Ending poverty for all

CAN GLOBAL
POVERTY BE
ENDED?
An Attempt to Find an Answer
Andy Rolt
Rolt Consulting | Ballarat, Victoria

Andy Rolt April 2017 Page 2
CAN GLOBAL POVERTY BE ENDED?
I. INTRODUCTION ........................................................................................................................ 3
II. WHAT IS POVERTY? ............................................................................................................... 3
III. WHY ARE SOME COUNTRIES RICH AND OTHERS POOR? ......................................... 4
A. GOVERNANCE ............................................................................................................................... 4
B. EDUCATION .................................................................................................................................. 6
C. BUILT INFRASTRUCTURE ............................................................................................................. 7
IV. FACILITATING THE ESCAPE FROM POVERTY .............................................................. 9
A. AID VS. TRADE ............................................................................................................................. 9
B. THE CHINA GROWTH STORY .................................................................................................... 10
C. COULD GHANA GROW LIKE CHINA? ......................................................................................... 10
V. ADDRESSING THE THREE CAUSES OF POVERTY ........................................................ 11
A. GOVERNANCE ............................................................................................................................. 11
B. EDUCATION ................................................................................................................................ 11
C. BUILT INFRASTRUCTURE ........................................................................................................... 12
VI. CONCLUSION ......................................................................................................................... 12
VII. YOUR VIEWS ........................................................................................................................ 12

Can Global Poverty be Ended?
I. Introduction
I have spent most of the last 20 years working in what is now referred to as
the developing world. I have worked in the telecoms market and more
recently power, particularly the micro-grid and storage sectors.
There is plenty of evidence that the growth of telecommunications
increases a nation’s GDP. The same applies for power and other
infrastructure enhancement. If I look at the explosive growth of
telecommunications in developing economies it is evident that this growth is
the result of private investment putting in the money to develop
infrastructure.
However, it must be recognised that private investment would not have
happened if governments had not provided a legislative and regulatory basis
that gave commercial investors confidence that they would be subject to a
clear set of rules and that these rules would be enforced.
Not long ago I set out my thoughts on achieving access to electricity for all
Africans (Energy Poverty 2016). I calculated that USD300b would be
sufficient to create self-sustaining micro-grids. It is a big number but not
one that is impossible to finance.
So far so good, but when I started to think about what the total investment
required on all infrastructure it does get scary. For example, in order to
bring the value of built infrastructure in Ghana to the level of, even, Poland
would require an investment of USD1.2tr.
I have seen recent attacks on aid budgets, both in terms of wasted
expenditure and prioritisation of domestic poverty alleviation. This has
made be curious as to whether aid alone could be the cure for global
poverty. (I’ll give a quick answer to that one, the required transfers of
wealth are of a magnitude that it just isn’t going to happen)!
Set out below are some thoughts on the causes and cures for global poverty.
I have tried to keep the document short and I hope the contents justify a
small investment in time to read.
II. What is Poverty?
The World Bank defines extreme poverty as spending power of less than
USD1.90 per day. The reality is that this is really the borderline between
destitution and starvation and is pretty meaningless. I’ve never tried to live
on $1.90 a day but I think none of us comfortable westerners would cope
with that.
The IMF Global Economic Outlook 2015 estimates that average Global
Nominal GBP for 2014 was $10,880. It is striking that of the top 50 ranked
nations none are in Africa, only one is in South or Central America, three

are in the old Soviet Bloc and the eleven in Asia/ Oceania comprise
wealthier nations in the Middle East, Brunei, Japan, Taiwan, South Korea as
well as Australia and New Zealand.
True endemic poverty is a regionalised phenomenon.
III. Why are Some Countries Rich and Others Poor?
Let me start off by saying that I am not going to attempt an historic analysis
of the European (particularly British) Empires that have governed large
areas of the world at various times over the past 600 years. I notice that the
UK Independent newspaper is carrying, again, online its list of the five worst
atrocities committed by the British Empire.
Whatever the role of colonialism, slavery and the importation of European
wars to other continents will not alter the relative wealth of nations now. It
is that relative wealth which is the issue to focus upon.
There are probably three factors that contribute to the wealth of a nation:
1. Governance- Government must be effective in order to allow the
overall wealth of a nation to increase.
2. Education- There must be sufficient human capital.
3. Built Infrastructure- The stock of physical infrastructure. That is
factories, roads, communication systems, housing etc.
It may be legitimate to argue that a functioning health and welfare system
is one of the basic building blocks of national wealth. I tend to the view that
this development will follow the creation of wealth but it is arguable.
Looking at each issue.
A. Governance
Jason Sharman (The Despot’s Guide to Wealth Management) estimates that
Sani Abacha (Nigeria), Mobuto Sese Seko (Zaire), Suharto (Indonesia) and
Ferdinand Marcos (Philippines) between them stole USD55bn from their
countries.
No one really knows how much money that could have been spent on
infrastructure has been diverted to private use. I hold to the view that there
is enough money illegally held in Swiss bank accounts to make a real start to
addressing poverty, but doubt that the political will exists to force a
resolution.
In case it appears that to view corrupt politicians as a problem confined to
the developing world, it is not. In Australia, where I live, we have seen the
enforced resignations of the Speaker of the Federal Parliament, the Federal
Health Minister, the Speaker and Deputy Speaker of the Victorian State
Parliament and plenty of others for a variety of financial abuses. The UK
Parliament had its own expenses scandal not that long ago. Sadly, I suspect
that it is only constant press scrutiny that will ever keep politicians honest
as they show no sign that anything else works.

