Economic Development in LDCs and Eradication Absolute Poverty

Introduction

Least Developed Countries (LDCs) have for decades experimented on many drastic economic reforms, from Structural Adjustment Programmes (SAPs), World Economic Trade liberalization policies to leftist socialist programmes, etc. in efforts to take-off from economic stagnation and perpetual dependence. These methods have mostly led to further entrenchment of absolute poverty, with some countries having more abject poverty now than at the time of attaining self-rule (Rodney). This prevalent state of affairs is more extraordinary in some countries that maintain a steady economic growth or rise in figures in their Gross National Product (GNP) while large tracts of their population live in misery. It’s now apparent that trade and integration is insufficient for real development and poverty reduction in the LDCs. According to UNCTAD, the relationship between the external and internal development issues and problems facing the LDCs has contributed to the inertia experienced in this countries economic development (UNCTAD). The current global and energy financial crisis have badly impacted on the LDCs who lack the requisite resources to withstand shocks from natural and human crisis. There is therefore an urgent need to address the human catastrophe experienced in the LDCs as they now represent the lowest ebb in humanity.

Definition

It is important to differentiate between economic growth and economic development. Economic growth is defined as an addition of a specific quantify in real income, gross domestic product, or in the per capita income of a country. According to Investorwords.com, economic growth is described as a positive change in the level of production of goods and services by a country over a certain period of time. Nominal growth is an economic growth with inflation while real growth is nominal growth without inflation (InvestorWords.com). Economic development however, is far more wide-ranging being referred as, improvements in an array of pointers in the country: life expectancy, literacy levels, gross domestic products, economic growth, and general decline in poverty levels. Either one of a country’s gross domestic product (GDP) or gross economic growth (GNP) figures are not sufficient indicators of economic development and Pakistan economist Mahbub al Hul Haq defines ‘the objective of development is to create an enabling environment for the people to enjoy long, healthy and creative lives. The figures do not take into account social aspects and general well being of the people. According to Nobel laureate Amartya Sen, economic development is ‘the process of expanding the real freedoms that people enjoy’ (Sen).

Least developed countries (LDCs) can be termed as the countries afflicted with prolonged handicaps to growth usually manifested in poor labour development and acute shortage of infrastructures. These setbacks are further compounded by geophysical locations. These fifty countries have weak domestic economies and are vulnerably exposed to natural calamities and other external impacts that hinder their puny attempts at self-development. The World Bank categorise these countries as the ones having a gross national product (GNP) per capita income of less than nine hundred ($900) dollars. To be ‘promoted’ from this group, the LDC must have a twenty percent (20%) increment in per capita income of one thousand and eighty dollars ($1080).

Location of the LDCs

The LDCs are mainly located along three geographical areas: sub-Saharan Africa, Central and East Asia, and the Latin American region. Other countries outside these regions are in the Middle East including Iraq, Yemen; North Africa Algeria; East and Central Europe, Romania, Albania, Bulgaria. There are approximately 780 million people living in these countries, with over half spending less than a dollar a day and 81 percent on less than two dollars. It’s appalling to note that the number of LDCs has more than doubled since the identification of twenty one (21) LDCs in 1971 to reach fifty (50) today. The LDCs defencelessness has been cruelly exposed in the last one and half years as food and fuel crisis escalated globally. This has resulted in food riots in eight countries, namely Burkina Faso, Guinea, Haiti, Mauritania, Mozambique, Senegal, Somalia and Yemen (ALOP).

Although some LDCs continue to experience positive economic growth averaging 5.5 percent, these same countries continue to experience more poverty with incidence of hunger extremely high in countries emerging from armed conflicts, e.g. Eritrea (73 percent), Democratic Republic of Congo (72 per cent) and Burundi (67 per cent) (UNCTAD). According to the United Nations High Representative for Least Developed Countries, Anwarul. K. Chowdhury,

‘growth largely driven by the high demand for extractive commodities has not resulted in meaningful reduction of extreme poverty in LDCs. The report suggests that extreme poverty has been decreasing in few LDCs and increasing in many,”

Also of concern was the triple hazard in civil conflict, inadequate food and HIV/AIDS which has gravely impacted on life expectancy in a third of the LDCs. The most striking impact has been the decline by 21 years of life expectancy in Lesotho and Haiti a decrease by 18 years in the last three years. However, some LDCs have shown a marked improvement through their determined efforts (UNCTAD).

