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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 5 NO 2, DECEMBER, 2007

POVERTY REDUCTION STRATEGIES AND POLICIES IN DEVELOPING COUNTRIES: MYTH OR REALITY?
Dr Augustine Nduka Eneanya
Department of Political Science, University of Lagos, Lagos

ABSTRACT
Povery is a multi-faceted concept.  Various meanings can be ascribed to it.  In relative terms, people are poor when their living conditions fall radically below the community average.  In absolute terms, poverty refers to insufficient or total lack of basic necessities like food, housing, safe water, healthcare services and income to obtain the necessities of life.  Poverty alleviation has, therefore, become the central policy objective of international development agencies, such as World Bank, United Nations, International Monetary Fund (IMF) and national governments, especially in Third World Countries.  Poverty alleviation has become a challenging moral agenda in that over 1.3 billion people currently live in conditions of endemic hunger and poverty, while the wealth of the minority continues to increase.  This paper analyzes the concept of poverty, its country-specific dimensions in the Developing Countries, the policies, strategies and interventions adopted by various countries to reduce it.  Suggestions were also made on ways to reduce poverty.
Key words: Poverty reduction, Strategy, Policies and developing countries.


Introduction
After the first euphoric years of independence, many Developing Countries were caught in various spirals of poverty - seemingly condemned to self-perpectuating cycle of poverty.  Poverty is multi-dimensional, involving not only a lack of income, but also ill-health, illiteracy, lack of access to basic social services and little opportunity to participate in the processes that influence people’s lives.  It is also pervasive, as about 1.2 billion people around the globe still live on less than a dollar aday and nearly 850 million people go hungry every night.  Poverty reduction should, therefore, be the centre of development.  Many developing countries have made efforts to revitalize their economies through policy reforms and adjustment programmes without success.  The economic conditions remain precarious.

 Inspite of the reforms and adjustments, developing countries still find themselves in poverty scourge.  Failure in these reforms and adjustment had attracted the attention of international organizations, such as World Bank, United Nations and International Monetary Fund (IMF), which assisted countries involved with technical and financial support.  This has also not yielded the expected results.  Hence, most Developing Countries decided to work out poverty reduction strategies on the basis of each country’s economic, socio-political, structural and cultural contexts. 

The Objectives
This paper has the following objectives:

  • Clarify some conceptual and theoretical issues about poverty
  • Give empirical experiences of macro-economics of poverty reduction strategies and policies of selected developing countries
  • High-light some constraints that hinder poverty reduction in developing countries
  • Propose some policy recommendations as a way forward.

Methodology
This paper draws largely from secondary data, which include available reference materials, United Nations Development Reports, policy lessons and other experiences of other developing and developed countries.  The paper is structured into five sections with each of the section deveoted to achieving specific objective.    Following the introduction which also examined the objectives and methodology is section 2.  It highlights the conceptual and theoretical clarifications.  Section 3 examines the empirical analysis of poverty reduction strategies and policies of selected developing countries based on socio-economic deprivation theory.  Section 4 high-lights the constraints or problems that hinder poverty reduction strategies and policies in developing countries; while section 5 proposes some policy recommendations as a way forward.  



Conceptual and Theoretical Issues
Various approaches have been adopted to explain the concept of poverty.  These   approaches are:

Poverty-line Approach
The most widely used approach for defining poverty and for identifying the poor is the poverty-line approach.  By this approach, a certain level of income is identified as the minimum income which an individual or an ordinary household in a given society requires daily or monthly, for his/her most essential needs.  Anyone in the society, whose income falls below that minimum is then identified as poor or as falling below the poverty-line.

Relativist Approach
This approach suggests that poverty is a relative thing.  There are four dimensions of this approach (Akeredolu-Ale, 2001):
(i)            Poverty as inequality – this means that some people have fewer resources than others.  It is more than inequality as it is often characterized by want, frustration, human suffering and disgrace.
(ii)           Poverty as a function of prevailing standard of living.  According to this approach, a person defined as poor in one society may have a standard of living which would place them among the non-poor in some other societies.
(iii)          Poverty as an elastic concept – means that the poor as identified in most cases are not a homogenous category, in terms of their levels of poverty.  Some are less poor among the poor.  It is necessary to differentiate “the poor” from the “very poor”, so that the latter can receive more attention than the former, especially relief measures.