Effective government matters. As the following table shows effective
government is directly correlated with GDP per capita.
It is reasonable to pose the question as to whether an effective government
is a luxury that the rich can afford, rather than a necessary condition of
that wealth. For that we can look to the development of the eastern and
western parts of Europe since the Black Death, so called because of the
blackening of the skin that sufferers experienced, during the 14th
Century.
This reduced the population of Europe from 450 million to between 350 and
375 million over a 50-year period.
Before that loss of population, the condition of the peasant (lowest rural)
class was similar throughout Europe. After the rulers reacted differently. In
the western part the reaction to the loss of a significant proportion of the
workforce was to value workers more highly and to (very) gradually expand
the franchise to all adults. The process certainly was gradual as it took over
500 years before universal suffrage was achieved.
In the eastern part of Europe that response to the loss of so many workers
was that the rulers exerted even tighter control over the peasant class
reducing them to effective slavery. The franchise remained limited.
By the end of the 19th
century western Europe was urbanised and
industrialised while the east was largely rural and poor.
If we fast forward to 50 years that followed the Second World War the west
certainly recovered more rapidly with its pluralistic governance structures
than do the east. As we know the Soviet Bloc eventually broke up with many
of its states joining the west via European Union.
The style and quality of national governance matters.

B. Education
World Bank data indicates that each dollar spent on education increases
GDP by $20.
Apart from expenditure data it is necessary to consider the qualitative
outcomes that are being achieved. The data below is taken from the Africa-
America Institute 2015 education report.
State of Education in Africa Report 2015
Score Card
Primary
Education
Increased student enrolments in schools across Africa have enabled
more students to get into the classroom. However, most African
countries are not able to keep up with the fast pace of
enrolments.
As a result, learning outcomes have tremendously suffered.
Governments must invest in educational innovations to improve
the quality of the education of primary schools.
Secondary
Education
A rapid increase of students entering secondary education was due
primarily to a rise in graduates completing primary school.
By and large, adolescents still lack access to a secondary
education. Many are forced to travel long distances to school or to
go to work to help support their family. More schools need to be
constructed and safeguards put in place to address why
adolescents are dropping out to school to work.

Vocational &
Technical
Training
A majority of African governments are not making technical and
vocational education and training a top priority.
Budgetary constraints in the 1980s prompted governments to cut
TVET programs in their education sector. Given Africa’s need for
more infrastructure development, increased investments in TVET
will assist African countries to employ a skilled workforce to build
and maintain new infrastructure projects.
Tertiary
Education
University enrolment rates in Sub-Saharan Africa are among the
lowest in the world. While governments are investing in their
universities, efforts must focus on expanding access and improving
the quality of education to meet the needs of today’s workforce.
Quality of
Education
The African education system is in need of improvement. Despite
more students enrolled in African schools, governments must focus
on the quality of education by investing in trained teachers,
instructional materials, and infrastructure development.
Public
Spending on
African
Education
Public spending on education has increased in most African
countries. African governments must assess their country’s
priorities and needs and invest in areas that will foster innovations
and help to build a skilled and educated workforce. Public-private
partnerships will bolster public education budgets to garner
improvements in the overall education system.
Building a
Skilled
Workforce for
21st
Century
Needs
Africa is facing a severe shortage of highly-skilled African talent.
Governments must make a concerted effort to correct a serious
mismatch between skills of graduates and the demands of a local
and global workforce.
Africa-America Institute
When Guinea gained independence from France in 1958 there were only 3
indigenous university graduates in the country. Whatever the merits and
defects of colonialism the fact remains that the European involvement in
the East had a trading base and ultimately needed educated local people.
European involvement in Africa did not even have this in its favour. After
exploiting and then ending a slave trade the European nations engaged in
the “scramble for Africa” from the 1850s to the First World War. This was a
period where swathes of Africa were grabbed by the various powers on the
basis that there was not much of the world left to colonise.
The legacy, in terms of governance and human capital was dire! An
adequately educated population is a necessary condition for economic
development.
C. Built Infrastructure
In the developed world we take it for granted that we can turn on a switch
and have light, most of us have a decent road outside our door, access to
public transport, schools, shops, workplaces and conveniences that the built
infrastructure offer.
Arcadis conducts an annual study into global built infrastructure. The
following data is derived from their “Global Built Asset Wealth Index 2015”.

