The Cost and Burden of Leading a Poor Nation and its Failed States out of Crisis - Wonders Pibowei

This series attempts to answer two critical questions. The first question is: what is poverty, how do we define it in monetary and societal terms? We all talk of giving or helping the poor everyday by raising their standards of living. But we don't even know who the poor ones are sef, rather we speak and make policies from a layman's way of thinking. In economic terms, we define a poverty as a lack of decent source of income (monetary poverty) or a human deprivation of public goods (societal poverty). For example, a young graduate who is hungry and on the streets, but does not have a minimum wage to incur food and housing expenses is poor. Similarly a community that is deprived of 24 hours power supply and lacks the generator or renewable sources to light up, their homes and farms, are poor. Likewise, another community that is deprived of quality schools, roads and markets, and lacks resources to build them, is also poor. So there is nothing like the poorest man, or poorest of the poor, in economic body of knowledge, particularly when it has to do with government or corporate pro-poor interventions. The next question is: how can we lead the poor nations and their failed states out of this crisis? But to get a bird's eye view on this economic dilemna, let's understand what data tells us about it.

The World Bank Group in it's press release, held that global extreme poverty is expected to rise in 2020 for the first time in over 20 years as the disruption of the COVID-19 pandemic compounds the forces of conflict and climate change, which were already slowing poverty reduction progress. The COVID-19 pandemic is estimated to push an additional 88 million to 115 million people into extreme poverty this year, with the total rising to as many as 150 million by 2021, depending on the severity of the economic contraction. Extreme poverty, defined as living on less than $1.90 a day, is likely to affect between 9.1% and 9.4% of the world’s population in 2020, according to the biennial Poverty and Shared Prosperity Report. This would represent a regression to the rate of 9.2% in 2017. Had the pandemic not convulsed the globe, the poverty rate was expected to drop to 7.9% in 2020. "The pandemic and global recession may cause over 1.4% of the world’s population to fall into extreme poverty,” said World Bank Group President David Malpass. “In order to reverse this serious setback to development progress and poverty reduction, countries will need to prepare for a different economy post-COVID, by allowing capital, labor, skills, and innovation to move into new businesses and sectors. World Bank Group support—across IBRD, IDA, IFC and MIGA—will help developing countries resume growth and respond to the health, social, and economic impacts of COVID-19 as they work toward a sustainable and inclusive recovery.”

Progress was slowing even before the COVID-19 crisis, even as global poverty had dropped at the rate of around 1 percentage point per year between 1990 and 2015. New global poverty data for 2017 show that 52 million people rose out of poverty between 2015 and 2017, says the World Bank. Yet despite this progress, the rate of reduction slowed to less than half a percentage point per year between 2015 and 2017. In addition to the $1.90-per-day international poverty line, the World Bank measures poverty lines of $3.20 and $5.50, reflecting national poverty lines in lower-middle-income and upper-middle-income countries. The Poverty and Shared Prosperity report further measures poverty across a multidimensional spectrum that includes access to education and basic infrastructure. While less than a tenth of the world’s population lives on less than $1.90 a day, close to a quarter of the world’s population lives below the $3.20 line and more than 40% of the world’s population – almost 3.3 billion people – live below the $5.50 line. The convergence of the COVID-19 pandemic with the pressures of conflict and climate change will put the goal of ending poverty by 2030 beyond reach without swift, significant and substantial policy action, the World Bank said. By 2030, the global poverty rate could be about 7%, and an increasing numbers of urban dwellers are expected to fall into extreme poverty, which has traditionally affected people in rural areas, the World Bank said.