The Botswana Example

Botswana is typical case of a country registering high growth rates but minimal economic development. It is one of the Sub-Saharan African countries with the highest gross domestic product (GDP). The country also has one of the highest per capita incomes in Africa, at 3,056 dollars, a nominal GDP of 12.382 billion dollars, but one of the most unequal countries in the world with a share of income or consumption rich to poorest at 77.6 percent and Gini coefficient of 0.654 by 2007 and according to United Nations Development Programme (UNDP); forty seven percent of the population live below poverty datum line. The income of the poorest forty (40) percent of the population is only 11.7 percent of the total while the income of the richest 20 percent ranges from 60 percent. The poverty gap ratio is 56.3, with unemployment figures ranging from 15.8 percent. Although the economic growth of the country has been averaging almost ten (10) percent for the last thirty years, a large proportion of the population who are rural based still languish in abject poverty. Botswana is still far from achieving the U.N. Millennium Development Goals (MDGs) of reducing by half absolute poverty and hunger by 2015 or its Long Term Vision 2016 of eradicating poverty by 2016(Kapunda).

The economy is dominated by its mining industry which contributes forty percent of the GDP and 70 percent of export earnings, while it’s agricultural and manufacturing sectors contribute only 6.6 percent to GDP. Although cattle is an important source of income in Botswana, 47 percent of the rural households don’t own any cattle while 2.5 percent of the farmers own 40 percent of all the Botswana livestock(Tregenna). The onslaught of HIV/AIDS has been particularly hard on Botswana, with life expectancy levels falling drastically. It has the second highest rate of HIV/AIDS prevalence in the world at 40 percent. According to the UNDP, the only about thirty percent of the population were expected to reach age of forty (40) in the period of 2000-2005, the worst of all the 177 countries reported (UNDP Human Development Report 2005). Although eighty percent of the population is rural, they only received a third of the development capital. Jefferis and Kelly argue that the Botswana’s rapid economic growth dominated by the mining industry has not contributed to job creation with the rural agricultural providing minimal income while the formal sector is unable to absorb job market entrants and the economy is not diversified enough. They point out that the poor rural populace grew by four percent much lower than the national average (R.Jefferis).

Economic Gap

UNDP ranks Botswana second in the negative gap between its GDP per capita income and Human Development Index, an indication of how its human development has not kept pace with its economic growth (UNDP Human Development Report 2005). Economic growth has clearly not been felt by the majority of the population. Kapunda argues that the answer to these disparities lies in diversification as propagated in its Long Term Vision 2016. This can be done through distribution of investment in different sectors of the economy to reduce the over-dependence on the mining sector. This will minimise incidence of risk and uncertainty by diversifying more with the private sector to a more sustainable growth. Through a pro-poor employment creation theory, Kapunda links it with the pro-poor growth theory that is aimed at alleviating poverty.

As suggested by World Bank (1990) for economic growth to be effective and felt by the poor, it has to be labour intensive. In Botswana and other LDCs, for growth to be seen to be succeeding, employment creation for the majority of the poor must integrated in the development plans. With diversification, employment will as expected be created and the sectors should have labour intensive industries that are favourable to the poor. The countries should embrace small and medium term business especially in the rural areas where the largest number of population is found. This will ensure reduction in absolute poverty and food security. Tourism is another rural based sector that can employ or absorb a large part of the population. Policy changes aimed at reducing cultural impacts on the economic welfare of women should be legislated. These include inheritance and land rights (Kapunda). African women are predominantly discriminated especially through inheritance laws that deter them from owning property although they are largely credited with contributing a major share of the rural income.

The least developed countries (LDCs) have minimal programs to forestall or deal with natural disasters. This means that any economic gains experienced are largely wiped out in case of any natural calamity befalling the countries. In Botswana where the majority of the rural folk depend on livestock, cattle epidemics leave them prone to economic deprivation of their only live-hood. The economy should establish well planned programs aimed at countering these phenomenons or reducing their impact on the poor rural folk who usually left destitute whenever they occur. The government are expected to use the revenue collected from the various diversified sectors to help the poor people by establishing programs that help break the vicious circles of poverty that perpetuate in the rural areas. This include provision of free education, health facilities, vocational training and erecting basic infrastructures like road networks, water, electricity and communication networks.

