Reducing poverty and investing in people

For example, a 1 percent per annum increase in agricultural growth, on average, leads to a 2. Investment in agriculture is 2. And agricultural growth, as opposed to growth in general, is typically the primary source of poverty reduction. The contrary is also true: a decline in agricultural growth throws many poor people into poverty. This explains some of the increase in poverty and hunger in developing countries during and , when food prices increased worldwide.

Related Publications Scaling up in agriculture, rural development, and nutrition Taking successful development interventions to scale is critical if the world is to achieve the Millennium Development Goals and make essential gains in the fight for improved agricultural productivity, rural incomes, and nutrition. If well designed and implemented, these reforms can be instrumental in strengthening governance and reducing endemic corruption and poor accountability that have contributed to the poor economic performance of several developing countries [ 23 , 27 ].

Some reforms that are needed include the strengthening of land tenure systems to encourage risk-taking and investment in productive income-generating activities; improving governance to ensure greater inclusivity, transparency and accountability; reducing the misuse of public resources and unproductive expenditures; ensuring a greater focus on the needs and priorities of the poor; maintaining macroeconomic stability and addressing structural constraints to accelerating growth e.

These reforms can benefit the poor by improving their access to land and other productive resources and by ensuring that their needs and priorities are adequately considered in policy making. Developing countries also need to reform their tax systems to make them more efficient and pro-poor. Through microfinance institutions, this constraint can be removed and the much-needed credit provided to small businesses that are often unable to access credit from formal financial institutions.

In this way, micro-credit can be instrumental in stimulating economic activity, creating jobs in the informal sector, increasing household incomes, and reducing poverty [ 1 , 3 , 28 , 43 , 48 , 50 , 51 , 52 ]. Vatta [ 53 ] has noted that microfinance institutions have good potential to reach the rural poor and to address the basic issues of rural development where formal financial institutions have not been able to make a significant impact.

Some advantages of obtaining credit from microfinance institutions include less stringent conditions with regard to providing collateral thus easing access to credit; the possibility of the poor obtaining small amounts of loans more frequently thus enabling the credit needs for diverse purposes and at shorter time intervals to be met; reduced transaction costs; flexibility of loan repayment; and an overall improvement in loan repayment.

The small informal self-help groups that are often the units for microcredit lending are also valuable for social empowerment and fostering learning, the development of skills, entrepreneurship, exchange of ideas and experiences, and greater accountability by the group members [ 49 , 54 ].

Sachs [ 4 ] supports microfinance as a viable and promising path to poverty alleviation and cites Bangladesh as a country where micro-credit has contributed to a reduction in poverty through group lending that enabled impoverished women who were previously considered unbankable and not credit worthy to obtain small loans as working capital for microbusiness activities.

He further notes that by opening to poor rural women improved economic opportunites, microcredit can be instrumental in reducing fertility rates and thus improve the abilities of households to save and provide better health and education for their children.

Efficient marketing systems are vital in enabling the poor to increase their production because they permit the delivery of products to markets at competitive prices that result in increased incomes. This is also the reason why developing countries need to explore ways of expanding export markets. The plight of cotton, rice, tea, coffee, and cashew nut farmers in Kenya demonstrates the importance of improving the marketing systems. Weaknesses and inefficiencies in the marketing of these commodities has resulted in the impoverishment of the farmers who face problems such as damage to their harvests, low commodity prices and thus low profits and incomes, and exploitation by middlemen.

By improving the marketing system, the growers of these commodities can benefit from better storage that would cushion them from price fluctuations, the pooling of their resources that would enable a reduction of their costs, and the processing of their products to enable value-addition and an improvement on the returns. The implementation of these measures can stimulate local, regional, and national economies; underpin the establishment of a robust agro-industrial sector; create jobs; increase production and incomes; and, contribute to equitable and sustained reduction of poverty.

This category of the poor include the old and infirm, the sick and those afflicted by various debilitating conditions, families with young children, and those who have been displaced by war and domestic violence. Special affirmative actions that transfer incomes to these groups are required to provide for their basic needs and ensure more equity in poverty reduction. In impoverished regions where children contribute to the livelihoods of their families by supplying agricultural labor and participating in informal businesses, income transfer programs can provide families with financial relief and enable regular school attendance by children.

Such investment in the education of the children is vital in improving their human capital and prospects for employment and can therefore play an important role in long term poverty reduction [ 7 , 8 , 56 ]. Kumara and Pfau [ 57 ] analyzed such programs in Sri Lanka and found that cash transfers in the country significantly reduced child poverty and also increased school attendance and child welfare. Barrientos and Dejong [ 58 ], Monchuk [ 59 ], Banerjee et al.