As the new year brings some hope for the fight against COVID-19, we are looking back and taking stock of the effect of the pandemic on poverty in 2020. In October 2020, using the June vintage of growth forecasts from the Global Economic Prospects, we estimated that between 88 and 115 million people around the globe would be pushed into extreme poverty in 2020. Using the January 2021 forecasts from GEP, we now expect the COVID-19-induced new poor in 2020 to rise to between 119 and 124 million. This range of estimates is in line with other estimates based on alternative recent growth forecasts. As in earlier estimates of 2020, the number of COVID-19-induced new poor is calculated as the difference between poverty projected with the pandemic and poverty projected without the pandemic. To predict poverty in the former we use the GEP growth forecasts from January 2021, and for the pandemic free world, we use GEP growth forecasts made in January 2020. It is important to note that while we are now ‘looking back’ at 2020, our estimates are still relying on extrapolations of household surveys that pre-date 2020. The estimated increase in global poverty in 2020 is truly unprecedented. Figure 1 shows the annual change in the number of global extreme poor from 1992 to 2020. Each bar represents the net number of people who have either moved out of extreme poverty if they were poor in the last year or moved into extreme poverty if they were not poor in the previous year. Before COVID-19, the only other crisis-induced increase in the global number of poor in the past three decades was the Asian financial crisis, which increased extreme poverty by 18 million in 1997 and by another 47 million in 1998. In the two-decades since 1999, the number of people living in extreme poverty worldwide has fallen by more than 1 billion people. Part of this success in reducing poverty is set to be reversed due to the COVID-19 pandemic. For the first time in 20 years, poverty is likely to significantly increase. The COVID-19 pandemic is estimated to increase extreme poverty by between 88 million (baseline estimate) and 93 million (downside estimate) in 2020. Considering those who would have otherwise escaped extreme poverty but will not due to the pandemic (i.e. 31 million in 2020), the total COVID-19-induced new poor in 2020 is estimated to be between 119 and 124 million.

Utilizing various growth forecasts that have been available in 2020, Figure 2 shows both the change in the estimated number of COVID-19-induced new poor in 2020 and the contributions of various regions. The worsening impact of the pandemic has drastically changed our projections over the course of this year, especially when comparing with the April growth rates (while the increase from June to January GEP is smaller). This has been driven primarily by a worsening forecast for South Asia, which has also changed the regional profile of the COVID-19-induced new poor. It is important to note that the poverty estimate in South Asia in recent years, even before the pandemic, is subject to considerable uncertainty due to the absence of new household survey data for India since 2011/12. On this grounds, projections of World Bank, departed from the India estimate that is included in the global poverty estimate for 2017. Using the growth forecast from April 2020 under the $1.90-a-day poverty line, we estimated that 62 million would fall into extreme poverty globally in 2020, with South Asia and Sub-Saharan Africa each contributing roughly two-fifths. The World Bank revised the global estimate to between 88 and 115 million using the June-2020 growth forecast, with about half of the new poor residing in South Asia. Using the January 2021 forecast, we now estimate between 119 and 124 additional poor globally with around 60% living in South Asia. The increase in the number of poor is also visible at the $3.20 poverty line. At the $3.20 line, the global new poor using the GEP-baseline scenarios has increased from 175 million to 228 million (from June 2020 to January 2021), again driven by South Asia. At the $5.50 line, we do not find a worsening of the global estimate, as our new estimates actually lie within the range we estimated using the June GEP. This is largely explained by a better than expected outlook for East Asia and Pacific, counteracting the upward revision in South Asia.

There is little doubt that 2020 has been an exceptionally difficult year in recent history. While there has been progress in the development of vaccines, it doesn't appear that the increase in poverty of this past year will be reversed in 2021. Figure 3 presents the nowcast of poverty up to 2021 using the pre-COVID-19 and the COVID-19 baseline and downside scenarios using the GEP January 2021 forecast. As reported above, the pandemic-induced global new poor is estimated to be between 119 and 124 million in 2020. In 2021, the estimated COVID-19-induced poor is set to rise to between 143 and 163 million. While the estimates for 2021 are very preliminary, it goes to show that for millions of people around the globe this crisis will not be short-lived. Following the Asian financial crisis (see Figure 1), 42 million people moved out of extreme poverty in 1999 and, on average, 54 million people have moved out of extreme poverty annually in the two decades before the pandemic. The World Bank hoped that when we finally take stock of 2021, the coming year will have fared much better for poverty reduction than what we expect at the start of the year. However, the continued worsening of growth outlooks that we observed in the past year could suggest otherwise. Increasing inequality is another downside risk that we have not explored here (we have assumed that inequality remains unchanged), but discussed in more detail elsewhere. Perhaps the only certainty in this crisis is that it is truly unprecedented in modern history.

