Speech
‘Growth and poverty reduction’ - Speech by International Development
Minister Shriti Vadera at the launch of the Doing Business Report 2008, 12 October 2007
12 October 2007
 I’m particularly pleased to be in an audience of the top reformers in Africa
who’re putting in place the regulatory environment needed for doing business and
creating wealth. Ghana and Kenya are in the top ten reformers worldwide and
Mauritius is the highest ranked African country in the report. Requiring just
six procedures and seven days, business entry in Mauritius is as easy as in the
UK. I join you all in congratulating these and the other high performers.
I’ve been waiting for this sort of sympathetic audience since joining DFID to
talk about something I think the development community could and should talk and
do more about. And that is the centrality of growth and wealth creation as
routes to poverty reduction. I grew up witnessing poverty in Africa and India
and worked for 14 years in the city and eight in the Treasury. Perhaps as a
result, it’s in my DNA to see growth and poverty reduction as part of the same
equation.
As Gordon Brown said at the UN in July, "for too long we have talked the
language of development without defining its starting point in wealth creation -
the dignity of individuals empowered to trade and be economically self
sufficient."
Countries that are growing rapidly are on-track to achieve most of their
Millennium Development Goals, and those that are not are failing.
Growth accounts for more than 80% of poverty reduction, and has lifted 500
million above the poverty line since 1980. Less than 20% was as a result of
changes in inequality. This analysis has generated much debate but the message
is nevertheless clear.
 Back
to top
Growth crucial to development
In 1957, Malaysia and Ghana had the same living standards. By 2000 incomes in
Malaysia were 13 times higher than those in Ghana. Now Ghana is likely to be one
of the first African countries to achieve the first Millennium Development Goal
– to halve the number of people living on less than a dollar a day – and it is
on its way to middle income status.
Perhaps for the first time we have a sense of optimism in Africa with many
countries growing at better rates than ever before, some of course fuelled by
commodity prices.
I’m not arguing for a ‘growth alone’ model of development and return to
discredited trickle down economics. On the contrary, we know that the pattern of
growth, inequality and the distribution of opportunity are absolutely critical
for growth to lead to poverty reduction. But neither can we argue for welfarist
approaches to development.
I’m simply concerned that sometimes we lose sight of the simple fact that,
without growth, sustainable human development is a largely theoretical
proposition.
We also sometimes lose sight of the fact that the purpose of aid is to no longer
require it. Unchanging long term aid dependency should be a measure of our
failure. As Paul Kagame, President of Rwanda, recently said, "… we have to be
honest about the consequences of aid dependence. Countries that have used aid as
a temporary support while domestic and foreign investment stocks are built up
have achieved lasting success."
Back
to top
Achieving sustainable growth
Growth is the mechanism through which aid funded support for public services
can be made sustainable.
This is not a statement that should be misinterpreted to mean that aid is not
necessary in moral or economic terms, just that it is not sufficient. Nor should
it be interpreted to mean DfID will neglect human development or that the focus
of our aid will move away from basic services. Human development matters in its
own right and also critically contributes to growth. In particular to the sort
of growth that we want to see – inclusive and environmentally sustainable.
No country has enjoyed sustained rapid growth without:
- First, macroeconomic stability.
- Second, security from predation, in which I include political
instability, conflict, crime, corruption and weak contract enforcement,
all of which threaten potential returns and make investment
unattractive. Alan Greenspan said at a dinner in London recently that
the only real difference he saw between a developed and developing
country is the rule of law.
- And the third factor has been openness to the international economy.
We know that no country has grown on a sustained basis in recent times
without successfully integrating into global markets.
However, these conditions neglect the supply side of the economy which has
huge inelasticity in developing countries. This neglect in fact explains much of
the failure of many structural adjustment programmes of the past. Liberalisation
and privatisation did not overall deliver the productivity improvements needed.
Back
to top
The right environment for growth
The ‘drivers of growth’ for developing countries I have found are rather
similar to the things that obsessed me, as an economic adviser in the Treasury
worrying about reducing the UK’s productivity lag with our competitors.
In developing countries these drivers include:
- Infrastructure - transport, and power especially
- Skills
- Access to finance
- Access to technologies and information, especially in agriculture
- A supportive regulatory environment, competition and contestability.
The focus of the Doing Business Report on the regulatory environment for
starting and growing businesses, employing workers, accessing credit, protecting
investors, is therefore central.
But to succeed, countries need to prioritise in their growth strategies. The
long shopping lists, with which we have become familiar, setting out endless
actions and investment required are not only impossible to implement, but they
risk missing the point.
Back
to top
Poverty and inequality
While almost all growth benefits the poor, it is very rarely proportionate.
The extent to which it translates into poverty varies considerably.
We know that high levels of initial and rising inequality reduce the impact of
growth on poverty reduction. Had inequality not risen in Uganda in the 1990s a
further 2 million people would now not be poor.
Countries differ in how well they translate income growth into human
development. India's emergence as a high-growth economy is a good news story.
But unlike in many other countries, malnutrition is falling very slowly. And
slower growth Bangladesh has overtaken India in terms of reducing child
mortality.
