Week 8: The Reduction of Poverty

Part I

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A political cartoon illustrating the government’s and stakeholders’ obstacle (poverty) to development. From http://www.hakikazi.org/zwp/poverty_in_z.htm

Jeffery Sachs discusses the importance for low-income countries to create poverty reduction strategy plans (PRS), which most developing nations already have created in cooperation with the World Bank and IMF. These plans and papers, Sachs asserts, are ingeniously calculated but continually underfunded. I have chosen to investigate Ghana’s Poverty Reduction Strategy (GPRS) and Uganda’s Poverty Eradication Action Plan (PEAP).

 Ghana

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Geographical location of Ghana; includes indication of national capital and flag. From http://www.bbc.com/news/world-africa-13433790

From the World Bank’s website, I was able to find a document on for Ghana’s second Growth and Poverty Reduction Strategy for 2006-2009. The plan has three strategic pillars: private sector competitiveness, human resource development, and good governance and civic responsibility. The document urges the need for Ghana to sustain macroeconomic stability and named the goal of achieving middle-income status by 2015. Current data from the World Bank denotes Ghana at the “lower middle income” level. Thus, even though progress has been made since then, their broad goal has not been met. Another interesting part of this plan was the discussion of improving fiscal management. The authors proclaim the need to “set out specific policies to ensure long-term debt sustainability; strengthen the debt management capacity; improve the composition of expenditure to provide fiscal space for pro-poor and pro-growth spendings; prioritize expenditure to ensure value for money by subjecting all investment projects to a cost-benefit analysis; and modify foreign-financed projects using the evidence-based decision making framework…” As corruption has played a large role in fund mismanagement, I wonder how this plan might ensure the transparency necessary for achieving the aforementioned goals. Despite its tactical proposals for improvement, one of the plan’s biggest hindrances was the lack of funds to support the suggested projects.

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Geographical location of Uganda; includes indication of national capital and flag. From http://www.bbc.com/news/world-africa-14107906

 Uganda

Those assessing Uganda’s 2002 Poverty Reduction Strategy mention both the achievements and shortcomings of the plan. For example, “bottlenecks” occurred in areas of income opportunities for the poor, governance and corruption, and the delivery of services- especially health care. What struck me in this report was the acknowledgement of needing to analyze and mitigate the gender dimensions of poverty. The strategy underscores the need to accelerate Uganda’s rate of economic growth, as its GDP fell short of the previously created seven percent growth target. As in Ghana, the plan references a lack of adequate funds to sustain substantial progress.

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An image showing countries’ credit ratings by Standard & Poor’s Foreign Rating- August 2014. From http://en.wikipedia.org/wiki/List_of_countries_by_credit_rating

The capital solution Dambisa Moyo describes in her book, Dead Aid, revolves around the influx of capital from the global market as opposed to aid donations. The bond market, for example, is on the rise. She mentions, “…the point of issuing these bonds to international investors was to help finance their development programmes, including infrastructure, education and healthcare…[the bonds] could, however, be used to fund governments’ day-to-day expenditures…” (Moyo 77). In order for a developing nation to insert itself into this bond market, it must first obtain a credit ranking. According to One World: Nations Online, Zimbabwe has not been rated by Standard & Poor’s agency, likely because its 2011 GDP was 6.127 with a debt in % of that GDP being at 70.3%. Ghana and Uganda, on the other hand, received ratings of B and B+, respectively, making them more attractive to potential investors.

Part II

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An image loosely illustrating foreign investment. From http://www.iamwire.com/2011/11/fdi-impacts-on-indian-e-commerce-are-still-unclear-muralikrishnan-ebay-india-head/1993

In order to receive foreign direct investment (FDI), Moyo declares that countries must improve their infrastructure, as the poor roads, telecommunications, and power supply make production costs soar. Additionally, she asserts that the ever-present corruption and bureaucracy hinders simple business practices, chasing off potential investors: “Though the countries’ livelihoods depend significantly on such entrepreneurs coming in, given the nature of doing business it is hardly surprising that this much-needed investment stays away” (Moyo 100).

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A picture of Dutch ambassador, Gera Sneller. From http://www.thezimbabwean.co/news/zimbabwe-news/71954/dutch-ambassador-urges-govt-to.html

Zimbabwe, despite its favorable geographical location, ample human capital, and enormous mineral wealth, is not an ideal place for investment. In an interview with national news source the Zimbabwe Independent, the Dutch ambassador to Zimbabwe, Zambia, and Malawi Gera Sneller explained that the government’s policy inconsistency and the lack of investment security have been significant obstacles to encouraging investment in Zimbabwe. Additionally, she sites various incidences in which the rule of law was not respected, which has understandably made foreign investors even more hesitant.

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