Josee Koch

John Rook

In 2008, Africa’s economic growth of 5.7 percent was at par with the rest of the world. However, the continent’s growth is expected to slow down to a meagre 2.8 percent this year. The account surplus of 3.5 percent of Gross Domestic Product (GDP) in 2008 is forecast to shrink to a deficit of 3.8 percent in 2009.

If this situation were not bleak enough, the economic crisis also means that Africa's access to international capital has been substantially reduced, and possibilities to access foreign credit have virtually closed. Simultaneously, due to lower commodity and raw material prices, export volumes and export earning have declined.

With less money to go around and ever tightening economic conditions, it would seem logical to focus on careful management of domestic reserves and appropriate monetary policies to accelerate fiscal space. In other words, some might think that there is simply no money left to expand social transfer programmes in the form of regular, long-term social assistance to those living in poverty or in danger of falling into poverty.

Is this really a true reflection of the situation? It is no secret that developing countries are severely affected by the global economic crisis. Progress achieved in many countries, in particular towards the Millennium Development Goals, is starting to be reversed. Poverty is increasing and intensifying. Although food and fuel prices have dropped, so have people’s incomes, owing to the current recession.

During a recent policy dialogue, the Southern African Development Community Parliamentary Forum (SADC PF) noted that “the current global economic and financial crisis may lead to a further deterioration in the poverty status of many countries over the short term unless current poverty reduction efforts are reviewed and reinvigorated”.

In its World of Work Report 2008, the International Labour Organsiation points out that “income inequality in most regions of the world is expected to increase as the global financial crisis progresses”. So, poverty reduction seems key, but what approach works best and what should we prioritise: economic or social development?

The traditional response to a crisis is to treat it as a short-term emergency and provide humanitarian aid to affected countries. Humanitarian aid keeps people alive, but it does not do more than that, for the simple reason that the timeframe is too short to contribute to promoting people’s livelihoods.

Economic growth is needed, but the poor are usually the last to benefit from economic growth. What is needed is a connection between humanitarian aid and economic growth – a connection that has the potential to combat income inequality. What is needed is social protection, and social transfers in particular, as they provide the missing gear in the poverty reduction engine.

Some African countries currently find themselves in a position where, after years of strong growth and as a result of recent debt forgiveness, they are well placed to inject government spending to compensate for the collapse in domestic demand. Like governments of developed countries, they are able to undertake counter-cyclical fiscal expansion.

Recent missions of the International Monetary Fund to Tanzania and Mozambique have explicitly advocated the loosening of purse strings. And what better mechanism, in countries where more than half of citizens live below the poverty line of $1 a day, than to inject such stimuli through the mechanism of social transfers to the poor?

Recently, three countries – Brasil, France and South Africa – were praised for decreasing income inequality. Not surprisingly, they have all given significant priority to social protection policies and programmes. Brasil, for instance, managed to achieve a phenomenal reduction in inequality by focusing on employment creation and supporting high social transfers, such as pensions, social assistance and other social programmes.

Despite fiscal pressure due to the economic crisis, South Africa will maintain and even expand social transfers and other key social expenditure, including access to free basic services, such as water and electricity. Before his recent appointment to the National Planning Commission, former finance minister Trevor Manuel announced that the country will spend an extra $1.5 billion on social security to help protect poor South Africans during the global economic slowdown.

When income inequality decreases, one can expect economic growth that benefits more citizens and fuels further reductions in poverty as well as increased social cohesion and political stability that underpin sustainable development. Furthermore, one can forecast that when the economic crisis disappears, these countries will be the quickest to reap benefit from the returning growth and investment.

Social protection is needed now more than ever to protect families and communities affected by the economic crisis. It is needed now more than ever to enable countries to turn the crisis into an opportunity and accelerate growth as never seen before.

(END/2009)