Poverty In The Middle East And North Africa

Since the completion of the World Bank’s 1990 World Development Report, poverty assessments have been completed for many Middle East and North Africa (MENA) countries including Egypt, Jordan, Morocco and Tunisia. This paper reviews the poverty situation in the region, focusing on the following key messages:

The Middle East and North Africa region compares favorably with the rest of the developing world in terms of poverty levels, whether expressed in levels of income or per-capita consumption. Yet, the countries in the region have the potential to do even better given appropriate development strategies.

International experience shows that rapid economic expansion remains the most powerful instrument for reducing poverty, especially in a region such as MENA where growth has an above-average impact on reducing the number of poor due to, inter alia, the lower the depth of poverty as measured by the poverty gap index.

Other tools — such as effective social safety nets, flexible employment policies, and investments in basic education and health — are secondary to rapid growth, but they can also play an important role.

To guide anti-poverty policies effectively, further research is needed on the design of poverty monitoring systems and social safety nets, the role of private transfers in alleviating poverty, and the determinants of inequality and their relationship to poverty alleviation.

Poverty, Its Reach And Determinants In MENA

The fight against poverty is at the heart of the development agenda. Although bridges, roads, schools and hospitals may be built, businesses may be thriving, and trade may be booming, if at the end of the day poverty has not been reduced, development practitioners have failed. In this connection, one of the key questions is how are policies that are recommended and supported affecting poverty. In turn, answering this question requires an operational definition of poverty, and a good sense of poverty trends over time.

Definitions of poverty vary widely among countries and international agencies. According to the most commonly used working definition for international poverty comparisons, the poverty line is per capita expenditures of US$1 per person per day (adjusted for differences in purchasing power). While for some it is defined as US$2 per person per day, others calculate minimum caloric requirement as the poverty line. The United Nations has favored composite indices which take into account access to education and basic health into the computation of poverty and human development measures. In the end, the choice of the poverty line is subjective. Yet, if comparisons of poverty among countries and trends over time are to be substantiated, a common definition is needed.

If the widely popular measure of per-capita spending of US$1 a day at 1985 purchasing power parity (PPP) prices is used as the common poverty line, we find that about 11 million (or 5.6 percent of the population) in the MENA region were poor in 1994, an increase of about 735,000 poor since 1985. At a poverty line of US$50 per month (again at 1985 PPP) — a figure which is closer to the definition of poverty used by many governments in the region — there would be 40 million poor, or about 20 percent of population. Figure 1 shows the number of poor people in the region in 1985 and 1994 according to different poverty lines, ranging from spending per-capita of US$21 to US$60 per month. One conclusion that emerges from this graph is that, irrespective of the choice of the poverty line, the actual number of poor in the region has increased between 1985 and 1994. If instead of measuring the number of poor, we measure the proportion of poor in the population (See figure 2), we observe that the percentage of poor people has decreased between 1985 and 1994, again irrespective of the choice of the poverty line. Thus, the record on progress in poverty reduction is mixed.

For its level of development, poverty in MENA is low compared to the rest of the developing world (See figure 3). Other indicators of poverty — such as the poverty gap and the poverty severity index — show a similar picture. Whereas poverty in terms of income may put the region’s countries in a favorable light vis-ˆ-vis the rest of the world, the picture is the opposite in terms of what is known as "poverty of opportunity," which is measured in terms of access to basic services such as health care and education. With regard to school enrollments and health indicators, the region lags behind the rest of the developing world. Moreover, the difference between women and men in school enrollments and health indicators is among the largest in the world. For example, there is a 28 percentage points gap between male and female literacy in MENA, the highest among developing regions.

Who are the poor in the region? Poverty is most pronounced in rural areas. In Morocco, for example, 72 percent of all poor live in rural areas. As earning opportunities disappear in rural areas, people move to cities where they are likely to join the ranks of the urban poor. Among city dwellers, poverty is particularly prevalent among the self-employed, usually engaged in small trading. In addition, one of the most important characteristics of the poor is lack of education. In Tunisia, for example, over 90 percent of the heads of poor households did not complete primary education in Tunisia. Moreover, there are pockets of poor people among the female-headed households, the disabled and the elderly.