  • Poverty as subjective feeling – means that a person is only as poor as he/she feels; that, poverty is all in the mind.  The implication of this to policy is that we can solve poverty problem by the poor having a positive attitude (conditioning their mind) and have objective mind on the state of poverty they live.

 

An indepth analysis of these approaches show that the relativist approach does not assert anything that is totally false.  Though, it has the tendency to trivialize poverty and divert attention away from the concrete social problem that poverty is.  It makes one feel that poverty is something that is neither here nor there and not a definite problem to which society must find a solution.

On the other hand, poverty-line approach cannot be used as methodology for assessing the poor in the developing countries without assessment of certain concrete aspects of the actual living conditions and life-styles to the population, such as: access to healthcare services, safe water, housing and environment, education, nutrition and social infrastructures.  In short, the prevalence of poverty in Developing Countries can be established through a careful assessment of actual living conditions of the people whether or not such assessment ends up in any single index of poverty.
However, for the purpose of this paper, poverty reduction strategy of Developing countries can be conceptualized from the point of socio-economic deprivation that affects the poor.  Attempt is, therefore, made in this paper to explore and explain various strategies adopted by developing countries to reduce poverty in their various countries and make useful suggestions that would move them forward.   



Macro-Economic Poverty Reduction Strategies and Policies of Selected Developing Countries
Various strategies, policy reforms and adjustment programmes have been experimented by many developing countries to tackle poverty.   Even the support of international organizations and donors, such as International Monetary Fund (IMF) and World Bank on policy reforms and strategies has not achieved the desired results.  Another strategy that has been used by most countries of the world is Human Development Index (HDI) recommended by the United Nations.
 The Human Development Index (HDI) covers both social and economic choices by combining Gross National Product (GNP) with the physical quality of life Index (PQLI) (Adedeji, 2001).   The HDI emphasizes a synergy between social and economic development.  This is the policy framework for many developing countries adopt to evaluate the level of poverty in their respective countries, as illustrated in table 1 below:


Table 1 :  Five  Selected Developing Countries’ Profile

 

Countries

Human Poverty Indeed Ranking

 

HPI-1
Value %

Adult
Literacy
(%ages 15 and above)

Population without access to water
(%)

Infact mortality rate

Life expectancy at birth

Probability at birth not surviving to age 40

Population below income poverty line(% $1 a day)

National poverty line

Nigeria

  57         

35.1

33.2

   38

110

51.5

34.9

70.2

34.1

Pakistan

  71

41.9

58.5

  10

  83

 61.0

38

 13.4

 32.6

India

  48

31.4

 38.7

  16

  67

 63.9

 15.3

  34.7

 28.6

Ghana

  46

26.0

 26.2

  27

 57

 59.9

 25.8

  44.8

 39.5

Bangladesh

  72

42.2

 58.9

   3

 51

 61.4

 17.3

  36.0

 49.8

Source: UNDP Human Development Report, 2004: 148-149


Table 1 shows the poverty profile of these five developing countries.  At a glance, population living below $1 a day is high with India ranking 48, Bangladesh 72, Pakistan 71   and Nigeria 57, respectively.

Poverty Reduction and Growth Facility (PRGF) Strategy
Other International Agencies, such as: International Monetary Fund (IMF) and World Bank also offered new policy initiative on how to reduce poverty.   The IMF poverty Reduction Programme for Africa has made a commitment to halve poverty by 2015.  IMF will assist in funding through the new Poverty Reduction and Growth Facility (PRGF)- particularly for assisting the Highly Indebted Poor Countries (HIPC).  The facility objectives are: poverty reduction, debt reduction, growth, stability, core management and market-oriented reforms. This initiative is applied on the basis of determination of “debt Sustainability”.  This means that only countries that are judged as poor and with debt levels that are unsustainable are eligible for debt relief under this initiative.  Countries which are poor (like Nigeria) but do not meet the applied definition, cannot participate in the initiative.  



