Overcoming growth stagnation to reduce poverty, World Bank Group, March 16, 2018

Overcoming growth stagnation to reduce poverty, World Bank Group, March 16, 2018

Author : World Bank Group

Affiliated organization : World Bank Group

Type of publication : Report

Date of publication : March 16, 2018

Link to the original document

 

*Les Wathinotes sont des extraits de publications choisies par WATHI et conformes aux documents originaux. Les rapports utilisés pour l’élaboration des Wathinotes sont sélectionnés par WATHI compte tenu de leur pertinence par rapport au contexte du pays. Toutes les Wathinotes renvoient aux publications originales et intégrales qui ne sont pas hébergées par le site de WATHI, et sont destinées à promouvoir la lecture de ces documents, fruit du travail de recherche d’universitaires et d’experts.

 

Introduction and Country Context

Guinea is a low-income country with abundant— but unexploited — natural resources. Like other countries in Africa, Guinea is fortunate to have vast natural resources, especially mining and hydropower potential. Its mining sector is vital to the economy as an important driver of output growth and exports. Its mining deposits are very rich, including the world’s largest unexploited iron mine in Simandou and the world’s largest reserves of bauxite estimated at 7-8 billion tons (accounting for approximately 1/3 of total global reserves).

Despite its economic potential and relative civil peace, Guinea remains among the poorest and least competitive countries in the world. Poverty is high and rising, affecting almost 60 percent of its population in 2014. According to the 2015 Human Development Index, Guinea ranked 182 out of 188 countries.

This Systematic Country Diagnostic (SCD) will answer three interlinked questions to identify the key pathways to accelerate progress in poverty reduction. Specifically, what are the main challenges that prevent Guinea from accelerating economic growth? How will it make economic growth sufficiently inclusive in the absence of a high growth rate? What factors could jeopardize a sustainable process of economic growth and poverty reduction?

Assessing Progress Toward the Twin Goals

Despite Guinea’s abundant natural endowments, poverty reduction and shared prosperity have not materialized over the past decades. Monetary poverty remains widespread, at around 55 percent in the 2000s. Except for Kankan and to a lesser extent Kindia, poverty has increased in all regions in 2007- 2012. Poor households are found mostly in rural areas, but with large regional disparities.

Monetary poverty remains widespread in Guinea; it may have increased slightly in the mid-2010s following the Ebola epidemic shock. Simulations based on the 2014 Census suggest a likely increase in poverty to nearly 58 percent in 2014 nationally, with both urban and rural areas experiencing increased poverty.

The combination of low economic growth, a high incidence of poverty, and a fast-growing population have led to a steady increase in the absolute number of poor in both urban and rural areas. Estimated at 4.5 million people in 2002, the population living in poverty is projected to have increased to about 6 million in 2014, which represents a net increase of 1.5 million people.

Despite Guinea’s abundant natural endowments, poverty reduction and shared prosperity have not materialized over the past decades. Monetary poverty remains widespread, at around 55 percent in the 2000s

Unlike monetary poverty trends, non-monetary poverty measures generally showed some improvement in well-being during the 2002-2012 period. There was a reduction in multidimensional poverty between 2002 and 2007, and the situation stabilized in 2007-2012.

Poor households tend to have less diversified incomes, and their main source of income is predominantly from agriculture. Diversifying one’s income is an important strategy, especially when facing potential shocks. Income from crops is the main source of income for the bottom 40 percent of households. These are mainly sale revenues from rice, maize, tubers, and other crops.

Guinea’s Growth Performance

Guinea has had persistently low, declining, and volatile growth rates. The country’s GDP growth rate averaged 3.3 percent between 1987 and 2016, below the Sub-Saharan Africa average of 3.7 percent, as well as the averages for low-income countries (3.6 percent) and IDA countries (4.3 percent).

The country’s historical legacy provides a background for understanding the growth trajectory and fragile context of Guinea. France’s acrimonious departure left Guinea with a shortage of government staff, a lack of institutional memory and financing shortfalls. The regime of Sékou Touré lasted 25 years, beginning with Guinea’s independence from France in 1958 and lasting until 1984. These first decades of Guinea’s history as an independent country were marked by economic stagnation and an increasingly repressive one-party state.

The legacy of this period is still noticeable today because of its impact on Guinea’s institutions. Single party rule prevented the emergence of strong independent institutions, especially with respect to the bureaucracy and the judiciary.

To determine whether Guinea can continue on its path of accelerating growth, a long-term growth model (LTGM) was built in collaboration with the World Bank’s Development Economics (DEC) Vice Presidency. The model was developed by DEC’s Research Group to analyze alternative GDP growth trajectories and their effect on the poverty headcount rate.

The overview of Guinea’s context and diagnostic suggests that despite major opportunities — including hydropower potential, large mining endowments, and significant potential in the agriculture and forestry sectors — various constraints may have impeded growth, inclusion, and sustainability

Six simulated scenarios in two categories were conducted. The first and second category of simulations were run under the assumptions of a 5 and 7 percent constant headline GDP real growth rate by 2020, respectively. For each category of simulations, a baseline and two alternative scenarios were considered, depending on the TFP growth rate. Across all alternative scenarios, the paths of the poverty rate were identical because the assumed growth rates are identical. Moreover, for all simulations, the human capital growth rate was assumed as constant at one percent.