How inequitable is income distribution? Income distribution in MENA countries is relatively more equal as compared with other developing countries. Gini coefficients for former countries compared favorably with countries in East Asia and Latin America. Only Sri Lanka and Pakistan have more equitable income distribution. A similar picture emerges from the analysis of income inequality according to consumption ratios.

Growth: The Primary Instrument Against Poverty

The overarching contribution of development institutions is to assist countries in reducing poverty. Based on a thorough analysis of country experiences and empirical research, a great deal has been learned to guide economic and social policies. A summary of key findings follows:

Growth is the most effective anti-poverty tool. International experience strongly indicates that rapid and sustained economic growth remains the primary vehicle for reducing poverty. In addition, growth-oriented policies are the most effective vehicle for expanding the revenue base and thus public funding for social programs. Although budgetary reallocation toward spending categories that benefits the poor is desirable, massive budgetary shifts from the least to the most anti-poverty programs are unlikely because of firmly rooted vested interests. Therefore, without growth, poverty is bound to increase, and funding for social programs will ultimately run into problems.

Empirical results. Consistent with international evidence, experience in MENA over the past decade suggests that there is indeed a very strong empirical relationship between poverty alleviation and economic growth. Results from the World Bank’s poverty assessments in four countries in the region for the period 1985-94 highlight a striking contrast across these countries: While Egypt, Morocco and Tunisia had sustained per-capita gross domestic product (GDP) growth and saw poverty decline, Jordan suffered a sharp drop in per-capita GDP and saw poverty increase.

Poverty responds rapidly to growth. Across the region, there is indeed a strong empirical relationship between poverty alleviation and economic growth, and poverty seems to react more rapidly to changes in growth than in other parts of the developing world (See Figure 4).

The growth elasticity of poverty is roughly negative 4-5, when estimated at a poverty line of US$1 per day (at 1985 PPP). This means that for every 1 percent increase in real GDP growth the number of poor people declines by 4 to 5 percent. Conversely, this means that a fall of 1 percent in real GDP growth increases the number of poor people by 4 to 5 percent. The relatively high growth elasticity could be explained by the fact that MENA is characterized by a small poverty gap index; the latter indicates how close poor people are on average to the chosen poverty line, i.e. how large the average increase in income that is necessary to bring the poor above the poverty line. It should be noted that the relatively high growth elasticity of poverty has two important implications in MENA. First, it means that low or negative growth in recent years has worked as an obstacle to poverty reduction. Second, it amplifies social vulnerability because of the high variability of GDP growth rates and unemployment rates resulting from frequent droughts.

Growth was labor intensive though productivity fell. The experience of Morocco and Tunisia is particularly revealing of how growth can lead to rapid poverty reduction in MENA. During 1985-94, economic growth was labor-intensive, benefiting the poor. Macroeconomic and structural reforms changed the incentives structure, causing exports to become more competitive and the relative price of labor to capital to decline. Because real wages were kept in check, employment expanded rapidly. This added employment included both temporary and low-skill, low-wage jobs in such export-oriented manufacturing sectors as textiles, leather and agro-industries. New employment was also created in the informal sector. However, the influx of low-skill workers into the labor force in Morocco and Tunisia caused labor productivity to fall. When seen against wide unemployment, stagnation or decline in labor productivity is not necessarily worrisome so long as total employment expands. Declining labor productivity reflected a rational use of surplus labor and sharp increases in employment and labor participation especially for women; the poor clearly benefited.

Important Secondary Instruments Against Poverty

Social sector spending. Empirical evidence shows the importance of investments in increasing the human capital of the poor in order to reduce poverty over the long run. Good education and health care help the poor lead more productive lives, increasing the return on public investment. In the MENA countries studied, however, large public expenditures on the social sectors have not yielded commensurate outcomes. Public spending on education, for example, averaged 5 to 6 percent of GDP, which is higher than in comparable countries but has had poorer returns.