Poverty Reduction Strategic Paper (PRSP) Strategy
However, as most developing countries cannot benefit from the package for Highly Indebted Poor Groups (HIPG), the World Bank and International Monetary Fund (IMF) introduced Poverty Reduction Strategic Paper (PRSP) as another option to benefit from Official Development Assistance (ODA).  Official Development Assistance (ODA) is a window of financial assistance with soft conditions, longer repayment period of about 1.0 per cent interest and over 10 years grace period.  Before countries can benefit from the Official Development Assistance (ODA), they must prepare acceptable Poverty Reduction Strategy Paper (PRSP).  Twenty-six Sub-Saharan African Countries embarked upon preparation of PRSP as poverty reduction strategy.  However, certain principles must be fulfilled before the papers are accepted as credible, (CBN, 2000), namely:

  • The process for the preparation of a  PRSP must be country-driven in manner that involves the civil society and private sector in all its facets;
  • The approach must be result-oriented and focus on outcomes that benefit the poor;
  • Comprehensiveness in recognizing the institutional nature of poverty reduction and development
  • Prioritization to ensure feasible implementation both financially and institutional;
  • The approach must be based on long-term perspective for poverty reduction.

 

The implication of these principles is that PRSP must be country-owned and managed.  Each country has to prepare her PRSP without dictation from outside.

Many policy analysts view these poverty reduction strategies recommended to the developing countries as palliative and not the solution to the problem. 

Many developing countries, therefore, decided to work out poverty reduction strategy on the basis of each country’s economic, socio-political, structural and cultural context.  Specifically, they opted to adopt micro-enterprises financing as a strategy to reduce poverty.

Micro-Enterprises Financing Strategy
Experiences of developing countries from South East Asia on micro-enterprises financing to boost economic growth have inspired most developing countries in adopting the option. Micro-enterprises provide employment to the unemployed through job creation. It also boosts economic growth and innovativeness through export trade.  According to Soludo(2007:25), “if every government – Central, State and local government should set aside 1 per cent of budget allocation to support micro-enterprises financing in their domain, it will translate to 1000 jobs in each state, local and central governments, respectively, annually”.  Most developing countries now discover the relevance of micro-enterprises financing as a strategy of reducing poverty. To make micro-enterprises financing relevant to each country’s socio-economic development requirement, different strategies and policies have been adopted.  Now, let us examine the micro-enterprises financing strategies adopted by some countries in the Developing Countries to reduce poverty:

  • Latin America Experience – (Mexico, Brazil and Chile)
    In Latin America and Caribbean, intra- American Development Bank (IDB) pioneered micro-enterprises.  Between 1970 and 1998 micro-enterprises programmes increased by 600,000 and created over 1.8 million employment opportunities.
    In Mexico, a programme was initiated in 1997, known as “PREGRESA” to provide social services for the poor.  The programme subsidizes education, healthcare and nutrition for poor rural households.  It covers 2.6 million people, about 80 per cent of the population in extreme poverty in rural areas of Mexico. 
  • South East Asia Experience – (India, Pakistan and Bangladesh).   Countries in South-East Asia adopted the strategy of linking social bonds (social capital) to implement micro-credit schemes for socio-economic development of the poor. 

In India, a Non-governmental organization known as “MYRADA” acts as an intermediary between poor people and commercial banks.  Its initial task is to mobilize the nooding social capital within the village communities to form regional federation, made up of representatives from each “Gecht” group.  At the outset, credit management groups hold accounts with commercial banks and progressively gain the confidence and skills they need to participate independently in formal institution.  After five years of training and hard-won experience, group members are able to manage these accounts without the involvement of “MYRADA” staff.  According to Kozel and Parker (2000) in their report, social groups among poor villagers serve vitally important protection, risk management and solidarity functions.
In Pakistan, the “AGA KHAN Rural Support Programme” gives assistance to village organizations to supplement their self-help projects (Esman and Uphoff, 1984).
In Bangladesh, Grameen Bank relies on groups of poor women to implement programmes.  Bangladesh Rural Advancement Committee depend on groups of village workers with little or no land as collateral, but are given loans on the basis of their membership in a small peer group, which help them start or expand a small business, thereby, improve their families welfare (Van Bastelaer, 1999).
In Bangladesh, the major weapon since 1980’s is micro-credit targeted on the poor and vulnerable households.  The Bangladesh Gramean Bank and other main Non-governmental Organisation financed small-scale enterprises from 3.5 million take (Bangladesh currency) in 1990 to over 20 billion take in the late 1990’s.  Currently, Gramean Bank has over 3 million borrowers among the poor with borrowers owing 75% of the bank stock and the government owing the remainder.  Gramean Bank serves 5 million clients with 10,000 families escaping poverty every month.