To further improve in the poverty alleviation, Kapunda argues that the government in Botswana and other development partners need to initiate special schemes targeted at the poor. These include social security, unemployment benefits, pension schemes etc. This schemes or programs will help to offset the massive income disparities and abject poverty found in half of the population in Botswana and other LDCs. The privatisation of government sub-sectors in Botswana has however, led to loss of many jobs hence further contribution to escalating poverty despite the obvious economic growth to the country. Harvey et al (2000: 64) argue that globalisation, liberalisation of trade, and capital flows while largely contribution to the LDCs economic growth will adversely lead in high incidence of income poverty if there are no palatable government policies to deal with the negative effects of the situation (C. Harvey). Fiona Tregenna argues that although the government has deliberately attempted to encourage diversification through specific and general economic policies like taxation and wage subsidy, the diversification from mining and services has not been substantial enough and the key manufacturing and agricultural sectors have actually been shrinking within the last few years. She also asserts that the major economic contributor of mining industry has not been integrated with the rest of the economy through forward and backward linkages (Tregenna).

Constraints to Poverty Alleviation

Some of the constraints experienced in Botswana’s efforts at poverty alleviation are: the lack of labour intensive economic sectors in the country. According to the Botswana Institute of Development Policy Analysis (BIDPA), (1997), the main cause of poverty in Botswana is lack of labour intensive bias in the formal sector further aggravated by low wages and the lack of more income creation projects (BIDPA). The onset of privatisation and multinational corporations’ intent on maximising profits leave little chance for the industries to engage labour intensive methods in their firms. This has led to the country having a high unemployment rate at over 15 percent in contrast to the rapid economic growth.

Another constraint is the country’s limitation in generating and distribution of technology to the agricultural rural areas. The few that are distributed are poorly adopted by the rural folk and there is generally minimal use of modern technology. This also translated into a limited ability in handling the country’s semi-arid and marginal environment, to the natural disasters such as drought and floods. Without the requisite technological innovation, the country’s rural transformation from backward leaning practices will mean that, poverty alleviation is hardly achievable. This is exemplified by the cattle farmers’ tendency of overstocking the animals even with the evidence of overgrazing lack of adequate pasture. Modern livestock methods are shunned in favour of amassing livestock to counter loss and death of the herds in case of drought.

Other constraints relate to the problems faced by the small and medium enterprises (SMEs). These include lack of entrepreneurial skills and funds by those practising the trade. The constraint on the SMEs means that there less employment on the informal sectors of the economy that could employ more people. The government should support.

Other problems involve the implementation of a universal education and health programmes. The later is mostly experienced due to the prevalence of HIV/AIDS and its control. Tregenna points out that the endemic nature of HIV/AIDS is one of the foremost public policy failures of the Botswana government. She argues that it is unlikely the pandemic would have spread so rapidly if the country’s economy and society was not categorised by incidences of inequality especially between the poor rural folks and the few urban rich, the marginalisation of the same rural areas and the largely inferred disengagement of a majority of the population.

There is a limitation to land ownership by women and credit services. This hinders the womenfolk who are the main engines in rural economic programmes from accessing income generating ventures. There is a general lack stakeholder participation in the poverty eradication measures. These include both the private and public sectors who do not adequately implement measures aimed at curbing poverty.

According to Tregenna, Botswana has poor resource endowment other than mining. The type of weather and soils in the country are unsuitable to subsistence farming that is practised. The use of primitive farming methods by the farmers further exacerbates the problem who continues to use non-technological tools in their small scale farms. The yield from farming is therefore poor and cannot sustain the mainly agricultural rural people who constitute to over 80 percent of the population. The ranching methods also practised are not conducive to the terrain hence leading to poor cattle farmers (Tregenna).

Botswana has very low population in view of its expansive landmass with population of only 1.7 million people. According to Tregenna, this is a very limited number that is incapable of sustaining job creation in the scale needed and to improve on the poverty equation. Foreign Direct Investment (FDI) is therefore limited due to the foreign investors’ view of the lack of market for their goods. This denies the country the chance in gaining new technological inflows, capital and growth. Employment opportunities are also limited as many investors are discouraged by the low unsophisticated rural based population dispensation.

Botswana is also a landlocked country hence has to endure high trade costs in terms of import and exports of her goods. This is due to the comparatively high road or air transport costs as compared to the inexpensive shipping costs. This impacts on the country’s development programs as the funds or costs incurred in transportation should be diverted to the poverty alleviation programs. It also discourages potential foreign investors who are fearful of the cost of production in the export and importation of their goods.

