Week 8: Poverty

In the End of Poverty  Sachs discusess poverty reduction strategy plans for several countries, that all have certain themes in common.  I will be focusing on Uganda and Ghana.

UGANDA

Image from the Poverty Alleviation Department (PAD)

Uganda’s plan is known as the Poverty Eradication Action Plan or PEAP. This plan has been the guide for governmental policy since 1997.  This plan is also being revised.  Through this plan Uganda is being shaped into a country where people in all sectors can participate in economic growth in a thoroughly modern economy.  This modern Ugandan economy has allowed things like people in poverty being able to participate in economic growth by expanding smallholder agriculture and by increasing employment in industry and services.  Economic growth will be sustainable, broadly based, and of high quality.  This modern economy also requires that non-material aspects of poverty, such as insecurity, isolation illness, and disempowerment must be addressed.  More than anything the modern economy requires structural transformation, including the modernization of agriculture, the development of industries, which build on demand and supply linkages from agriculture, and continued institutional development in the legal and financial sectors.  The PEAP is set by four pillars:

-Creating a framework for economic growth and transformation

-Ensuring good governance and security

-Directly increasing the ability of the poor to raise their incomes

-Directly increasing the quality of the life of impoverished peoples.

GHANA

Slums in Ghana

Ghana’s Poverty Reduction Strategy or GPRS has taken on several forms through several programs aiming to accelerate the growth of the Ghanian economy.  In 1995 Ghana’s government presented “Ghana Vision 2020”  The purpose of this initiative was to make Ghana a middle-income country in 25 years.  The initiative focused on human development, rural development, urban development, infrastructure development, economic growth, and an enabling environment.  This initiative was followed by the Ghana Poverty Reduction Strategy.  Ghana’s main obstacle to economic growth is due to unemployment in the country, but the recent discoveries of gas and oil create opportunity for stimulating national development.  The current plan in Ghana is the Better Ghana Agenda.  Based on constitutional requirement and the Better Ghana Agenda it is rooted in these themes:

-Transparent and Accountable Governance

-Oil and Gas Development

-Infrastructure, energy, and human settlements development

-Human development, employment and productivity

-Enhanced competitiveness of Ghana’s private sector

-Ensuring and Sustaining macroeconomic stability

The plans of both these countries are logical and optimistic for their futures as developing countries working their way out of poverty.  The plans for these two countries, as well as the other countries that Sachs mentions, lay out the country’s goals, policies, targets, and strategies to cut poverty internally.

Dead Aid

Moyo argues that Africa is addicted to aid.  The market for African countries to issue bonds still exists, but only for those countries serious intent on transforming their economies for improvement.  It was in 2007 that JP Morgan’s EMBI+index of such bonds performed better against American government bonds by 15% and emerging market bonds returned some 35%.  Deciding to invest in the bonds of underdevelopment economies instead of home bonds pays off. Investors made high returns on bond lending to foreign countries than in safer home governments, as evidenced by the ten countries observed. These endeavors enhanced portfolio diversification.  Despite the underdeveloped countries wars, recessions and other issues foreign bondholders received a net return premium of .44 percent per annum on all bonds outstanding at any time between 1850 and 1970.

FDI in Africa in 2008

In Dead Aid, Moyo states that as countries mature they might choose to reduce the number of bonds they issue in the international market in favor of domestic bond issues or depending on domestic savings and tax.  For example,take South Africa that as its issuance of international bonds declined so did its position in the JP Morgan EMBI league table and eventually dropped.As global interest rates decline the debt service costs for poor countries also goes down. Fifteen African countries, Rwanda among them, have gained credit ratings that are high enough to tap the bond market in the last 12 years.

In order for a country to receive a FDI the labor costs need to be low, its investable opportunities are high, and even theoretically as home to some of the poorest countries in the world sub-Saharan Africa should be FDI’s contender.

Rwanda

The Government of Rwanda has “undertaken a series of pro-investment policy reforms intended to improve Rwanda’s investment climate and increase other foreign direct investment” according to the United States embassy in Kigali. The country currently has many potential opportunities for the United States and FDI specifically in infrastructure, agriculture, mining, tourism and information and communications.  However, FDI in Rwanda is not quite what it is in Rwanda’s neighbors in the East African Community (EAC). About 2.2 percent of GDP in 2012 ($156 million) is used concerning FDI.

Rwanda flag and country

The biggest obstacles potential and current investors in Rwanda faces include high transport, cost, limited access to affordable financing, a small domestic market, lack of skills in the workforce, ambiguous tax rules, and inadequate infrastructure.  Despite these obstacles Rwanda offers much to potential investors in the form of their resources, recent pro-investment policy, and a reputation of low corruption.

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