Poverty and income inequality in East African developing economies

¶ … economy of the East Africa area

Economic growth literally involves critical issues pertaining to life and death. Roughly 1.374 billion individuals survive on lower than 1.25 dollars/day, at America's 2005 purchasing power parity (PPP). Around 2.6 billion individuals (which constitute 40% of global population) survive on lower than 2 dollars/day. These individuals struggle with poor health and malnutrition; reside in areas with poor, degraded surroundings; are social outcasts; have low literacy levels or are wholly illiterate; have little voice over political matters; and struggle to earn meager wages as laborers, or on tiny, marginal farms, or in shabby slum areas (Todaro & Stephen, 2012). From 2010-2012, 15% of global population came under the 'chronic undernourished' category of individuals. Most of these individuals, numbering 850 million, belonged to developing countries (FAO, WFP, and IFAD 2012: 9).

This paper will deal with ways by which economic evaluations can explain the issue, and will delve into probable alternative policies aimed at poverty eradication and reducing the markedly- wide disparities in income distributions in developing nations.

Significant challenge facing East Africa

Issues relating to distribution of income, and poverty, are believed to be quantitatively crucial in numerous developing countries. Though the key emphasis lies on poverty and economic inequalities in asset and income distribution, it is imperative to bear in mind that this only constitutes a fragment of the more extensive issue of inequality in developing regions. Inequalities with respect to power, gender, status, work conditions, freedom to choose, prestige, job satisfaction, scope of participation, and several other aspects which are linked to the second and third elements of the connotation of self-worth, freedom of choice and development, are equally or more significant (Todaro & Stephen, 2012).

Within a nation, different areas may have highly distinct Multidimensional Poverty Indices (MPI). For instance, Kenya's capital city, Nairobi has an MPI similar to Brazil, while Central Kenya has an MPI similar to Bolivia; northeastern Kenya, on the other hand, has an MPI worse than Niger. Great disparities could also be noticed across Kenya's ethnic populations, with a shocking 96% people of the Masai and Turkana communities labeled as 'multi-dimensionally poor', as compared to 29% Embu people (Todaro & Stephen, 2012). Impoverished individuals can excessively be found in the nation's rural regions, and are engaged predominantly in agriculture and agriculture-related activities; children and women are more in number than men, and concentration of poor is mostly among natives and ethnic minorities.

Governments in transition and African countries often seem to hinder economic progress than aid it, and stifle markets instead of facilitating them to contribute to economic growth. The challenge is to attain the right balance between public policy and private markets. In initial developmental years succeeding decolonization and the Second World War, the state was perceived as a benign advocator of economic development, at least indirectly. However, inefficient governance, corruption and vested interests of governments in most developing nations, has deemed this perception as flawed (Todaro & Stephen, 2012).

Justification

2.77 billion, or 67%, of individuals in developing countries had no access to piped water in their homes, in 1990 (even so, piped water provided by developing countries may not necessarily be potable). Further, in the same year, 64% of these individuals could not avail themselves of better-quality sanitation (UNICEF and WHO 2012: 8, 18). Conditions have greatly modified in comparison, as of 2010, with regards to piped water access, with 54% deprived individuals as compared to 67% (1990). Population growth, however, has led to a little over 3 billion individuals lacking direct accessibility of piped water. At the same time, 2.47 billion or 44% of these 3 billion have no access to better sanitation (Cypher, 2014).

Despite comparatively better real progress in the previous decade, Africa's Sub-Saharan region is going backward. This region constituted 9.3% of global population in 1985, with a dismal 1.6% world income. However, the situation has deteriorated as of 2010- population increased by 33% from 1985 to 2010, while global income share remained the same at 1.6% (Cypher, 2014).

Developing nations' markets are saturated with structural and operational imperfections. Factor and commodity markets are, in general, organized badly, and distorted prices existing in markets usually signify that producers as well as consumers react to economic incentives and indicators that poorly reflect the actual cost of these resources, goods and services to the public. Developing economies can't bear the cost of wasting their meager skilled labor and financial resources on ventures that will not prove fruitful (Todaro & Stephen, 2012).