The COVID-19 crisis has also diminished shared prosperity – defined as the growth in the income of the poorest 40 percent of a country’s population, says the World Bank. Average global shared prosperity is estimated to stagnate or even contract over 2019-2021 due to the reduced growth in average incomes. The deceleration in economic activity intensified by the pandemic is likely to hit the poorest people especially hard, and this could lead to even lower shared prosperity indicators in coming years. The prospect of less inclusive growth is a clear reversal from previous trends. The World Bank found that shared prosperity increased in 74 of 91 economies for which data was available in the period 2012-2017, meaning that growth was inclusive and the incomes of the poorest 40 percent of the population grew. In 53 of those countries, growth benefited the poorest more than the entire population, while the average global shared prosperity (growth in the incomes of the bottom 40 percent) was 2.3 percent for 2012-2017 says the World Bank. This suggests that without policy actions, the COVID-19 crisis may trigger cycles of higher income inequality, lower social mobility among the vulnerable, and lower resilience to future shocks. The Poverty and Shared Prosperity report therefore calls for collective action to ensure years of progress in poverty reduction are not erased, and that efforts to confront poverty caused by COVID-19 also face threats that disproportionally impact the world’s poor at the same time, particularly conflict and climate change.

Globally, extreme poverty has rapidly declined. New poverty estimates by the World Bank suggest that the number of extremely poor people—those who live on $1.90 a day or less—has fallen from 1.9 billion in 1990 to about 736 million in 2015. However, the number of people living in extreme poverty is on the rise in Sub-Saharan Africa, comprising more than half of the extreme poor in 2015, as seen in Figure 4 above. Forecasts of the World Bank PovcalNet and Poverty & Equity Data portal, also indicate that by 2030, nearly 9 in 10 extremely poor people will live in Sub-Saharan Africa. World Bank also finds that many of the new poor will be in countries that already have high poverty rates. A number of middle-income countries will see significant numbers of people slip below the extreme poverty line. About 82% of the total will be in middle-income countries, the Poverty and Shared Prosperity report estimates.

ABOUT THE AUTHOR

Wonders Pibowei is Chief Executive of Lowase Management Consulting, and Walaye Livelihood Programme. He is also PhD Research Scientist in Taxation at the Ignatius Ajuru University of Education, where he investigates whether the revenue and burden of paying Value Added Taxes significantly affects the standard of living of Nigerians in times of crisis. Holds more than 10+ years experience in designing and providing accounting, analytics, advisory, taxation, auditing and assurance services to companies, non-profits, civil society, and governments. Lowase helps youth and women owned business to recruit, rebuild, reward and retain talents of colour for success across their value chains. The vision of Lowase is to build a nation that lifts its young labour force out of monetary poverty and societal deprivations. The mission of Lowase is to equip young leaders and small businesses with power to make their nations work back better again.

He is a Common Futures Conversations Fellows and Cybersecurity Policymaking Scholar at the Chatham House, Public Policy Analysis Scholar at UNIDEP Senegal & INTAN Malaysia, Judge & Mentor with 2021 Google Africa Developer Scholarship, Member of the 2021 Wiley Business Accounting and Finance Advisory Panel, Edward Jenner Leadership Fellow with NHS England, Covid19 Programme Fellow with Health Education England, and Member of U-Report Nigeria Influencer Network. In 2022, he will be joining the CFA Institute Practice Analysis Working Body as a Member, and the Kellogg-Morgan Stanley Sustainable Investing Challenge as a Mentor & Judge. Prior to that, he served as a Peer Reviewer with Academia.edu, Boardroom Advisor for 2021 Acumen/IKEA Social Entrepreneurship Accelerator, Member of the 2020 Wiley Advisory Panel, Associate Cloud Engineering Fellow with 2020 Google Africa Developer Scholarship Program, Enterprise Data School Advisor with GAMES Consort and Senior Education Officer with Success Palace Academy.

He was awarded a MSc degree in Financial Accounting at the Ignatius Ajuru University of Education, a BSc degree in Accountancy at Renaissance University Enugu, a Post Graduate Diploma in National Health Laboratory System at the Empower School of Health Geneva, a Certificate in Developing a Multidimensional Poverty Index at the Oxford University and United Nations Development Programme, a Certificate in Poverty Analysis to Achieve the SDGs at the International Policy Centre for Inclusive Growth, and a Certificate in Public Policy Analysis at UNIDEP Senegal & INTAN Malaysia. He is a Member of the Non Executive Directors Association, Global Disaster Preparedness Center, Public Private Partnership Association of India, Association for Project Management, Project Management Institute, Data Science Association, Royal Society of Statistics, American Statistics Association, American Finance Association, American Management Association, Institute of Management Accountant, British Association of Finance and Accounting, Association of Int'l Certified Professional Accountants, Int'l Association of Accounting Education and Research.