  • East Asia Experience – (Singapore)

 Market reforms embarked upon failed to reduce poverty in many countries in this group (World Bank, 1998).  Other strategies were, therefore, devised to reduce poverty.  For example, in Singapore, a three-tier health Insurance Scheme was set up between 1984 and 1993, namely: Medisave, Medishield and Medifund.  The programme insures against intermediate level health risks through individual or household medisave accounts.  These manadatory savings, part of Singapore’s compulsory social security system are funded by a 40 per cent payroll tax, shared equally by employers and employees.  Of this contribution, 6 to 8 per cent is allocated to Medisave accounts which can be used to pay hospitalization expenses of up to about US $170 a day.  Individuals are expected to cover minor health costs, out of pocket or through private insurance.  Equity back-up is provided through subsidies from Medifund to remedy the non-progressive nature of Medisave accounts and Medishield (Prescott and Pradhan, 1999).

  • Sub-Saharan Africa Experience (Uganda, Kenya and Nigeria)

Poverty in Africa is pervasive.  Data on poverty and unemployment are staggering and reveal that between 65 and 70 per cent of Africa countries’ population live the poverty line and less than half a dollar per day.
For example, in Uganda and Kenya, micro-finance Limited has over 50,000 clients and a micro-fiance portfolio of $10 million. 
In Nigeria, small-scale industries enjoyed a steady growth resulting in an average three year growth of 21.5 per cent.  The medium scale industries also recorded a steady growth of 8.1 per cent between 2000 and 2002 (NISER Survey Report, 2003).

With the economic crisis and failure of political and economic reforms of the 1980’s and 1990’s, micro-enterprise is now recognized world wide as a powerful strategy to reduce poverty.  Micro-enterprises bring to the poor families:Increased household income and uplifting their standard of living;employment;economic growth and enhance organized, systematic and focused participation in the socio-economic development and resource allocation process.
      
Constraints on Socio Economic Development Strategies in Developing Countries
There are many constraints that hinder economic growth and poverty reduction strategies in developing countries.  Foremost among them is poor infrastructure.  Generally, developing countries have poor infrastructure that hinders economic growth and poverty reduction strategies.  Table 3 below gives a graphic picture of infrastructural facilities in developing countries


Table 3: Infrastructural Facilities in Developing Countries


Technology Diffussion & Creation

Latin America & Caribbean

South Asia

Developing Countries

Least Developed Countries

Sub-Saharan Africa

Arab
States

Telephone mainline(per 1000 people

   
    166

 

   41

 

    96

 

  7

 

   15

 

   81

Cellular Subscribers (per 1000 people)

 

    191

 

   13

 

   101

 

 10

 

  39

 

  85

Internet Users (per 1000 people)

  
   81.2

 

  14.9

 

  40.9

 

 2.8

 

 9.6

 

 28.0

  Population with sustainable access to improved sanitation (% of total population)

   77

 

   37

 

  51

 

  44

 

  53

 

  83

Population with sustainable access to improved water (% of total population)

 

 
    86

 

 

  85

 

 

  78

 

 

  62

 

 

  57

 

 

  85

Source:   UNDP HDI Report, 2004

The level of infrastructure in developing countries can be captured from the above table.   In developing countries, total population that has access to telephone is 96 per 1000 against 7 per 1000 in Least developed countries; for cellular subscription it is 101 per 1000 against 10 per 1000 in least developed countries; total population that has access to internet is 41 per 1000 against 3 per 1000 in least developed countries. Total population without access to improved sanitation is 51% against 44% in least developed countries. The total population without access to safe water is 78% against 62% in least developed countries. Generally, developing countries need to address the problem of infrastructural facilities. Other infrastructure facilities that desire attention are power or energy, roads and business environment.  This is because poor infrastructural facilities would affect economic growth and make it difficult for developing countries to support micro-enterprises financing as a tool of reducing poverty.  Added to this problem is poor industrial base and low capacity utilization prevalent in most developing Countries.  For example, World Bank (2000) reported that, “in Africa countries, industrial production is weak with manufacturing less than 15 per cent of GDP”.  Moreover, while the exports of industrialized countries grew at 7 per cent per annum in the last four decades, those of developing countries suffered decline of about 2 per cent per annum within the same period.  In addition, while the share of Asia in World manufacturing exports grew from 16 to about 27 per cent, the African countries share declined from 4 to less than 2 per cent.  Developing countries, therefore, needs infrastructural development to enable them support micro-enterprises development. 