The reasons are undoubtedly complex. Deep-rooted inequalities based especially
on gender but also on class, caste and ethnicity can prove very stubborn.
It’s interesting that those countries with higher scores on ‘ease of doing
business' in the Doing Business Report have larger shares of women in the ranks
of entrepreneurs and workers. In DRC, where I was this time last week, women
need their husbands' permission to start a business. Only 18% of women there run
a small business. In Rwanda, the country with the highest level of women MPs in
the world, the figure is 41%.
So special focus needs to be given to including the poor in the process of
growth. Poor people have to be made the subjects of development, not the
objects.
Back
to top
Reducing vulnerability, improving financial inclusion, fighting corruption
Raising productivity and reducing risk in agriculture is one way to reach the
poor. In sub-Saharan Africa, 70% of people depend on agriculture for their
livelihoods, and over 90% of producers depend on rain. So we should be clear
that vulnerability is a problem, which is likely to increase with climate
change.
Unprotected risk is a powerful constraint on productivity. Social protection is
important not just because it protects nutrition and health, among other things,
but because it can provide a platform for early recovery and prevent loss of
assets and erosion of productivity. That was in fact the original purpose of the
creation of the welfare system in the UK.
Despite strides in microfinance, financial exclusion remains a barrier with
about 80% of the population in the poorest countries unable to access a bank
account of some form.
And corruption is never pro-poor. And it is often much worse than theft. It can
stop growth in its tracks. It can stop competition, innovation, and reduce
efficiency. A study of the Nigerian economy found that historically not only had
oil wealth been squandered but it fundamentally altered governance, contributing
to much lower long run growth by at least 0.5% a year.
Finally, I must address one other dimension of the quality of growth. Perhaps
the biggest challenge today is urgently to work out how the world is going to
secure the low carbon growth. Almost all countries have significantly reduced
the carbon intensity of their GNI, but not nearly enough. This puts the onus on
us getting as much poverty reduction as possible per dollar of growth.
Back
to top
The role for development agencies
China and India are powering ahead - at 10 % growth per year - with virtually no
help from foreign assistance. In both cases there are worries about human
development but in both cases they are generating increased resources to invest
in their people.
So what is the role for development agencies, such as DFID, and of aid in
helping to promote high rates of growth?
First, most low income countries don’t have the capabilities, human capital,
saving rates, or scale of domestic market that China and India have used to such
great effect. We have a role therefore in investing in the infrastructure and
skills needed.
Second, development agencies can help countries make their growth more
inclusive.
And it is not only about aid. We need to change the aspects of our behaviour
that harm growth and development in Africa and elsewhere - trade distorting
subsidies and other trade barriers, the arms trade, excessive constraints on the
flow of knowledge via intellectual property and TRIPs, to name but a few.
- We want to develop long term partnerships with countries that have a
commitment to grow;
- We will support analytical work by countries on growth diagnostics;
- DFID will therefore be more responsive to countries’ efforts to
increase jobs and improve incomes;
- With other donors, finance growth strategies including
infrastructure and skills;
- And will support programs to reduce risks and help protect assets of
the poor;
- We will sponsor world class research into how to make growth more
inclusive.
Back
to top
The role of the private sector
There is no need, to this audience, to emphasise the role of the private
sector – you are the wealth creators. This report is about how we as governments
can enable you to get on with it, not least by getting out of the way much of
the time. The role of the domestic private sector is key but I would like to
also commend many foreign investors for their leadership, for example on labour
rights, on the Extractive Industries Transparency Initiative, and increasingly
on climate change.
But I still hanker after a role for foreign companies that moves beyond
minimum standards, beyond philanthropy, beyond corporate social responsibility
into making them long term partners in development. By increasing the value that
is created in the country of investment, by increasing the level of revenue that
is captured in country, through investment in domestic supply chains and local
businesses, through skills and technology transfer and by bringing the unique
approach to solving problems that the private sector has. One example of this
approach is the project we have funded with Vodafone which uses mobile telephony
to reduce the cost of transfers within Kenya and has the potential to be used
for international remittances.
We were delighted that more than 20 of the world’s leading companies, including
Unilever and Patrick Cescau personally and Citigroup, signed up in July this
year to the declaration on the urgency of meeting the Millennium Development
Goals. We are working with them to translate this commitment into action,
developing ideas for partnership that are core to their business and skills and
transformative in terms of growth and development in poor countries.
There are reasons to be more optimistic than in several decades, as Africa’s
average growth - at 5% for the past five years - is higher than at any time
since the 1970s. Democracy is taking root across the continent, and conflicts
are declining. Macroeconomic stability is evident almost everywhere.
But Africa as a whole remains significantly off-track for achieving its goals
for 2015 - and it is vital that we all work together to redouble our efforts to
raise growth and improve its quality.
'Doing Business' is a remarkable endeavour. By providing some important metrics
year on year on a globally comparative basis, it helps us focus and prioritise
on what matters. It makes a distinctive contribution to assessing and addressing
the critical constraints to growth, and I am delighted to be here at its launch
today.
Back
to top
Links
|
Directgov |