They cite South Africa, Bangladesh, Brazil, Mexico and Chile as examples of countries where cash transfer programs have significantly reduced poverty and vulnerability among poor households. They also point out that cash transfer programs are beneficial to households because they are flexible and enhance the welfare of households given that households are free to use the supplemental income on their priorities.

Cash transfer programs are central to social protection that is much needed in developing countries that face heightened social and economic risks due to structural adjustments driven by globalization. As noted by Sneyd [ 2 ], Monchuk [ 59 ], Barrientos et al. They regard social protection as the most appropriate framework for addressing rising poverty and vulnerability in the conditions that prevail in developing countries. They recommend that if significant and sustained reduction in poverty is to be achieved, cash transfer programs be accompanied by complementary actions that extend economic opportunities and address the multiple dimensions of poverty such as food, water, sanitation, health, shelter, education and access to services.

Fiszbein et al. It needs to be noted that although well designed cash transfer programs can be effective in reducing poverty, they are expensive and may be difficult to finance in a sustained manner [ 23 ]. However, by reducing wasteful expenditures and instituting tax reforms, the required resources can be freed for investment in cash transfer programs [ 29 ]. The viability of this approach is evident in the case of Bangladesh and a number of central Asian countries that have been able to successfully finance cash transfers from their national budgets.

Countries that are not able to finance cash transfer programs from their own resources need to explore the possibilities of securing medium-term support from international organizations [ 4 , 7 , 29 , 58 , 63 ]. A major concern that several researchers have expressed regarding cash transfer programs is that they have a short term focus of alleviating only current poverty and have thus failed to generate sustained decrease in poverty independent of the transfer themselves.

Critics of cash transfers also argue that they are a very cost ineffective approach to poverty alleviation and an unnecessary waste of scarce public resources. Furthermore, they claim that many cash transfer programes are characterized by unnecessary bureaucracy, high administrative costs, corruption, high operational inefficiencies, waste, and poor targeting. The overall result of these weaknesses is that program benefits have to a large extent failed to reach the poorest households.

Where these shortcomings exist, they need to be identified through rigorous audits and addressed through improved program design. But more fundamentally, it also needs to be recognized that cash transfer programs are not simply handouts but are investments in poor households that regard the programs as their only hope for a life free from chronic poverty, malnutrition and disease. Advertisement 4. Selected case studies on poverty reduction in developing countries The goal of poverty reduction can be achieved through sound policies that address the root causes of poverty, promote inclusive economic growth, prioritize the basic needs of the poor, and provide economic opportunities that empower the poor and enable them to improve their standards of living [ 6 , 8 , 64 ].

In what follows we present a few case studies from sub-Saharan Africa, Asia and Latin America to illustrate real world examples of policies that have resulted in significant reduction in poverty. Policy makers can learn important lessons from these case studies in their attempts to combat poverty in different contexts.

In Kenya where poverty is widespread and is estimated to exceeed 60 percent, the key elements of the poverty reduction strategy are facilitating sustained and rapid economic growth; increasing the ability of the poor to raise their incomes; improving the quality of life of the poor; improving equity and the participation of the poor in decision-making and in the economy; and improving governance and security [ 65 ].

The government has also implemented macroeconomic reforms to reduce domestic debt burden and high interest rates - this is expected to promote higher private-sector led growth and thus contribute to poverty reduction. An important action that is being carried out to reduce poverty in Kenya is promoting agricultural production. This focus is underpinned by the fact that the majority of Kenyans derive their livelihoods and income from agriculture and live in rural areas.

Some specific poverty reduction measures in Kenya that target the agricultural sector include providing subsidized fertilizers and seeds; encouraging the growing of high value crops; rehabilitation and expansion of irrigation projects; and, provision of subsidized credit to alleviate capital contraints. To support agricultural production, the government has also prioritized the strengthening and streamling of the marketing system and the expansion of rural roads to improve the access of the poor to markets, increase economic opportunities, and create employment.

Other poverty reduction measures that are being implemented in Kenya are the promotion of small scale income generating enterprises; subsidization of education and health care to reduce the costs to poor households; school-feeding programs; rural employment schemes through public works projects; investments in technical and vocational training to enable the youth acquire skills in areas such as carpentry, masonry, and, auto mechanics; and, family planning programs to reduce the fertility rates.

In collaboration with international development partners, Kenya and other low and middle income countries in Sub-Saharan Africa have been implementing cash transfer programs on a limited scale to address extreme poverty and assist vulnerable households.

The cash transfers were unconditional in the intial phases with disbursements made to all applicants. Subsequently however, and based on the lessons learned from the earlier phases, several countries have redesigned their cash transfer programs and made them conditional and contingent on means-testing. This is important given the severe budget contraints that developing countries face, the need to target the cash transfers on the poorest and most vulnerable households, and the need to ensure that social protection expenditures are efficient and result in the greatest reduction in poverty.

