Week #8 Poverty Reduction

  1. Sachs discusses in his book The End Of Poverty the use of poverty reduction plans should be implemented in developing countries as a way to achieve the MDGs. The “World Bank poverty reduction plan lays out the countries goals, targets, policies, and strategies to cut poverty. Introduced a few years ago to give more coherence to each country”(Sachs 270). If these plans can be implemented cost effectively they can have a big impact on the development of the region. Two countries that Sachs mentions who have implemented such poverty reduction programs are Ghana and Ethiopia. When looking at the plans at first glance it seems the Plan for Ghana is much more thought out with a more focused vision. Although the Ethiopian plan wants to achieve a similar goal of poverty reduction its direction is not as precise in its direction. The Ghana plan states its “Vision 2020 focused on human development, economic growth, rural development, urban development, infrastructure development, and an enabling environment”(IMF) giving more substance than the Ethiopian plan that says its goal is eradicating poverty and vaguely says it will try to increase reliable infrastructure. The two seem to focus on improving infrastructure to not only aid current business in the country but also have a strong system in place to attract foreign investment to the countries. Some of the things listed in the plans seem like valuable investments the countries should take to improve their economic situation but funding this programs to get them going is difficult. If the program is underfunded form the start it will not have as big of an effect as it would be struggling to survive, while not focusing on say improving the road infrastructure.BLog
  2. Moyo discusses in her book Dead Aid the idea of a “capital solution” in which the flows of aid to Africa could be replaced with market flows. This increase in business development and integration in international financial markets will bring the greatly desired prosperity and end of poverty, than the never-ending cycle of aid. When we evaluate the financial strategy of Sub-Saharan Africa we can see which countries are moving in the right direction to financial security not dependent on aid. Looking at Liberia will give us a snap shot of where they are financially and what areas they need to improve in. The credit rating in Liberia is 15 while in Botswana their credit rating is 72.5 showing a good amount of room for improvement. If they can get their credit rating into a better zone they will be able to use funds more effectively as a smaller deficit will be created with a better credit rating. Liberia owes in principal $568,400,000.00 in US dollars, with such large debt and mismanagement of funds in the past makes the implementation of new policies and governmental checks to fight corruption vital. While the EIB did not list Liberia as one of the countries they had helped they listed South Africa “The Republic of South Africa: Since its transition to a democratic government in 1994, the EU and the Republic of South Africa concluded the Trade, Cooperation and Development Agreement, in which the European Council has entrusted the EIB with four successive mandates for a total lending volume of EUR 2.4 billion.”(EIB). With such large investments in some countries like South Africa up to EUR 2.4 billion, they are willing to invest great sums of money but not to everyone who asks only to those they think will actually greatly benefit from it. According to the financials of Liberia they need to shift away from the reliance on aid while it may alleviate the immediate problems at hand it does not address the cause of the problems. If they can improve their financials even when they take aid they can put it to better use as they are not as constrained by immediate need but can put the money to long-term use.

Part: 2

Moyo talks about FDI (foreign direct investment) “and investment made to acquire a lasting interest in an enterprise operating outside the economy of the investor”(Moyo 98) as crucial to really gain economic traction in Africa. While other regions of the world, such as East Asia, have been gaining more and more investment Africa has encountered problems attracting potential investment. With so much of Africa lacking adequate public infrastructure potential investors are wary of potential problems. With the increase expense in transport costs in the most of the continent Asia is still the affordable option for the manufacturing of goods even though the distance is further, especially in Europe. “Investors don’t know where to go or who to ask”(Moyo 100) when trying to find information even to learn about investment potential in a country. This creates the problem of a potential investor who could make a good deal in an African country miss an opportunity because the information is not readily available. Although foreign investment to Sub-Saharan Africa has increased in certain countries due to stable governments that instill confidence in investors there is big room for improvement since Sachs and Moyo wrote their books. Attracting foreign investment is impossible if the investor feels uncertain about the protections the government can provide and the stability of the region. They are unwilling to take great risk when other affordable options remain. In Liberia president Sirleaf has “granted more than a third of Liberia’s land to private investors to use for logging, mining and agro-industrial enterprises” (New York Times) showing signs of investment in certain industries. The issues in attracting more investment come down to investor confidence in the long-term stability in Liberia.


Jeffery Sachs Thre End Of Poverty

Dambisa Moyo Dead Aid


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