‘IBSA and Inclusive Growth’

Structure of the presentation• Part I: IBSA

– IBSA background– IBSA in the present– IBSA achievements and challenges

• Part II: Inclusive Growth– The concept of Inclusive Growth– How to achieve Inclusive Growth?– The measurement of Inclusive Growth

• Part III: IBSA and Inclusive Growth– IBSA and trends in Inclusive Growth– IBSA current efforts for promoting Inclusive Growth– Issues which need to be further discussed: How Inclusive

is Inclusive Growth?

Part I

IBSA: ‘A unique model of trans-national cooperation’

The World Development Report 2008

IBSA background

• Origins of IBSA:

– India, Brazil and South Africa share important economic and political attributes, being large democracies very active in the global scale

– Given their status as developing countries, they share common development challenges

– As a result, in June 2003, the IBSA Dialogue Forum was created and was formalized with the adoption of the Brasilia Declaration in June 2003

IBSA background - IBSA mainly perceived as a political initiative to

elevate the concerns of developing countries on the global agenda. Imperative issues:

- The reform of the UN Security Council- Balance the multilateral trade system in the framework of

the WTO Doha round

- Besides political cooperation:- Commercial and technological exchange covering several

sectors- Strong focus on Social development and poverty

eradication through IBSA Fund

IBSA as an unprecedented South-South alliance

• Previous South-South initiatives not successful because of:– Lack of resources, institutional weaknesses, excessively large and

amorphous memberships

• But in IBSA:– Group of like-minded countries which share very similar

interests, skills and needs

– It brings together three of the largest and fastest growing economies in the world

– IBSA should also be differentiated from BRIC

IBSA in the presentCooperation in IBSA is being built on 4 pillars:

1) Political Forums and Coordination:- UN Security Council Reform- Trade

2) Sectoral Cooperation, through 16 Working Groups: - Agriculture - Science & Technology - Trade

3) IBSA fund for the Alleviation of Poverty and Hunger: - - Agriculture Project in Guinea-Bissau

- Waste Disposal in Haiti - Infrastructure in Cape Verde - Other projects in Burundi, Palestine and Cambodia. 4) Other Forums: - Academic Forum

- Businessmen’s Forum

IBSA achievements • Convergence of key areas is what makes IBSA so powerful

• IBSA’s Working Groups have had mixed results: The Science and Technology Working Group has been the most successful

• IBSA Development Fund has been successful

• Among the forums, the Business Forum stands out

• Although there has been some progress in social and economic cooperation, IBSA’s success is political coordination, specially within the framework of WTO negotiations

IBSA challenges1) Producing a Coordinated Plan of Action and a Greater

Strategic Focus

2) Achieving a Comprehensive Economic Partnership• Trade Facilitation• Agriculture Cooperation• Other Potential Areas for Future Cooperation:

• Energy, Manufacturing and Services, R&D, Commodities

3) Expanding the Development Fund

4) Integrating Social Development Strategies

Part II. INCLUSIVE GROWTH

“If we cannot make globalization work for all, in the end it will work for none.”

Kofi Annan

The Concept of Inclusive Growth

Definition: A growth process that ensures equal access to opportunities for all segments of society regardless of their individual circumstances.

Thus, inclusive growth is about providing the poor with a starting point that can enable them to enjoy the fruitfulness of economic growth.

How to achieve inclusive growth?

Growth accelerators strategies for growth

+Equalizing accelerators

which make the growth more equitable and thus, more inclusive

Source: World Bank Development Policy Review

Achieving inclusive growth

Core strategy to make growth inclusive:

Eliminating circumstance-based inequalities in order to ensure equality of opportunity

• How?

– Productive Employment – Capacity Enhancement – Social Protection

+ without forgetting Growth Accelerators

Inclusive Growth vs. Pro-poor Growth(Ravallion and Chen, 2003)

• Relative definition of pro-poor growth: incomes of the poor grow faster than those of the population as a whole and thus, poverty and inequality are reduced

• Absolute definition of pro-poor growth: incomes of the poor increase as an economy is experiencing growth and thus, poverty is reduced, but not necessarily does inequality

• In consequence, Inclusive Growth is in line with the absolute definition of pro-poor growth, but not necessarily the relative definition: – The incomes of the poor increase with growth but not

necessarily faster than the rest of the population. – The important point is that everybody is experiencing growth

Measuring Inclusive Growth• Most studies measure whether a growth process is inclusive by

analyzing income growth among the whole population

• However, we believe it is not correct to just look at income distribution to assess whether a growth process is inclusive or not

• Inclusive growth is about ensuring equality of opportunities

• Increase in incomes is a necessary condition for inclusive growth, but not a sufficient one: while income of the poor might increase with growth, equality of opportunity might not

• The essential condition for growth to be inclusive is to ensure that

there are equality of opportunities among the population

Measuring Inclusive Growth : Ali and Son

Part III: IBSA and Inclusive Growth

IBSA and IG: trends- All three countries have recognized the

inequitable distribution of the gains of globalization and growth and the need to adopt inclusive growth policies

- They have affirmed in repeated occasions their commitment to pursuing policies for inclusive growth.