According to the UNDP report, the large size of the country with a very sparsely distributed ratio hinders the distribution and provision of services. The sparse distribution makes the service delivery expensive both to the government and the practising industries in the country. Establishment of infrastructures to the remote parts of the country is costly and has no bearing to the potential economic benefits to be deprived to the central government or the manufacturing and service industries. This means that large tracts of the country remain cut off from main economic zones and they continue engaging in ancient economic activities. Any chance of gaining from the country’s economic growth is limited by their remoteness and inaccessible limits. This leads to a perpetuation of the backwardness and poverty even as the few ‘central’ regions continue to prosper (UNDP).

Measures to Alleviate Poverty

The country therefore needs to diversify into more income generating sectors mostly in the agricultural and industrial areas. This would in turn generate employment and provide linkage between the production units and the profitability impacted on the country’s populace. Suggested measures include: rural industrialisation, a policy should be initiated aimed at promoting the small and medium enterprises (SMEs) by the government. The emphasis should be on the rural based labour intensive industries. This can involve lending at subsidised rates and tax exemptions to the SMEs. Inter-linkages between these SMEs and the large industries should be encouraged in terms of offering markets for their goods.

Another measure is establishment of irrigation schemes in the rural areas. This would effectively manage the mainly semi-arid rural areas of the country and aid in reducing the impact of adverse climatic conditions e.g. drought and floods. Farmer’s education in modern methods of farming and technology should be established. Centres can be set up in strategic rural areas that will cater for the education and support in implementing the new technology and knowledge.

There should be a review and legislation of the discriminatory tendencies in gender that militate against women inheritance. This includes rural asset inheritance rights and land rights. By constantly reviewing these archaic laws, the poor and vulnerable women can be leap-flogged from abject poverty to a more sustained live hood. Another measure should be the diversification to the tourism sector. This sector offers a great chance in contributing both directly and indirectly to poverty alleviation. Directly through employing many people in running the tourist lodges and hotels, and the game parks and reserves, while indirectly through the remittance of funds to the local governments and council and through supply of commodities to the hotels.

Other measures involve enhancing further investment in human capital by aiding the poor and vulnerable, young, women and the physically handicapped people. This investment can be inform of education as it enhances the chance of the poor in achieving better jobs and in entrepreneurship. The other measure is in setting up effective health programmes and objectives. Major emphasis should be put measures aimed at HIV/AIDS as almost have the country is impacted by the scrounge. This epidemic has exacerbated the poverty problem in the country as the ailing population is hard pressed to deal with the dual predicaments (Kapunda).

Another measure to alleviate poverty is empowering people through financial incentives to enhance social and economic involvement. The government policies should be pro-poor by setting up schemes that offer credit facilities and subsidies. Programs offering social security, welfare benefits for the unemployment, pension schemes need to be set up to ensure the gains in economic growth trickle down to the local people. Kapunda asserts that all the sectors must be involved in the economic diversification towards poverty reduction. As the global economic crisis impact adversely on the LDCs, the need for diversification becomes more urgent. Any slight decline in the country’s main income earner of mining can have far reaching negative impact (Kapunda).

Although the Botswana government is credited as being one of the best in Africa, it also has drawn criticism for its mishandling of its people as exemplified by the large income gap experienced in the country. The Botswana government handling of the Basarwa people has generated negative publicity. There have been reported discriminatory measures including forced relocation from their traditional tribal lands to make way for the mining industry. This has been further exacerbated by a denial of basic services. The fact that mining has minimal economic benefit to the local people has led to the feeling of injustice.

The prevalence of HIV/AIDS epidemic to the high levels of almost 50 percent of the population is a major blight in the country’s progress. The government lack of initiating measures to curb the escalation of the pandemic is major indictment of its skewed policies. The government only started counteractive measures in 1998 hence leaving the disease to permeate to almost uncontrollable levels. The prevalence of the disease and low population levels have been a major hindrance to foreign investors who are discouraged by the negative forces.

Poor Government Policies Perpetuating Poverty Levels

The government military spending is one of the highest in Africa with a percentage 3.9 of the GDP in 2003. The average in the Sub-Saharan Africa is 2.32 percent. This is a miscued policy application as the funds should be deviated towards poverty alleviation measures. However, the positive effect of the measure is that it offers employment to 1.39 percent of the population. The military are influential in politics and the current president is a former head of the military. It is also powerful and professionally run.

