Eradicating Extreme Poverty Critically Essential
The World Bank Economic Update on Zimbabwe released in June 2021 contains some worrying trends on the increase in extreme poverty in the country.
By Victor Bhoroma
The report points that the number of extremely poor reached 7.9 million in 2020 (Half of the population).
The economic disruptions caused by COVID-19 lockdowns reduced jobs in urban areas and limited income generating opportunities in rural areas. The pandemic added more than 1.3 million people to extreme poverty in an environment where persistent droughts (effects of climate change), high levels of inflation and economic instability were devastated many livelihoods. Annual inflation averaged 622% in 2020. The World Bank classifies the extremely poor as people living on less than US$1.90 a day (Less than US$57/month).
Extreme poverty in Zimbabwe has been rising over the past 3 years, growing from 29% in 2018 to 34% in 2019 and 49% in 2020. This means that despite rosy picture on fiscal consolidation, an average of 1.1 million Zimbabweans is sinking into extreme poverty in each year.
This means that Harare is one of the biggest contributors to poverty statistics in Sub-Saharan Africa, a situation exacerbated by the fact that most of the countries with high cases of poverty are characterized by conflict, civil wars or unrest.
Sub-Saharan Africa Perspective
In Sub-Saharan Africa (home to over 1 billion people), close to 41.2% now live in extreme poverty as of March 2021. The economic impact of the COVID-19 shocks in Sub-Saharan Africa is quite severe, despite the low mortality levels being experienced from the pandemic.
Economic activity in the region is estimated to have contracted by 2% in 2020, reflecting a slower-than-expected spread of the virus, lower COVID-19-related mortality, strong agricultural output and a faster-than-expected recovery in commodity prices.
Why is poverty an economic concern?
Poverty is like a cancer to society which weakens human development capacity and curbs economic growth. People in extreme poverty face unending poverty traps due to factors such as poor governance and corruption, conflict, unemployment, geographical location, malnutrition, lack of access to basic education, clean water and sanitation.
Rising levels of poverty are a source of future conflict and lead to increase in cases of social vices such as crime (drug addiction, murder and robberies) and lawlessness in Zimbabwe. Future economic development will be biased towards areas where the rich are concentrated (Harare Urban), secluding millions especially in Matebeleland North, Mashonaland Central, Mashonaland West and Manicaland which have high prevalence of extreme poverty. Limited buying power among poor households mean that provinces with high prevalence of poverty find it difficult to attract investment or build infrastructure.
Rural-urban migration (especially to Harare) is already a cause for concern as infrastructure crumbles under the weight of population growth. To address this, the government needs to implement policies aimed at eradicating extreme poverty in the country.
It is the role of government to transfer income and wealth from the rich or flourishing urban areas to the poor and underdeveloped areas in Zimbabwe such as the provinces mentioned above. Tools such as taxation, decentralization of public services and devolution are imperative to income redistribution.
In consultation with rural district councils (local governments), the government should offer tax incentives to businesses that setup in identified marginalized areas of the country so as to boost economic activity. The past 20 years have seen massive disinvestment by industries from Bulawayo to Harare due to perennial water shortages, decline in consumer buying power and limited access to market from the city.
Public services such as access to efficient registrar facilities (for birth certificates, identity documents and passports) should be decentralized to provincial capitals and all towns. Chapter 14 of the Zimbabwean Constitution provides the need for provincial and local governments to use a portion of national resources to determine development priorities within their areas (whilst remaining subordinate to the central government). Lastly, there should be a deliberate effort to address infrastructure gaps in marginalized towns through building schools, sanitation projects and maintaining roads.
There has been a marked increase in rural to urban migration and extreme poverty cases in urban areas. Thus shortages of housing, water and sanitation in urban and peri-urban settlements has increased immensely. Over 3 million people in Harare, and the greater metropolitan area incorporating Chitungwiza, Epworth, Ruwa, and Norton, have no household access to safe drinking water or adequate waste disposal services. The situation is the same in Bulawayo where water is a perennial challenge. To address this, the government needs to dedicate more resources to sanitation projects through funding dam construction or simply clearing political (bureaucratic) hurdles that make it difficult for private financiers to directly engage town councils for Public Private Partnerships (PPP) projects in water and sanitation.
Social Safety nets
Economic decline has seen an increase of informalisation with most jobs in the Small to Medium Enterprises (SMEs) lacking job security, income consistency and insurance. With this in mind, treasury needs to increase fund allocations for basic health & child care utilities, social grants for child headed families, disability benefits and other facilities for the socially vulnerable such as children, the elderly and pregnant women.
Zimbabwe’s major hospitals and public clinics now lack the basic tools to provide basic health care to citizens and suffer from governance issues where those entrusted with implementing policies also run private surgeries of their own.
Critically, there is need to adjust pension payouts and civil service remuneration in line with inflation trends. Poor urban households who have been affected by COVID-19 lockdowns and increase in unemployment would need to be catered for as well.
Tackling corruption & inequality
Inequality in Zimbabwe has risen sharply from 45 in 2017 to 50.3 in 2019 as measured by the World Bank Gini Index, with the richest 10% of Zimbabweans consuming 20 times more than the poorest 10%. The Gini index measures the extent to which the distribution of income (& consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution.
This means that there is unequal access to basic necessities such as land, education (especially the current model of online education), clean water, electricity, job opportunities, housing, financial services and government subsidized inputs/services among others.
To address corruption, the government needs to decisively deal with abuse of public resources as reported in Auditor General Reports produced yearly. Similarly, government procurement and resource allocation need to be done via enterprise resource planning systems that ensure transparency and audit trail.
To address high levels of income losses, boost savings and general economic instability, the government needs to manage inflation through following prudent monetary policies. From 2015 to 2020, money supply growth has outweighed economic growth to the detriment of economic and price stability. It is imperative for the government to limit expenditure and subsidies to budgeted fiscal revenues instead of running parallel funding structures through the central bank or abusing the overdraft facility.
The government of Zimbabwe often sets ambitious targets to create jobs and boost employment creation as a key provision to reduce poverty. However, the targets remain blueprints as there is no policy coordination to provide sufficient incentives.
The business climate remains hostile for domestic or foreign investment in the economy. The current business climate is characterized by over regulation, policy inconsistency, lack of consultation on policy (command style statutory instruments), bureaucracy and over taxation.
To create jobs and fight the record levels of unemployment, there is need for deregulation in various sectors, respect for investor property rights, simplification of tax and trade policies.
Overall, government policies divorced from eradicating the rising cases of extreme poverty can only help entrench it. If no action is taken in the short-to-medium term on addressing extreme poverty, Zimbabwe will witness an astronomic rise in criminal activities, a culture of looting public resources and other social vices that will take ages to fix. The effects of inequality will be felt and be paid for by future governments in monetary or non-monetary terms. Millions of dollars will be needed in each year to guarantee food security for Zimbabwe’s growing poor population.
Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email [email protected] or Twitter @VictorBhoroma1