Policy Recommendations and Conclusion

The following are policy recommendations that would enhance poverty reduction in the Developing Countries.

  • Partnership with Stakeholders

The challenges of poverty reduction facing the Developing Countries go beyond the capability and capacity of government – Federal, State or Local units.  There is need to involve civil society, the targeted poor group,.non-governmental organizations, community-based organizions, the private sectors and organized labour in poverty reduction programme articulation, formulation and implementation.  Consesus of opinion from these stakeholders can be built into capital expenditure items in the budget for implementation by the Federal, State or Local units in the country. 

  • Micro-Enterprises Financing

Specifically, poor-focused projects should be supported by developing countries, such as: small-scale entrepreneurship and provision of micro-credit facilities.   Moreover, farmers should be trained in extension farm servicess, where relevant skills are imparted to them.  The government should support them with modern farm implements, such as tractors, fertilizers and other tools required for food production.  World Bank Reports from 1989 to date have often mentioned lack of good nutrition as one of the challenges of Developing Countries.  Therefore, massive modern and commercial farming will enhance food production.  This will make food available to the poor at reduced prices.  Surplus food production will improve the well being of the poor people, reduce unemployment and promote export earnings.
(3) Provision of Social Infrastructural Facilities         Moreover, social infrastructural facilities, such as: electricity, good rural roads, primary healthcare services, access to education, access to safe water and sanitation, must be added to this poverty reduction strategy.  Partnership with stakeholders is important so that each level of government can undertake activities for which it is suited 
 (4)    Good Governance
          Developing countries should promote good governance and fight against corruption in public life. This will instill confidence on the citizens who live in penury, while privileged minority group cart the wealth away to foreign banks.  Accountability and transparency in governance should be seen in both the public and private life of government officials.  This will check corruption and make it possible for resources to be invested on projects that target on the poor people.  Beside, the leaders should establish enabling environment where peace and stability would reign supreme, to enable development programmes take place.
(5) Massive Investment in Human Capital
There should be massive investment in high qualitative and technological education, particularly in Information and Communication Technology (ICTS) and bio-technology.  If developing countries are to escape from intellectual dependency, its tertiary institutions, must become breeding grounds of the mastery of science and technology.

    • Capacity Utilization

Developing Countries can improve the capacity utilization of manufacturing organisations, if favourable fiscal policies such as: reduced taxes, reduced custom tariffs are adopted to boost exports trade.  Moreover, industries at their infancy could be protected from foreign manufactured goods by government fiscal policies, especially making foreign goods unattractive by taxing them heavily.  This will encourage manufacturing organizations to increase their capacity utilization, thereby promoting export earnings and growth. Tax concessions can be given to such companies that could create jobs for youths’ employment, while inflation can be checked through monetary policy aimed at stabilizing prices.

    • Millennium Development Goals (MDGS):
      Developing countries should endeavour also to implement the United Nations Millennium Development Goals strategies targeted for reducing poverty to half by 2015

  
     It is obvious in this paper that Developing Countries have one common strategy for fighting poverty.  That is, linking social capital in communities to alleviate poverty through micro-credit to small business enterprises.  Many countries have discovered that empowering the people economically through small-scale entrepreneurship will make a lot of impact on the economy. Apart from generating employment, it will improve their income and quality of life of the poor.  It is imperative that developing countries should look inwards and partner with the civil societies, private sectors, non-governmental organizations, organized labour and the targeted poor in this regard to tackle the problem of poverty. 

References
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Esman, Milton and Uphoff, Norman (1984).  Local Organisations: Intermediaries in Rural Development.  New York:  Cornell University Press.

Iguisi, Osarunwense (2002).  “Culture, poverty alleviation and small business development in Sub-Saharan Africa”.  Management in Nigeria, Jan-March, Vol. 38, No. 1.

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Kozel, Valerie and Barbara Parker (2000).  “Integrated approaches to poverty assessment in India”.  In Michael Bamberger, (ed.).  Integrating Quantitative and Qualitative Research in Development Projects.  Washington, D.C.: World Bank.
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