Total Value Per Capita 2025 F/C (Total)
Global USD218tr USD30,000
Qatar USD1tr USD198,124 USD1tr
China USD48tr USD34,137 USD97tr
United States USD37tr USD114,130 USD45tr
Poland USD2tr USD50,704 USD2tr
Ghana < USD1tr USD7,462 < USD1tr
It is interesting to calculate the investment that would be required to bring
built infrastructure in Ghana to the level of that in Poland. With a
population of 27.7m Ghana would need investment of USD1.2tr to that
level!
Of course the value of built infrastructure matters as there is a strong
correlation between Built Asset Wealth as the chart below demonstrates.
I will return to the issues of financing built assets but to set it in context
OECD nations spent USD135bn on aid in 2014. UNCTAD calculates that
Foreign Direct Investment (FDI) in Africa for 2015 was USD54.1bn, of which
USD3.2bn was invested in Ghana. Even if the USD540.7bn FDI into
developing Asian markets is considered total aid and investment does not
match the USD1.2tr that Ghana would need (albeit over a period of years)
to get the infrastructure in place to get its GDP per capita even to the level
of Poland. Of course that ignores the revenue account spend on governance
and education needed to ensure that built infrastructure can be fully
utilised!

IV. Facilitating The Escape From Poverty
A. Aid vs. Trade
Some years ago, I was hired by the owners of a new telecom network in East
Africa whose launch was falling behind schedule. There were many reasons
including a number of distractions, one of which was the construction of a
rather grand head office building (the norm being to work out of containers
or similar until the network is launched and generating cash).
It was clear that the builder, an expat, lacked both the necessary cash flow
and the project planning skills to deliver. The investors decided that they
had the ideal candidate to send out to manage this project. The person
chosen, as project manager, was semi-retired after a career with the UN
and ICRC (International Committee of the Red Cross.
On being presented with his first weekly report for review I was struck by
the excellent written detailed description of the activity that had taken
place that week. I was also struck by the total absence of any reporting of
progress against the builder’s project plan milestones, the lack of any
projection of future progress and of any data on cost. (Very limited
questioning established that the project would be further delayed down the
line as orders for glass had not been placed).
We fixed the reporting and kept on top of it. A few days later, over a beer,
the project manager told me that he did not understand how I, and others
could cope with being so accountable! Knowing that he had been
responsible for building refugee camps in times of famine my response was
that there could not be much higher level of accountability than one
measured in lives saved.
What he then told me shook me. He said that the pressure was on to
account for money spent and, as long as there was a good story about the
employment of local staff in the project, that was good enough for his
stakeholders. I am hard to shock but it took me a while to ask, “but what
about the people dying while the building of camps is delayed”? To that
there was no answer.
I tell this story, in part, because I want to but also to put a context on the
role of aid. The UK Daily Mail was recently carrying stories about waste in
the UK USD15bn aid budget. Among other things it was pointed out that
USD6m had been given to the Ethiopian “Spice Girls” as part of an
empowerment program.
Without getting into the detail of any program the fact is that existing aid
budgets are not big enough to make any long-term difference, without a
fundamental rethink. Given that Governance is an impediment to economic
development maybe aid budgets should finance the secondment of
developed world public servants to specific projects where regulatory and
organisational overhauls can be shown to enhance growth prospects.

