African countries urged to rethink use of mineral revenues for poverty reduction

15th April 2013 By: Terence Creamer - Creamer Media Editor

The outlook for economic growth across sub-Saharan Africa remained robust for the forthcoming three years, but a new World Bank analysis shows that poverty is not declining at a similarly robust pace, particularly in those African economies that are resource rich.

The bank expects the economies of the region to expand by 5% a year on average between 2013 and 2015, having expanded by 4.7% in 2012 - a figure that would have been 5.8% had slow-growing South Africa, which remains the territory's largest economy, been excluded.

However, policy attention would need to be given to harnessing that growth to support efforts to alleviate poverty in a region where half of citizens still subsisted on as little as $1.25 a day.

Outgoing chief economist for Africa Shanta Devarajan, who has been appointed chief economist for Middle East and North Africa, said the relationship between growth and poverty reduction in resources-rich countries was particularly weak.

Illustrating the point, bank lead economist for Africa Punam Chuhan-Pole - who is also coauthor of Africa's Pulse, a biannual analysis of economic trends on the continent - showed that growth in resources-poor countries had been more effective in reducing the poverty headcount than was the case in minerals-producing countries.

The poverty headcount between 1996 and 2011 fell from 65% to 49% in resources-poor countries, while the decline was far more modest for resources-rich countries, where the poverty headcount fell from 47% to 40% over the same period.

In fact, Africa's Pulse showed that, while resources-rich countries grew on average 2.2 times faster than their resources-poor counterparts, "poverty declined substantially more" in resources-poor countries. Agriculture production growth was also found to be the most potent form of growth.

The bank urged African policymakers to pay far closer attention to ways to narrow the prevailing gap between growth and poverty-reduction, particularly given that it expected only four or five countries in the region not to be involved in some form of mineral exploitation by 2020.

Devarajan said it was important to improve the transparency of minerals contracts to ensure that deals were not overly favourable towards miners. Secondly, strategies were required to improve the spending of minerals-related revenues to help reduce poverty.

Spending, in the bank's view, should be directed towards improved economic infrastructure, raising the quality of education and health outcomes, and even to cash transfers that cushioned poor people from economic shocks and also gave them a direct link to the resources-related revenues.

Overall, Africa's Pulse indicated that Africa's growth outlook remained "tilted to the upside", with the main downside risks associated with the weak global economic recovery. The bank was projecting global growth of only 2.4% in 2013.