- Although their strong commitment to inclusive

growth, they are in different stages

Inclusive Growth in INDIA: trends

- It has shown a clear commitment to inclusive growth policies over the years- Huge increase in expenditure on social services- From 2000 to 2005, about 47 million work opportunities were

created

- However, India’s big challenge still remains widespread growth- An unprecedented 6.5 annual GDP growth hasn’t brought

about even 1% point of annual reduction in poverty

- In consequence, although the efforts and the improvements in some indicators, India’s growth hasn’t been inclusive

• Since 1993:– Growth averaged about 3% from 1994-2004 and

has reached 5% in 2005. – Employment creation

– But…• Income inequalities have increased since 1993• Employment remains high (26%) • Poverty persists at acute levels

– South African Growth hasn’t been inclusive

Inclusive Growth in SOUTH AFRICA: trends

High inequality persists in South Africa

Source: AGISA 2006

Inclusive Growth in BRAZIL: trends • Brazil’s growth pattern can be defined as inclusive

– Gini coefficient has been declining in the last decade as well as poverty

– Growth of the income of the poor has been higher than the growth of the income of the rich

• Reasons for decline in income inequality:– More equitable access to education– Increasing integration of labor markets– Increasing generosity of contributory and non-contributory

government transfers• Bolsa Familia as a key program for reducing inequality and

extreme poverty

Income Inequality in Brazil falling but Remains High

• Assessment of inclusive growth by looking at poverty and inequality dimensions instead of access to opportunities

• Although these studies can be indicative, in

order to assess with exactitude the inclusiveness of IBSA’s economies, access to opportunities over time needs to be explored

Current efforts for the promotion of Inclusive Growth: INDIA

a) Anti-poverty and Employment generation policies:i. The National Rural Employment Guarantee Act (NREGA) ii. SGSY: to encourage self-employment for the rural pooriii. SJSRY: employment to the urban unemployed or underemployed

poor

b) Rural infrastructure development:i. Bharat Nirman: basic infrastructure in rural areasii. Total Sanitation Campaign

c) Education : RMSA scheme to enhance secondary education

d) Health: i. National Rural Health Mission (NRHM): health services in rural areasii. JSY: Aimed at lowering MMR

Current efforts for the promotion of Inclusive Growth: BRAZIL

a) Bolsa Familia: Brazilian’s main conditional cash transfer program

b) Structural initiatives prior to the crisis:i. Income transfersii. Minimum Wageiii. Industrial policy iv. Investment expenditure

c) New structural initiatives during the crisisi. Change in the personal income tax systemii. New housing program: Minha Casa, Minha Vida

Current efforts for the promotion of Inclusive Growth: SOUTH AFRICA

a) Second Economy Initiative• Expanded Public Work Program (EPWP): to deal with high rates of

unemployment

b) Education and Skills Development• Joint Initiative on Priority Skills Acquisition: addresses the shortage of

skills in the economy

c) Infrastructure Investment• Access to basic services such as potable water, sanitation, electricity,

housing.

d) Industrial Policies• Increases productivity by adressing counstraints to growth in specific

sectors

IBSA and Inclusive Growth: Conclusions

• IBSA countries are strongly committed to implement Inclusive Growth Policies

• But evidence shows us that there is still a long way to go

• Hopefully, current efforts on social policies taken by IBSA governments will bring growth processes which are inclusive in the near future

Food for Thought: How Inclusive is Inclusive Growth?

• A growth whic increases opportunities for everybody but more for the rich is still an inclusive growth process?

• How do we measure equality of opportunities? Many papers measure equality of outcomes to assess whether growth has been inclusive (e.g. poverty rates, inequality) but to which extend does equality of outcomes reflect equality of opportunities?

• Greater consensus is needed for the definition and measurement of inclusive growth

• What do we prefer – inclusive growth or pro-poor growth?