Overall, the simulation results suggest that given the current situation of the Guinean economy, the most plausible scenario is the one that would require a 15 percent investment rate for achieving a 5 percent GDP growth rate by 2020.

The overview of Guinea’s context and diagnostic suggests that despite major opportunities — including hydropower potential, large mining endowments, and significant potential in the agriculture and forestry sectors — various constraints may have impeded growth, inclusion, and sustainability.

The first explanation is that poor political and economic governance is at the center of Guinea’s development difficulties, leading to mismanagement of natural resources, institutional fragmentation, and low and ineffective public investment.

The second explanation is that the low levels of structural transformation are affected by unproductive agriculture and poorly planned urbanization. This hypothesis combines the “pull” of the city with the “push” of agriculture to explain some of Guinea’s current malaise.

Constraints to Achieving Shared Prosperity and Poverty Reduction

Weak governance is a cross-cutting constraint that hinders Guinea from achieving sustained inclusive growth. All stakeholders interviewed for this SCD unanimously pointed out to weak governance as a key developmental constraint in Guinea.

According to the Mo-Ibrahim Index of African Governance, the country’s overall score of 43.3 in 2016 is significantly below both the West Africa regional average (52.4) and the Sub-Saharan Africa average (50).

The agricultural sector remains a key factor for accelerating inclusive economic growth in Guinea. Since this sector’s growth is naturally shared by a large part of the population, it is capable of accelerating economic growth on a more equitable basis — especially given the fact that it will remain, for many years, the main activity of the majority of the population. Guinean agriculture suffers from low labor productivity and low input use per worker. In this context, successive regimes in the country’s history have not provided a good input policy for farmers.

The lack of access by smallholders to inputs and equipment, especially fertilizer, seeds, and machinery, is a key constraint to a potentially more vibrant and transformative agriculture sector.

Although Guinea is at a medium stage of urbanization, the country’s economy has neither benefited from increased urbanization nor experienced the expected structural transformation that comes with it

The extensive agricultural input and equipment subsid y program for producers, undertaken by the Government of Guinea from 2011 to 2017, did not produce the expected results. A 2016 study of the National Agricultural Statistics Agency (ANASA), assessing the impact of this subsidy program on farmers, revealed that about 60 percent of beneficiaries were not satisfied with the input scheme, and found that the identification of needs had not been done properly.

The low level of human capital is reflected in the weak healthcare and educational systems. As the economy grows, Guinea faces a major deficiency of skilled personnel in many important sectors, including healthcare, education, and business. This low level of human capital was identified in the poverty analysis as a major driver of poverty in Guinea.

The Guinean educational system, which is generally weak, remains characterized by a low level of schooling, and a relatively poor education performance. Guinean adults remain among the least literate in the region, with a rate of only 31 percent as compared to double that of the SSA average

Although Guinea is at a medium stage of urbanization, the country’s economy has neither benefited from increased urbanization nor experienced the expected structural transformation that comes with it. Currently, just under 40 percent of the population lives in urban areas. With an annual growth rate of 4 percent, by 2050, the urban population is expected to represent close to 60 percent of the total population, as is the case for the whole of SSA.

Structural transformation has progressed very slowly, and agriculture still dominates the economy. To achieve sustained economic growth, employment must shift to activities with higher productivity. In fact, most developing countries follow a standard pattern where urbanization is the result of either agricultural or industrial productivity growth.

Pathways and Prioritization of Binding Constraints

The first pathway is increasing agricultural productivity and supporting private sector investment to promote economic diversification. To overcome the chronic poverty which prevails in rural areas, there is a need to raise incomes and the standard of living in the livelihood zones where the population lives mainly from agriculture. The first and straightforward way to do this is to improve agricultural productivity through the increased use of agricultural inputs (fertilizers, improved seeds).

The second pathway is raising human capital to support inclusive growth. Skills development is the first key pillar. It would be wise to develop the right skills to ensure that the structural transformation follows the trajectory of the classical model whereby the manufacturing sector is the main beneficiary of labor migration. This improvement in human capital will also be facilitated by administrative capacity building, which is likely to improve governance.

Improving economic opportunities through enhanced urban development is the third pathway. In order to promote agricultural development and other rural activities — and to cope with the rural-to-urban migration and intersectoral movements of labor resulting from the process of structural transformation — it will be necessary to develop economic opportunities for urban areas. It is also a way to enhance opportunities for women in building a more efficient economy.

The fourth pathway involves strengthening the management of fiscal and natural resources. Better fiscal management involves an improvement of both revenues and expenditures. Providing better public services and making resource mobilization more effective will be important in achieving structural transformation. In fact, it should improve the financial capacity of the Government and its ability to finance the construction and maintenance of infrastructure.

 

Add Comment