”) was framed around the potential of forests to provide a pathway out of poverty. But examples of sustainable forest management actually providing such a pathway appear to be relatively rare. Panelists and delegates offered a few examples of rural communities gaining increased income from forest products, services, or employment, but they were weighted toward the management of planted forests rather than natural forests. Instead, the panel focused mostly on the many challenges of translating natural forest wealth into money in the pockets of poor people while keeping forests standing.
One useful approach to addressing the lack of clear evidence on how forests can provide pathways to prosperity for the poor is the PRIME framework developed by Priya Shyamsundar and colleagues, with support from the World Bank’s Program on Forests (PROFOR). PRIME stands for Productivity, Rights, Investments, Markets, and Ecosystems. Attempts to nurture community-based forest enterprises have often foundered owing to constraints on the first four factors (the “P,” ‘R,” “I,” and “M”)—low resource and labor productivity, unrecognized rights to forest resources, and limited access to capital and markets.
And while in theory it should be possible to monetize the values of forest-based ecosystem services (the “E”) to provide income to local forest stewards, in practice payments for ecosystem services schemes have found limited application as a poverty reduction strategy, not least because poor people often lack legal status as “sellers” of those services.
In short, mobilizing natural forests as a pathway to prosperity for poor people remains more of a proposition than a widely proven strategy.
The impact of deforestation on poverty
Deforestation, on the other hand, can lead to either prosperity or pauperization, depending on who gains the benefits and who bears the costs. The gains from one-time removal of valuable timber can be considerable, but are often enjoyed by elites in capital cities rather than by the rural poor.
The conversion of forests to other land uses generates winners and losers, both of which may be poor. While it’s true that clearing forests to plant oil palm enables smallholders in Indonesia to send their kids to college, indigenous communities lose access to their livelihoods when their customary forests are converted to industrial-scale plantations. At Loggerheads? Agricultural Expansion, Poverty Reduction, and Environment in the Tropical Forests by World Bank economist Ken Chomitz remains the best resource for understanding such variable deforestation-poverty linkages.
But the impact of deforestation on access to forest goods and services—particularly important to poor households and women—is unambiguously negative. In the first instance, deforestation means the loss of income from collecting wild forest products, which constitute, on average, 21 percent of household incomes in communities that live in and around forests, with the poorest households more forest-dependent.
In addition, forest loss removes the ecosystem services that nurture health and well-being, and buffer poor households from natural disasters. Figure 3 depicts how deforestation transforms forests that provide food and medicine, clean water, and resilience to natural disasters into landscapes prone to landslides, flooding, and the spread of disease.
While maintaining forests might sometimes be a pathway to prosperity for poor people, forest loss can certainly be a road to their further immiseration.
The neglected link between forests and poverty via climate change
Yet even a reframing of forest-poverty linkages to include the local implications of forest loss is incomplete without incorporating the connection between forests and global climate change. The extreme weather events that are becoming more frequent and severe on a warming planet threaten to unravel decades of development gains and impose catastrophic hardship on the poorest households.
According to a 2014 National Bureau of Economic Research Working Paper, exposure to a single severe storm—such as Hurricane Mitch, which hit Central America in 1998—can knock a country off its pre-storm economic growth trajectory for decades. With overall economic growth associated with commensurate income growth for poorer segments of society, climate change poses a roadblock on one of the most reliable pathways to prosperity.
As detailed in Why Forests? Why Now?, deforestation is a globally significant cause of the emissions that cause climate change. And because standing and re-growing forests are a safe, natural, and proven carbon capture and storage technology, maintaining forests is an even greater part of the solution to climate change—equivalent to up to 30 percent of global net emissions.
As depicted in Figure 3, deforestation and climate change reinforce each other in a vicious cycle leading to poverty, with emissions from deforestation contributing to climate change, and climate change compromising the ability of forests to offer a source of resilience to the natural disasters that are becoming more frequent and severe. Poor households and poor countries are suffering first and worst.
The bottom line
As long as discussions about forests and poverty focus only on mobilizing forests for profits, and fail to recognize deforestation as a pathway to pauperization, forums such as the one last week at UNFF risk barking up the wrong tree.
Each year, as ministers gather from all corners of the world for the World Bank/IMF Spring Meetings, Washington DC resounds with a cacophony of differing perspectives on future prospects, like a giant, multinational orchestra tuning up. Yet this time, in both public and private gatherings, with both developed and developing country dignitaries, as well as leading technocrats from the international financial institutions, one refrain kept recurring, defining the mood of the whole symphony. I would summarize it as 'The numbers are looking better, so why don't I feel good about them?' This was the most common explicit or implicit refrain I heard from a wide variety of policymakers. I see three factors behind it.