B. The China Growth Story
As I have looked at Ghana before in this essay it seems sensible to compare
that countries GDP growth to that of China.
In 1990 GDP per Capita (at Purchasing Power Parity) was about the same in
China as in Ghana. However, by 2015 China’s GDP per Capita was more than
three times as high as that of Ghana.
China’s growth has not been the result of a fortuitous event, such as a
resource boom. China is home to @20% of the world’s population, and can
do things on a scale that no other nation can and has the ability to achieve
growth through domestic consumption in a way that only a few could
achieve.
In the late 1980s Deng Xiaoping was aware that China could not grow using
its State Owned Enterprises (SOEs) as the engine for growth. Too many were
loss making but closure would create mass unemployment and unrest.
In response to this problem Deng allowed SOEs that made a profit to re-
invest it in further profitable activities. Those that made a loss simply
continued to receive their allocation of raw materials and continued to
process them. Over time demand from profitable companies for labour
began a trend whereby productive organisations absorbed a significant part
of the labour force of the non- value add businesses that progressively
absorbed less materials.
Over time growth in the quasi-market economy reached the point where the
planned economy could be allowed to die without social or political
disruption.
It seems a good idea to use this story. Eliminating global poverty is daunting
but China seems to show it is possible. Furthermore, there are indications
that the growth of a confident middle-class is starting to generate a demand
for policies that acknowledge environmental issues.
A mix of brutal political control combined with market economics does seem
to be effective! Of course China was able to start this process with some
industrial base but it is possible for a country to develop economically at a
rapid pace.
C. Could Ghana Grow Like China?
It has to be possible. However, Ghana does not have the advantage of a vast
internal market and the ability to develop industries of the scale that China
is able to. Smaller countries will need to consider their comparative
economic advantage in selecting target areas for development.

Furthermore the Chinese Government possessed the control mechanism that
allowed them to conduct a massive economic experiment while exercising
tight control over its people.
The Chinese growth model is interesting but its direct applicability is
limited. However, it does show that rapid growth and lifting hundreds of
millions of people out of poverty is possible.
V. Addressing The Three Causes of Poverty
A. Governance
Telling developing country governments that they must up their game on
governance is not going to sit well, particularly when it comes from former
colonial powers. Fixing governance issues is not going to be easy, even with
honest government.
Effective governance requires a functioning public service to develop an
adequate (and equitable tax base), to collect tax revenues, to develop
policy and the process for delivery and to provide those services necessary
in a functioning state.
I am not aware of good governance being exported, but it might be an idea
to try. My suggestion is that the high GDP nations of North America, Europe
and Asia should look to replacing aid with funded governance projects. I will
go further than that and recommend that public servants be seconded to
developing nations for the purpose of developing their governance capacity.
In order for there to be accountability and clear measurement of outcomes
it is probably best policy to match one high GDP “donor” with one or more
partner. That way it will become apparent which partnerships are working
and to apply best practice across all partnerships.
There is a clear danger in the solution of neo-colonialism, where the
“donor” will use their position to force unwanted policies on their partner.
It has to be very clear in any arrangement that the partner government is
the recipient of advice and resources and that the government remains
responsible for policy.
Of course, we should not be naïve and “donors” will use the relationship to
favour their countries’ industry in securing deals. If the price is leveraging
(through contract enforcement and regulatory certainty) the kind of
investment that is needed to eliminate the built infrastructure deficit it will
be worthwhile.
Linking in to the next topic, education, the “donor” nation will provide
training to civil servants and access to “high flyer” schemes to develop the
best service possible.
B. Education
The solution to the education deficit should start to fall into place with the
governance solution. Developing nations should be looking to develop the
skilled workforce that will be required as the improvements to built
infrastructure come on stream.
Widening the tax base and improved revenue collection should provide the
funding to increase access to, and standards of, education. I am not naïve

and appreciate that many children work out of economic necessity. In the
short to medium term it may be necessary (sadly) to accept that universal
education, at least to secondary level, may not be possible.
As with the governance project there should be provision of curricula,
teacher training and the possible secondment of staff to the partner. Until
such time as the partner has developed all the tertiary education resources
that it needs the “donor” should grant access (free or at favourable rates)
to students from its partner.
C. Built Infrastructure
Reliable governance and education should provide the confidence for the
private sector to invest in, what will be, attractive markets where rapid
economic growth is achieved. Getting governance right will create the
environment where perceived country risk is lower and where financing
costs become attractive.
Some sectors will be attractive for private investment while others, such as
roads, may be reserved to government (but provide opportunities for
commercial contracts in their construction and operation).
Rich countries will see a return on investment on Governance and Education
through increased export economic activity.
VI. Conclusion
Poverty is not inevitable and can be eliminated. The solutions rest with both
governments and private sector, that must be willing to invest.
Rather than getting bogged down in international organizations I would like
to see a rich nation reach out to partner with a developing nation and get a
meaningful program of economic empowerment in place.
VII. Your Views
I have thought about global poverty for a long time but only now tried to
express my views. Any comments would be welcome.

Ending poverty for all

Recommended

Recommended

More Related Content

What's hot

What's hot (19)

Similar to Ending poverty for all

Similar to Ending poverty for all (9)

Recently uploaded

Recently uploaded (20)

Ending poverty for all