Social assistance programs. MENA governments have introduced a range of social assistance programs in an effort to directly address poverty. These include programs of direct assistance to the poor as well as extensive subsidies for such items as basic food items and health care. It is difficult to quantify the extent to which these efforts have helped to alleviate poverty; the data to support a full poverty incidence or cost-effectiveness analysis are in fact often unavailable. Unlike the clear relationship between poverty and growth, however, the link between poverty and social spending is more ambiguous. In Jordan, for example, an extensive set of social programs did not prevent poverty from rising dramatically between 1989 and 1992. By contrast, Morocco’s social programs are less developed than Jordan’s, yet poverty in Morocco declined sharply between 1985 and 1991.

Future Policy Agenda For Poverty Alleviation In MENA

Better poverty monitoring mechanisms. Poverty must be monitored more effectively, on the basis of core household budget surveys administered on a regular basis. Poverty indicators can change sharply over a short period of time. And poverty’s emergence and disappearance is not confined to easily identifiable groups.

Thorough analysis of public spending. Although the common wisdom is that public spending on primary education and basic health care is anti-poverty, too little information is available on the impact of other public expenditures on poverty, particularly the various subsidies on food, energy, water, public transportation and housing. At a time when most countries need to reduce subsidies and other public spending, the impact of the specific types of public spending on the poor must be assessed in order to prioritize them. Several studies on Morocco could be used for work on incidence analysis.

Social assistance programs. More research is required on the design and implementation of effective social safety nets. Whereas evidence of the impact of economic growth and social sector spending on poverty is convincing, too little is known about the overall impact of social safety nets and the effectiveness of public work programs.

Private transfers. Private transfers play an important role in protecting people against unexpected economic shocks. Again, too little is known about the importance of these transfers in MENA countries, and whether or not they may be crowded out by government spending. Work carried out on the Philippines could serve as an example.

Poverty and income equality. The link between changes in income inequality and changes in poverty warrants further research. While empirical evidence reveals no clear link between a decline in absolute poverty and inequality, increases in income inequality often lead to social tensions and the perception that poverty is increasing. From a political economy perspective, increased income inequality makes it more difficult to implement economic reforms, ultimately undermining attempts to reduce poverty. The challenge is to identify policies that increase income equality without undermining growth.

Further Readings

Chan, Elaine, Gaurav Datt van de Walle, and Martin Ravallion. 1991. "Quantifying the Magnitude and Severity of Absolute Poverty in the Developing World in the Mid-1980s." Working Paper, World Bank, Policy Research Department, Washington, D.C.

Chen, Shaohua, Gaurav Datt, and Martin Ravaillion. 1993. "Is Poverty in the Developing World?" Working Paper, World Bank, Policy Research Department, Washington, D.C.

Nead, Kimerly and Dominique van de Walle. 1995 "Public Spending and the Poor Theory and Evidence." World Bank, Washington, D.C.

Ravallion, Martin. 1992. "Poverty Comparisons: A Guide to Concepts and Methods." World Bank, Washington, D.C.

Shafik, Nemat. 1994. "Big Spending, Small Returns: The Paradox of Human Resource Development in the Middle East." Paper presented at the Economic Research Forum/World Bank Workshop in Cairo.

Willem van Eeghen. 1995. "Poverty in MENA." World Bank, Washington, D.C. The full paper can be obtained from the authors by email: Mvaneeghen@worldbank.org or ksoman@worldbank.org.

World Bank. 1993. Poverty Reduction Handbook. Washington, D.C.

–––. 1993. Tunisia: The Social Protection System. Washington, D.C.

–––. 1994. Jordan: Poverty Assessment. Washington, D.C.

–––. 1994. Poverty, Adjustment and Growth of Morocco. Washington, D.C.

–––. 1995a. Claiming the Future: A Long-Term Perspective Study for the Middle East and North Africa. Washington, D.C.

–––. 1995b. Egypt: Social Welfare: Strengthening the Social Safety Net. Washington, D.C.

–––. 1995c. The Social Impact of Adjustment Operations. Washington, D.C.

–––. 1995d. Tunisia: From Universal Food Subsidies to a Self-Targeted Program. Washington, D.C.

–––. 1995e. Tunisia: Growth, Policies and Poverty Alleviation. Washington, D.C.

–––. 1996. Republic of Yemen: Poverty Assessment. Washington, D.C.

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