“If we work together, hundreds of millions of people can escape severe deprivation within our lifetime” [Archives:2001/19/Business & Economy]

May 7 2001

Nicholas Stern*
& Mustapha K. Nabli**
In times like these, when a sputtering US economy has many investors worried, it is useful to put our worries into perspective by taking a long-term view of the global economy. A new World Bank report, which tracks changes in economic growth and scores of other indicators of human well being for nearly every nation on earth, gives us just such an opportunity for reflection.
The picture that emerges from the World Development Indicators is daunting. Of the world’s 6 billion people, 1.2 billion live on less than a dollar a day. About 10 million children die before reaching their fifth birthday, mostly from preventable diseases. More than 113 million children do not attend school – more of them girls than boys. In the developing countries of the Middle East and North Africa (MNA), youth illiteracy rates average 13 percent for boys and 24 percent for girls. Worldwide, half a million women die during pregnancy or childbirth every year from complications that could have been easily treated or prevented. In Morocco and Egypt, only 45 percent and 53 percent of pregnant women receive prenatal care. In Lebanon, close to 20 percent of newborns have low birth weights. In Tunisia and Yemen, only about 50 percent of the population has access to essential drugs. The development challenges are further exacerbated in MNA by the serious scarcity of freshwater resources which amount to only 1,145 cubic meters of freshwater per capita, significantly less than in other regions which range from 2,850 cubic meters per capita in South Asia to over 27,000 cubic meters per capita in Latin America.
Barring a sudden improvement in current trends, many countries will fail to meet the international development goals endorsed at the UN Millennium Summit last September. The goals call for halving the proportion of the world’s population living in extreme poverty between 1990 and 2015. Also included are targets for progress in school enrollment, gender equality, infant, child and maternal mortality, access to reproductive health services and environmental protection. In MNA, the challenge will be all the more because of the high population growth rate, which at 2.7 percent over the period 1980-99 was the second highest in the developing regions.
And yet, there has been progress. Since 1990, the number of people living in absolute poverty has fallen by 100 million, infant and child mortality rates have dropped by 9 percent, enrollment rates are higher and a larger number children attend school than ever before. In MNA, the under five mortality rate fell from a staggering 136 per 1,000 children in 1980 to only 56 per 1,000 children in 1999. And while youth illiteracy rates remain high, they have fallen 28 percent for boys and 35 percent for girls during the 1990s. India and China, which together account for a third of the world’s population, are well on their way to achieving several of the international development goals.
Moreover, progress appears to be quickening . Even before the US slowdown became apparent, per capita income was growing more rapidly in developing countries than in the high-income countries. For example, in 1998/99 many countries in Sub Sahara Africa, which has long suffered from low growth, had growth rates above 6%. We may be entering a decade when more developing countries than ever before will achieve sustained high rates of poverty-reducing economic growth.
Why the change? One reason is a growing recognition that two sets of conditions are needed to sustain high growth rates with maximum benefit for poor people: a healthy investment climate and empowering them to take part in economic growth.
A healthy investment climate is not just about attracting multinationals and foreign direct investment – although this is a valuable by-product. It means creating conditions for ordinary people to enjoy the fruits of their won efforts. Keeping inflation low and opening the country up to trade help make this possible. Equally important, rooting out the fees, bribes and extortion of petty thugs and predatory local officials, allows small-scale entrepreneurs to flourish. A good investment climate is crucial for increasing poor people’s investment in agriculture and other employment. Simply put, improving the investment climate means improving the link between sowing and reaping. In MNA, much remains to be done to improve the climate for private investment. For example, in those countries where information is available, we see only a small trend during the 1990s towards an increased role of the private sector. In Iran and Tunisia, nearly 50 percent of outlays on additions to fixed assets – improvements of land, construction of infrastructure and buildings, and purchases of plant, machinery and equipment – continue to be by the government. Foreign direct investment in the region is also low. Even countries that are doing relatively better at attracting FDI, such as Egypt and Tunisia where FDI accounts for 5.2 percent and 6.3 percent of gross capital formulation, are still well below the worldwide average of 10 percent. Only Jordan comes close to this worldwide average at 9.4 percent.
An attack on poverty is vastly more successful if it also empowers poor people to take part in the national economy, and to shape their own lives, through education, health care, and participation in the decisions that affect them and their families. Education is a prime example. In El Salvador communities elect parents who are responsible for hiring and firing teachers and equipping and maintaining schools. Teacher and student absences have dropped sharply. In India a similar program is improving education for 50 million children. New census data show a steep drop in illiteracy. In Yemen, enrollment of girls has increased when communities have been involved in identifying needs and selecting school sites.
As more countries adopt these conditions for broad-based growth, donor countries have noted these changes and are supporting modest increases in foreign aid and reduction in trade barriers. After falling for nearly decade, official development assistance has begun to recover. Europe had announced and “Everything but Arms” initiative, which promises to scrap tariffs on all imports from the world’s poor nations except for weapons. The US is moving to further open its market to imports from Africa and Latin America.
MNA is also opening up as evidenced by agreements being made under the Euro-Mediterranean initiative and a free trade zone between Jordan and the United States. On the other hand, MNA still faces significant barriers to its exports, particularly on agricultural commodities to the European Union. These restrictions are costly to the region’s export development and growth.
Rich countries can do more to demonstrate their commitment to the international development goals. Most high-income countries have endorsed the goal of increasing aid to 0.70 percent of GDP, form the current average level of 0.24 percent. This would generate $100 billion more each year to help the world’s poorest people help themselves. Removing tariff and non-tariff barriers could provide another $100 billion a year in benefits to developing countries. And high income countries can offer a fair proposal on second-generation trade issues such as intellectual property rights. Designating the next round of global trade talks, due to be held in Qatar in November, a “Development Round,” dedicated to improving the well being of the world’s poor, would provide a salutary jolt to address these complex issues.
The first part of the 21st century offers a rare window of opportunity. If developing countries, donor countries, and international organizations can work together with greater urgency, hundreds of millions of people may well escape the pain of severe deprivation within our lifetimes.

* Nicholas Stern is chief economist and senior vice-president of the World Bank
** Mustapha K. Nabli is chief economist of the Middle East and North Africa region of the W Bank.