The numbers are indeed better but in many cases still not good enough.
For the advanced economies, the upgrading of the US growth projection for 2017 to a healthy 2.3 percent is a significant reason for optimism, with Europe and Japan also showing firmer recovery. (All numbers are from the IMF April World Economic Outlook.) For emerging markets, almost every region is forecast to do a little bit better in 2017 than it did last year but, except for Asia, still remains short of potential or what is needed to deal with high unemployment and stagnant living standards. Sub-Saharan Africa is coming off its worst growth performance in a decade to grow at a projected 2.6 percent which hardly keeps up with population growth. And Nigeria, South Africa, and Angola, the big anchor economies in the continent are struggling for different reasons (in his recent CGD Podcast, President Adesina of the African Development Bank explain how his institution at least can help tackle Africa’s worrying growth trend.)
Latin America's improved performance reflects to a large extent the ending of recession in Brazil, with storm clouds looming over the region's commodity exporters and the threat of protectionism affecting Mexico. For the Middle East, there is some improvement in the outlook for both oil importers and oil exporters (notwithstanding the lower headline growth numbers for the latter which reflect lower oil production even as the non-oil economy, which is what matters for jobs and economic activity, is picking up as fiscal drag eases because of firmer oil prices). But in both groups of Middle Eastern countries, the 2017 numbers fall short of what is needed, as do, more worryingly, the longer term protections for growth under current policy frameworks.
To be fair, in every region there are some countries that are doing much better and whose prospects look good but it is hard for them to realize their full potential when their neighbors aren't making progress.
It's really only in Asia that growth rates around 6 percent provide a strong basis for optimism, even allowing for the well-known risks that come from China's rebalancing and growing political tensions in a number of regional hotspots. By contrast to the pallor of the World Bank/IMF Spring Meetings, at the Asian Development Bank Meetings in Yokohama last week, I was struck by the difference in the substance and atmospherics of the conversations. The talk there was about how to cope with the challenges that come from sustained of high growth: inclusivity, urbanization, inequality, environmental sustainability, and a doubling of infrastructure that needs over $1.5 trillion of financing per year.
These better numbers are subject to a variety of downside risks.
The most obvious of these is the risk of protectionist policies by the US and others. Attempts to downplay the significance of the absence of the usual statement on resisting protectionism in the recent G20 ministerial communique were only half convincing. A second risk is whether financial—especially equity—markets are being too complacent in pricing risk. I was struck by comments to this effect both in some of the public seminars and—more forcefully—in private meetings.
Populism is a real and present danger.
Finally, there was a generalized sense that the liberal, open, cooperative economic model, for which the World Bank, IMF and many of the policymakers at the meetings have been advocates, is under serious threat from the backlash against the downside effects of globalization and technology, exploited by populist political forces (the meetings took place before the first round of voting in France). The more thoughtful participants recognized that fixing this will require more than tinkering at the margins of current policies (a bit more money on worker retraining and some action on 'fair' trade). They also saw that technology induced changes yet to come will impact the nature and organization of work in ways that will pose deep and difficult challenges for most rich countries, challenges which their institutional political systems are not yet equipped to bear.
Overall I would characterize the mood of the Meetings as a sigh of relief at the breathing space provided by somewhat improved economic performance in the year ahead but a recognition that if we don't address some short term risks and fundamental challenges, the light at the end of the tunnel could well be the proverbial freight train.
The African Development Bank recently turned 50. In that time it's made more than 4,000 grants and loans, totaling more than $71 billion. So what might its next half-century look like? Bank President Dr. Akinwumi Adesina joins me on this week's podcast to share his vision for Africa's future.
After a decade of strong growth, African economies are slowing down. So what is the role of the African Development Bank in turning that around?
The institution recently turned 50. In that time it's made more than 4,000 grants and loans, totaling more than $71 billion. So what might its next half-century look like?
"We've got to focus on five things," Bank President Dr. Akinwumi Adesina tells me in this week's podcast. He recently returned to CGD to participate in our Spring Meetings event on financing for Africa.
Dr. Adesina's list of priorities includes electricity, food, integration, industrialization, and quality of life. But the trick?
Kate Raworth's new book Doughnut Economics discusses "seven key ways to fundamentally rethink economics and transform the economy into one that works for all." Raworth will present her ideas from Doughnut Economics, to be followed by discussion and debate with the audience. Kate Raworth is a senior research associate at Oxford and senior associate at the Cambridge Institute for Sustainability Leadership.
This annual report marks two milestones in 2016: CGD’s 15th anniversary and, at the end of the year, its first leadership transition, with founding president Nancy Birdsall being succeeded by Masood Ahmed. In this first era, the Center has established itself as an influential voice in international development policy, with a unique model of nonpartisan policy innovation.