Another shortcoming is in labour relations. The labour conditions in Botswana are historically oppressive, with tame trade unions. The Botswana Federation of Trade Unions (BFTU) was formed in 1972 by the government and was politically affiliated to the ruling party. Only ten percent of the active labour force is unionised. The civil servants were only allowed to join unions in 2003/2004 but are under the influence of the Minster of Labour who determines who to join, and is the arbitrator in labour disputes for all unionised members. The repressive authoritarian labour laws are said to have contributed to the country’s rapid economic growth. In 2004 there was a mass firing in the country’s largest mining company, Debswana. The right to strike is prohibited until a complex arbitration process is followed.

Tregenna attributes Botswana’s rapid economic growth to institutional factors; cultural values and strong institutions. The contribution of its mining industry, the proximity and economic integration to South Africa, the strong political and service institutions and the contribution of foreign aid which has been well spent. However, the country’s successful growth can be largely attributed to the stable governments experienced since its independence, well run mining industry and institutional frameworks that allow private enterprise to flourish smoothly. The fact that it has the ‘Dutch Disease’ in its over-reliance on its diamond industry has actually been positively used to promote economic growth. A comparison with other African countries with similar mineral endowments reveals how well the mining industry in Botswana has been properly run. In Congo, Zambia and Sierra Leone, the mineral wealth has largely been underutilised and in most cases has led to armed conflict in the fight for the control of the wealth.

Although economic growth, saving, and investment are said to be necessary to alleviate poverty, Botswana is an example of a country that has had a sustained growth, tangible savings, and some investments but is still unable to eradicate absolute poverty and reduce the wide gap in inequality. The recent progress in export accomplishments of LDCs has not been accompanied by structural alteration in their financial systems, an actuality that implies a high degree of susceptibility to natural and un-natural calamities. The benefits accrued from more liberal policies have been insufficient to curb poverty. The continued state of decline in view of their sustained economic growth reveal that although integrated trade is necessary, is not enough to assist in human development and poverty alleviation.

Although there emerging regional trading blocs in the LDCs regions, especially in Africa, there is also a need to employ more inter-regional trade within these countries. The trade between African countries (excluding South Africa) is only ten percent of the total African exports. The lack of trade between the countries which share similar economic levels is a major drawback in promoting poverty alleviation. These countries have the potential of forming a large market for their goods that would not be subject to the stringent Western standards that limit the size of their exports. The regional trade has the potential of creating more industries which can manufacture some of the exports to the Western world, mainly shipped in raw form. These include agricultural products like coffee, tea, cocoa etc. The countries can also export labour to the wealthier countries within the region hence creating employment opportunities for their youth. Tourism within the region can be encouraged for the wealthier citizens. This would curb the over-reliance on Western countries and international AID. In the World Trade Organisation paper, Dale Honeck argues that although agricultural and tourism policies might not be felt immediately on the population, tourism potentially offers a crucial high value market for a countries domestic agricultural products. This is in addition to the entry level job opportunities for lowly skilled unemployed youth. This sector has better wages and better work conditions. Other benefits are provision of infrastructure to formerly remote areas like game reserves, direct foreign financing through building of hotels and lodges, education of the local people, employment of technology like communications networks, rural electrification etc.

The LDCs over reliance on economic aid from the rich Western countries and the IMF/World Bank, has also been cited for contributing to the perpetuation of poverty levels. The funds meant for development are usually misappropriated by the government officials and in other cases lead to a dependency syndrome among the LDCs. The funds which are lent to these countries with conditionality mostly ensure that funds are allocated to sectors that are non-priority to the recipients (Rodney). Rather than relying on international aid and loans, the LDCs should encourage regional trade as the debt crisis facing the countries is so great that a majority of the country’s income is spent on servicing the loans that were of no value to them or were not put to proper use. The countries should suspend repayment of the loans and use the funds in income generating and employment creation sectors like tourism and the SMEs which will assist the LDCs rise above abject poverty.

Conclusion

The prevalence of countries with enviable economic growth but little to show in terms of human economic development has highlighted the infectiveness of relying purely on economic growth at the expense of development. High economic growth has at times led to exploitation of labour through poor wages and use of technology to reduce production costs. The LDCs have an obligation of ensuring there populace enjoy the benefits of economic growth through setting programs aimed at poverty alleviation. These include credit facilities to the micro and SMEs, subsiding local business ventures, establishing proper infrastructures, ensuring universal education and health facilities and allocating pension funds to the aging, needy and persons living with disabilities.

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