World Bank report documents progress on poverty reduction and path ahead for Ethiopia

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>>Authored by Jesse Marsden, Research and Operations Manager

The World Bank released a report in January about the progress made on poverty reduction in Ethiopia between 2000 and 2011, and it described what will be needed to end extreme poverty by 2030. Given our program with MasterCard Foundation in 2014 (see this post summarizing the “Innovations in Social Protection” program) this was of particular interest to us.

The Campaign is also increasingly focused on understanding how 6 key financial inclusion pathways are showing great promise in contributing to the end of extreme poverty.

The report suggests that Ethiopia’s concerted, collaborative, and well-supported poverty reduction effort has been a success story with remarkable results. In 2000, 56 percent of the population lived below the World Bank extreme poverty line of $1.25 a day PPP. By 2011, that rate had fallen a dramatic 25 points to 31 percent of the population. It is good to see too that the Bank report also covers non-income indicators, noting that as compared to 2000, by 2011 most Ethiopians had better health, education, and living standards as well as improved life expectancy. Access to basic services improved by double (meaning electricity and water in the home).

The report notes that this rate of progress is uncommon on the continent and is second only to the rate of poverty reduction seen in Uganda over the same period. It also seems that the right places received the attention needed. That is to say that regions with higher rates of poverty saw some of the most dramatic declines, particularly citing Tigray where the Campaign visited during our field visit in 2014.

In places where dramatic growth like this takes place, one of the oft noted concerns is that the gains from improvements are being felt by a limited segment of the population (usually those who were better off already). One of the most impressive statitstics concerning the poverty reduction seen in Ethiopia is that during this period the already low inequality level was maintained.

Success factors

So what has been at the heart of this progress? The report cites a wide range of factors, accurately reflecting the multi-faceted nature of poverty reduction efforts. It is worth noting however that the report does accredit the greatest share of poverty reduction having resulted mainly from a single sector, namely the rural, self-employed, agriculture sector. While factors such as consistently good rainfall and high food prices have played a positive role, the report notes the importance of some more intentional efforts.

The Productive Safety Net Program (PSNP) launched in 2005 (and a key part of our visit in 2014) has played an important role in poverty reduction by both directly reducing poverty rates by 2 percent as well as contributing indirectly through increasing agriculture input use and thereby increasing productivity. In addition, public investment has been “central” to the government development strategy and “redistribution has been an important contributor to poverty reduction.”

Ethiopia bases public spending decisions on a central and publicly accessible Growth and Transformation Plan. This strategy places primary importance on sectors crucial to poverty reduction including food security, education, health, roads, and access to water. With this plan in place since 2005 (concurrent with the launch of PSNP) public investments in social protection, agriculture and food security, and access to basic services have been key drivers of poverty reduction in Ethiopia.

Getting to zero extreme poverty

Where do we go from here? 31 percent of the population living below the extreme poverty line is still a huge extreme poverty rate. Based on our visits with policymakers and program implementers on the ground in Ethiopia last year, it is apparent that a continued focus on maintaining and expanding the gains seen from 2000 to 2011 in poverty reduction remain a central focus of key actors in Ethiopia now 3-4 years later.

The report says the future of poverty reduction will rest on as many different areas of work as it took to achieve the progress so far. The strategy presented seems to come down to a dual focus on increasing employment and economic opportunity in urban areas, and increasing agricultural production in rural regions. This is a very simplified presentation of a nuanced and complex set of approaches laid out in the report.

We are also encouraged by how well many of the recommendations echo what we saw on the ground in 2014 as well as what we seem to be seeing emerging as some of the key interventions for financial inclusion that will help end extreme poverty. One recommendation of particular note was for programs to move from a geographical approach for interventions (say, targeting a state or region) to one targeting a condition. The PSNP already works in this fashion as the program targets those meeting the definition of “food insecure” rather than organizing its deployment based on location.

Public works under the PSNP

Public works under the PSNP

One of the six pathways the Campaign is focused on is agricultural finance and value chain improvements. The Bank report points to the need for Ethiopia to continue strong support of agricultural production as a key driver of future poverty reductions. The PSNP program which included a public works component to increase access to irrigation and reduce arable land erosion. Additionally, the R4 program addresses weather related shocks and other agricultural risks, mentioned specifically in the report, through both avenues of response to events after they occur as well as preventative measures to mitigate the negative effects of future events.

We think it would be important for operators such as REST, one of the NGO implementers of the PSNP, to increase their activities around building the capacity of female farms managers to generate higher returns from their activities. In addition, the government should investigate how, though national-level programming, it can also support increased attention and support for female farm managers. Citing potential causes such as poor access to land or agricultural inputs, the report points out that female-managed farms produce 23 percent less than male managed farms. Ending extreme poverty will require addressing this gender discrepancy through policies that foster changes in institutional behavior and gender norms. This can be led perhaps by investigating how an add-on benefit to PSNP could be an agent for this change.

