Poverty Reduction in Low-Income Nations (Essay Sample)

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Poverty Reduction in Low-Income Nations
One of the substantial challenges confronting the 21st century is poverty reduction. There is no magic or single bullet solution to poverty. According to the World Bank, around 9.2% of the world population, approximately 689 million people live in extreme poverty with less than $1.90 a day. Two-thirds of the world’s poor are children and youth, with women constituting most regions. Poverty is a deprivation, that is, the inability to meet basic needs. Although there has been a decrease in global poverty as per World Bank’s regional estimates from 1981 to 2019, the Covid-19 pandemic, climate change, and armed conflict have reversed the gains. Extreme poverty is multidimensional. The underlying causes of poverty in low-income countries include low household incomes, unemployment, poor access to basic needs, lack of financial safety nets, and effects of malnutrition. To slay the multidimensional dragon of poverty in developing countries, a slew of both local and international approaches must be adopted by developing countries. Such approaches include foreign aid, investment, trade, and government pro-poor policies.
The raging debate on the effectiveness of foreign aid on poverty is still out in the public jury, with one camp composed of the proponents who believe that well-devoted aid contributes to poverty reduction in low-income countries. In the end, aid adversaries believe aid is ineffective and sustains poverty, and ruin economic growth. Those in the middle believe that aid can only be effective under certain prevailing conditions, such as the recipient country’s governance structures, fidelity, institutional capacity, and project ownership (Mahembe & Odhiambo 2). Foreign aid dates back to World War II, with the Marshall plan aimed to rebuild Western Europe’s economy post-WWII. With the success of the Marshall plan, foreign aid became an impetus for the economic growth of low-income countries to address the vicious cycle of poverty. To date, developing countries continue to receive foreign aid from bilateral and multilateral sources geared towards poverty reduction and economic growth.
Foreign aid plays an important role in strengthening national institutions through technical support and education, which enhances the executive, judicial, and legislative systems. Strengthened systems support and sustain strong governance, respect the rule of law, and tame corruption by executing a transparent expenditure process, revenue collection, and allocation. Botswana is one of Africa’s foreign aid recipients’ success stories. Botswana is applauded for its good governance portrayed by an effective economic system, political cohesion, incorruptible and people-service-oriented leaders. In 2018, Botswana was positioned number 34 out of 180 countries on the Corruption Perception Index (Izobo 7). As a result of foreign aid and a supportive environment, development initiatives have flourished in Botswana, pushing the dependency on foreign aid to three percent from 100 percent in 1970. The reduction in aid is attributed to the high Gross Domestic Product (GDP) that has set the country on the path to self-reliance. Botswana’s success is tied to the robust institutions and government policies spelled out in the National Development Plans. Also, the central coordination and integration of foreign aid in the national budget coupled with a strong and candid relationship with donors have enabled the country to focus on its priority development plans to reduce, if not eliminate, all forms of poverty. Therefore, when foreign aid is well channeled to appropriate development programs, it can improve the economic outlook of a country and aid in poverty reduction.
In most instances, foreign aid is first understood to be potent in expanding income per capita, which reduces the rate of poverty. Nonetheless, there is a direct and independent relationship between foreign aid and poverty reduction that is not dependent on increased income per capita. Poverty prevalence in a country or household is measured and defined using three approaches. The first application is known as the income/expenditure technique established on the human basic needs approach (BNA). BNA is simply a consumption index whose indicators align to human well-being, such as nutrition, literacy, and health, leading to the definition of poverty as deficiency of income or living below the poverty line. The second method is known as the human capabilities approach (CA). CA postulates poverty as the insufficiency of the capability to attain human well-being. The third approach takes note of the multidimensional nature of poverty and focuses on indicators such as Human Development Index (HDI) and Human Poverty Index (HPI) (Mahembe & Odhiambo 3). Studies have shown that foreign aid enhances welfare in developing countries with democratic institutions, especially when channeled to agriculture, health, education, infrastructure, production sector, and economic expansion. In Ethiopia, poverty reduction is attributed to foreign aid with had a significant effect on three indicators of measuring poverty reduction: household consumption expenditure, gross primary enrollment ratio, and infant mortality rate (Woldekidan 67). With good governance and a supportive environment, foreign aid aids in reducing extreme poverty.
Government policies play a critical role in poverty reduction and inequality especially pro-poor or targeted policies. Moving towards significant inclusion levels to ensure no one is left behind is paramount for developing countries in achieving human well-being. Examples of pro-poor policies include investment in infrastructure and appropriate technology, availability of social safety nets, debt relief, universal income and minimum wage, effective taxation, economic reforms that attract foreign investment and aid, and non-discriminatory gender policies. Minimum wages increase labor production as workers get motivated, which in turn increases productivity. Also, increased income goes in hand with increased consumption and savings. In addition, increased consumption influences economies of scale in supply hence reduction in prices of goods and services. Developing countries should focus on structural metamorphosis through industrial policy and foundational capabilities to drive economic growth. Coupled with diversification, adaptable macroeconomic frameworks, development incentives, new skills and technology adoption, and human capital investment (Bicaba et al. 20). Therefore, developing countries should enact local, national, and regional policies that will spur growth internally, generate new and productive jobs, and angle for global markets.
The momentum is to end all forms of poverty globally as envisioned in the Sustainable Development Goals (SDGs). The achievement of the SDG number one goal requires collaborative efforts across key economic sectors geared towards raising the incomes of the poor. Trade plays a significant role in poverty reduction. Going by the current trends in growth, Africa is likely not to achieve the ambitious goal of reducing extreme poverty by 2030. Characterizing the poor in low-income countries is of utmost importance to address the shortfall and facilitate an inclusive trade-driven develo