Solution for the challenge

Eradicating wide-ranging poverty, as well as the high, ever-growing levels of income disparities, forms the basis of every developmental issue. In fact, for many individuals, these define developmental policies' main purpose. Nations aimed at lessening disproportionate inequalities in income distribution, and poverty rates, should be aware of how best their goals can be accomplished, in addition to the types of economic policies and other approaches they should adopt for economic development (Todaro & Stephen, 2012). Numerous obstacles to progress can continually be found while dealing with these issues in underdeveloped nations. These include rigid social, economic and political systems, which resist change that can effectively make privation and poverty a phenomenon of the past (Cypher, 2014).

Sustainable development is normally believed to incorporate four separate outlooks, namely, economic, social, ecological and institutional; these are complementary and highly correlated. Linking these four viewpoints is central to the Brundtland sustainable development formulation, which can be taken as the study's model format, in addition to serving as model format while applying the concept. Neglecting even one of these sustainable development elements would most likely threaten overall sustainability (Bardy et al., 2015).

Policies to promote R&D (research and development) have attained significant technical advancement; together with industrial restructuring and advanced technological developments within economies, this advancement has enriched value-added industrial ventures. Minimal funds have been allotted to R&D in developing nations. Even if R&D's significance in economic progress is recognized, many developing countries are lacking in financial resources necessary to undertake R&D activities. Since these activities may boost economy and improve productivity, such a considerable gap in R&D undertakings tends to cause divergence between developing and developed nations (Mah, 2015).

Inflow of remittance usually contributes relevantly to growth of economy, by strengthening deficits in balance of payments. This remittance by migrants contributes more to GDP than foreign direct investments (FDI) and overseas development assistance (Nica, 2014). Economic development is indirectly, but positively impacted by direct capital movement from foreign countries; e.g. reduction in borrowing costs. However, the sustainability and permanency of such an effect is debatable. Therefore, while studying capital movements that affect GDP growth rate, movements of short run capital are disregarded; only direct inflows of foreign capital are incorporated into the model (Bardy et al., 2015).

Possibly the most essential, and the only organizational and institutional strategy to overcome key development barriers and ensure lasting high economic growth rate is believed to be national planning. Economic planning refers to calculated attempts by governments to coordinate long-run economic decision-making and shape and manage, as well as control (in some instances) the progress and level of a country's key economic variables (income, employment, consumption, savings, imports, exports, investment, etc.) and accomplish some fixed development goals (Todaro & Stephen, 2012).

Several developing nations are yet to realize costs that arise from the diminishing policy space; others have called upon the new World Trade Organization (WTO) round of negotiations to deal with the most impoverished countries' needs (Mah, 2015). A majority of strategies for development have conventionally been founded, at first, on some relatively formalized model of macroeconomics. These economy-wide models may be primarily grouped into two categories, namely, (1) multi-sector input-output, computable general equilibrium (CGE) and social accounting models, which determine, among other factors, the resource, production, foreign exchange and employment implications, and (2) aggregate growth models, which involve macroeconomic approximations of required or intended alterations in key economic variables (Todaro & Stephen, 2012).

Recommendations

Issues pertaining to income distribution and poverty can be seen to have quantitative import in many of the world's developing countries. Eradicating poverty, as well as the high, ever-rising levels of income differences, is at the heart of every developmental issue. Policies to promote R&D (research and development) have attained significant technical advancement; together with industrial restructuring and advanced technological developments within economies, this advancement has enriched value-added industrial ventures.

Often, getting a nation on the path to progress necessitates a giant leap away from outmoded systems and policies. Marginal societal and economy changes may not prove sufficient in initiating this forward movement and propelling the nation in the directed needed for furthering it towards progress. Development, for underdeveloped countries, necessitates that they undertake considerable qualitative changes in economic, social, political and institutional structure (Cypher, 2014).

Rise in industrialization and decrease of agriculture are also recommended. Economic progress is linked strongly to increasing the country's industrial (particularly manufacturing) labor force and production, at least at first. Concurrently, with expanding the nation's industrial sector, reducing agricultural output's share in total country output is also needed. This implies reducing the labor force engaged in agricultural activities, and decreasing rural population share in the overall population. Altering trade patterns is also recommended for economic progress. Effective development is usually always characterized by maturation in trade structure, as a minimal number of items exported- agricultural, forestry and fishing products, extractive minerals, and unprocessed mining products- make way for a larger selection of exports, and growing export of services and goods manufactured by the nation's industries (Cypher, 2014).