Egger et al. Some specific benefits attributable to the cash transfer program were an increase in consumption expenditures and holdings of durable assets by households; increased demand-driven earnings by local enterprises; increased food security; improved child growth and school attendance; improvement in health of members of the recipient households; female empowerment; and, enhanced psychological well-being.

Furthermore, the cash transfer program had a stimulatory effect on local economic activities and these effects persisted long after the cash disbursements. The experience with cash transfer programs demonstrates that they can contribute significantly to a reduction in extreme poverty if they are scaled up, and if they are well designed and targeted at the poorest households. The containment measures that were implemented in response to the pandemic significantly slowed economic activity, reduced revenues from household-run businesses, exacerbated food insecurity, and posed a serious threat to the lives and livelihoods of large segments of the population.

Some of the actions that the government of Kenya took to address these challenges included allocating more resources to the healthcare sector to combat the pandemic; instituting taxation and spending measures to support healthy firms from permanent closure in order to protect jobs, incomes and the productive capacity of the economy; and, scaling-up social protection programs to offset the increase in poverty and protect the most vulnerable households [ 24 , 67 ].

According to the Asian Development Bank ADB [ 68 ], these programs were predicated on rapid economic growth driven by innovation, structural reform, and the application of private sector solutions in the public sector. The general approach that governments of Asia have taken to poverty reduction include accelerating economic growth, increasing the delivery of social services, developing lagging areas, increasing investments to generate jobs, promoting small and medium-sized enterprises, redistributing incomes, balancing rural—urban growth, and developing social protection interventions [ 68 , 69 ].

The goal of the SIADP was to improve agricultural production in the region as a way to stimulate economic growth and reduce the level of poverty. Prior to the implementation of the SIADP most farmers in Shanxi province mainly grew wheat and corn that generated low incomes and required extensive use of water and agrochemicals. The farmers in the region also engaged in free-range livestock grazing, an environmentally unsustainable practice that resulted in soil and water pollution from uncontrolled disposal of untreated animal waste.

They were also unorganized and did not have good access to markets and finance, and the participation of women in the economy was marginal and their social and economic rights ignored. According to the ADB [ 68 ], the SIADP was implemented by first training farmers in improved production techniques that resulted in the development of a sustainable agricultural sector with the farmers starting to grow high-value crops, and forming contract farming agreements with agro-enterprises that enabled the farmers to gain access to stable markets and premium prices for their produce.

The farmers also started breeding and raising livestock under more controlled conditions that enabled not only an increase in livestock output but also the turning of animal waste into compost or biogas which is a source of clean energy. Social protection programs are vital in cushioning poor and vulnerable households from crises they are unable to cope with and that are likely to cause an overall reduction and degradation of their physical and social assets [ 68 ].

This is exemplified by the food stamp program that was implemented in through a partnership between the Government of Mongolia and the ADB.

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Until recently, safety nets were implemented only on an ad hoc basis in Africa. However, in the wake of the global economic crisis, policy makers are increasingly viewing safety nets as core instruments for reducing poverty and managing risk. Also a momentum toward rationalizing public spending to provide more adequate and targeted support to the poorest is emerging in response to growing evidence that safety nets can successfully reduce poverty and vulnerability and promote inclusive growth.

This book assesses the status and analyzes the objectives, features, systems, performance, and financing of safety nets in 22 African countries. It then identifies how governments and donors can strengthen safety net systems and protect and promote poor and vulnerable people. Overall, the book finds that safety nets are on the rise in Africa and are beginning to evolve from fragmented stand-alone programs into integrated systems. Social protection programming has started to change from largely emergency food aid programs to regular, predictable safety nets including targeted cash transfers and cash-for-work programs.

Some countries, including Ghana, Kenya, Rwanda, and Tanzania, are working toward consolidating their programs into a national system. However, in the wake of the global economic crisis, policy makers are increasingly viewing safety nets as core instruments for reducing poverty and managing risk.

Also a momentum toward rationalizing public spending to provide more adequate and targeted support to the poorest is emerging in response to growing evidence that safety nets can successfully reduce poverty and vulnerability and promote inclusive growth.

This book assesses the status and analyzes the objectives, features, systems, performance, and financing of safety nets in 22 African countries. It then identifies how governments and donors can strengthen safety net systems and protect and promote poor and vulnerable people. Overall, the book finds that safety nets are on the rise in Africa and are beginning to evolve from fragmented stand-alone programs into integrated systems.

Social protection programming has started to change from largely emergency food aid programs to regular, predictable safety nets including targeted cash transfers and cash-for-work programs. Some countries, including Ghana, Kenya, Rwanda, and Tanzania, are working toward consolidating their programs into a national system.

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