The report also supports the continuance and even growth of the use of social safety nets (such as cash transfers). It looks closely at the difference between indirect transfers via subsidies to producers of certain basic needs and direct transfers to the actual individuals. It ultimately recommends that spending on subsidies would have a great impact on poverty reduction if they were converted to direct transfers. The Campaign has pointed to greater use of technology to increase access to financial tools such as savings accounts, and groups like the Better Than Cash Alliance are also showing the power of using digital payments by governments.

Given Ethiopia’s still-limited mobile network infrastructure, making use of a digital payments platform to more accurately and cost-effectively deliver direct transfers may still be years away. However, we feel that building this infrastructure as a means to utilizing technology in its poverty reduction strategies will be important and should have received some attention in the report. Such a platform would support the report’s dual urban-rural approach since transfer programs exist both in urban and rural areas. Farmers can also receive information on market prices through mobile devices, thus enabling them to sell their products at the optimal profit. This can positively impact areas the report considers important, namely agricultural production, payment for inputs, and access to employment opportunities. We think this is an area missed by the report.

The report also places a great deal of emphasis on fostering employment in urban areas, noting that urban poverty in Addis Ababa tracks employment rates. While the report notes that employment won’t fully address urban poverty on its own, increasing such opportunities for the urban poor and self-employed is important. The report recommends decreasing the costs and barriers to migrating from rural to urban centers and supporting the entry and growth of firms who have the capacity to hire many employees.

Where the report suggests increased support will contribute to poverty reduction is in supporting self-employment in non-agricultural work. BRAC’s graduation model, one of the six pathways we recommend as a financial inclusion intervention key to ending extreme, can help. We spoke with graduates of REST’s graduation program in 2014, and it was clear to us that the program has had positive impacts. Now those anecdotes are backed up by evidence of the effectiveness of the graduation approach, not least of which are the recent set of studies published in Science a few weeks ago. They demonstrate the positive outcomes from the graduation approach, highlighting its importance as a financial inclusion pathway that is working well.

REST supports positive outcomes for its graduation participants by providing access to market research. Participants thus understand what kinds of income-generating activities have a better likelihood to succeed in their given location. Moreover, the graduation model concludes with a direct transfer that does not require a participant to choose self-employment over employment, allowing for perhaps the kind of flexibility the report might recommend — particularly in an urban setting.

The fifth financial inclusion intervention that the Campaign sees as key to ending extreme poverty is savings (and savings groups in particular as they are often able to reach persons banks can’t or won’t.) However, savings is markedly absent from the report. There is some discussion of addressing the ability for individuals to more easily liquidate assets such as land in order to facilitate urban migration, but little is mentioned concerning savings as a means to build an asset base and whether this can be a driver of poverty reduction in the future for Ethiopia.

We know from our visit that REST graduation participants are connected to formal savings accounts as well as financial capacity building resources to support them in making the most of those accounts. So we were surprised to see a discussion of asset building — savings in particular — so absent from the report. We think this should be an additional area of focus for poverty reduction strategies going forward.

Savings as a strategic element could be important to pursue in tandem with supporting the growth of the mobile network infrastructure since there are cost savings to be realized with providing mobile-based savings platforms. Savings incentives and programs could also be tied to the cash transfers of PSNP or the other safety net initiatives in Ethiopia. Savings accounts could become the landing point for those transfers on a future digital cash transfer platform.

Our recommendations

As a whole, we find the report extremely thorough concerning the approaches it covered and very much tied to the experience seen on the ground — as least in so far as our limited view into programs in Ethiopia from our Innovations in Social Protection program affords us. Of the six financial inclusion areas the Campaign sees as key to ending extreme poverty, three (agricultural finance and value chains, conditional and cash transfers, and the graduation approach) are mentioned in detail in the reports assessment of what will be needed to end extreme poverty in Ethiopia. We think that graduation programs can be a key response to the report’s recommendation to build opportunities for self-employment in non-agricultural activities.

Further consideration, however, should be given to the potential for digital technology platforms to play a powerful role in facilitating and improving the cash transfer programs. Though, Ethiopia will need to improve its telecommunications infrastructure to make this a possibility. Savings also has a role to play in supporting individuals’ ability to build an asset base which will help them seize opportunities and resist vulnerabilities. By linking cash transfers on digital platforms to savings accounts, this also can be an important part of Ethiopia’s financial inclusion strategies in the future.

2 thoughts on “World Bank report documents progress on poverty reduction and path ahead for Ethiopia

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