Poverty and Shared Prosperity in Malawi, 2004-2010

Malawi’s monetary poverty is high and did not lessen in rural areas between 2004 and 2010. The over-representation of poverty in rural settings kept national poverty stagnant. Furthermore, the majority of the rural population, especially the bottom 40%, remained deprived of access to key durable assets and key public services including electricity and running water. In contrast, wealthier households and those located in urban areas tended to enjoy higher access to key assets, services, and opportunities. These gaps associated with socioeconomic status and location can impair a person’s ability to perform well later in life and are likely to perpetuate poverty in rural Malawi. It is imperative that Malawi provide services and opportunities more inclusively.

Snapshot of Poverty in Malawi

Monetary poverty

Malawi is a land-locked country in southern Africa with high population density and a young, rapidly growing population. The 2015 United Nations Human Development Index (HDI) ranked Malawi 173 of 188 countries. According to the World Development Indicators (WDI), in 2012 the country had a GNI per capita of US$320. In relation to its neighbors and the average for Sub-Saharan Africa, Malawi’s income per capita has stagnated over the past three decades since 1980.

Poverty in Malawi remains widespread. According to the Third Integrated Household Survey, the IHS3 2010, 50% of the population is poor, and 25% lives in ultra (extreme) poverty. Furthermore, from 2004 to 2010, poverty declined only marginally from 52.4% to 50.7%, respectively. In contrast, the depth (how far the poor are from the poverty line) and the severity (how distant the poor are from the poverty line and how unequal consumption is distributed among the poor) of poverty increased. The extent of poverty in Malawi is exceptionally broad when compared against a line of international extreme poverty, even when compared to other Sub-Saharan African countries. The poverty incidence measured by the population living below $1.90 per day of purchasing power parity (PPP) in Malawi was 74% in 2004. When doing international comparisons based on PPP rates, this percentage puts Malawi almost on a par with countries such as Burundi and Madagascar. Malawi’s neighboring countries such as Mozambique and Zambia exhibit lower poverty rates, although not by much.

More worrisome, during the second half of the 2000s, Malawi exhibited close-to-stagnant poverty reduction in comparison to this PPP line. Contrasting Malawi’s poverty trends with those of Sub-Saharan African and other countries, from 2004 to 2010, Malawi’s poverty headcount dropped from 74% to 71%. In contrast, countries with a higher poverty rate between 2000-05, such as Mozambique and Tanzania, exhibited considerable reductions in poverty. Sub-Saharan countries with a lower poverty rate at baseline, such as Rwanda, and Uganda, also made important progress against poverty.

However, national averages mask Malawi’s progress against urban poverty between 2004 and 2010. In this period, poverty fell significantly in urban areas from 25.4% to 17.3%, as did ultra-poverty from 7.5% to 4.3%. During the same period, the depth and severity of poverty also decreased in urban areas.

Unfortunately, rural areas have not seen corresponding drops, resulting in considerable and increasing geographic disparities in terms of poverty. While poverty already was lower in urban areas and had fallen significantly since 2004, it remained stagnant in rural areas, in which it rose very slightly from 55.9% to 56.6%. Extreme poverty rates in rural areas increased at a greater rate, from 24.2% to 28.1%, widening the urban-rural income divide. The depth and the severity of poverty, which declined in urban areas, rose considerably in rural areas. Urban areas not only have fewer poor people, but also are closer to the poverty line. In contrast, in rural areas, not only did more people fall into poverty, but also the average consumption of the poor moved farther below the poverty line. Incidentally, stagnant-to-moderate increases in monetary poverty are consistent with the drop in rural per capita caloric intake observed during the same period from 2,333 in 2004 to 2,192 in 2010; and from 1,606 to 1,532 for the bottom 40% (see chapter 4 on food security and nutrition).

Has the actual number of monetary poor people fallen? The number of poor can decrease or increase depending on the size of the population and its rate of growth over the period in question relative to the changes in the poverty rate. IHS population projections indicate that, between 2004 and 2010, the rural population increased from 10.8 million to 11.9 million; and the urban population rose from 1.4 million to 2.1 million. High population growth during the past decade and stagnant progress in monetary poverty meant that the absolute number of people living in poverty increased by 700,000 (from 6.4 million to 7.1 million). The growth of the urban population outpaced slightly the significant drop in poverty incidence in cities, resulting in 16,000 more poor people in urban areas. Therefore, almost all of the increase in the number of poor people in the country came from rural areas in which the population grew and the proportion of poor increased.

Shared Prosperity

Incidence of growth of consumption and monetary poverty

Malawi has experienced significant growth in recent years. From 2004 to 2011, GDP grew on average 5.9% per year. From 2004 to 2010, consumption per person increased 13%. During this period, however, GDP per capita growth did not outpace population growth: they both averaged 2.9%. Although some improvements have been made, particularly in health and education, the fact that rural monetary poverty has remained high raises the question of why. Perhaps not all Malawians experienced income growth during this time. This section evaluates the changes in the distribution of consumption in the country from 2004 to 2010 and examines the roles of growth and redistribution in the poverty trends. However, such strong growth performance has not been shared equally across population groups. Growth Incidence Curves (GIC) plot consumption per person growth rates against percentiles ranked by consumption per person from poorest to highest.

GIC provides an intuitive picture of how much growth has favored different population groups. Between 2004 and 2010. Growth was positive and stronger among those with higher incomes but relatively weak for those with lower incomes. In fact, consumption growth of the rural population has not favored the poor. For Malawi as a whole, the consumption of the bottom 40% fell by 5%, but it grew for those in the top 60% by 17%. Those in the top 10% experienced a considerable increase because their incomes rose by 30%. Thus, Malawi’s growth did not increase the incomes of most of the poor or, for a few of them, rapidly enough to lift them out of poverty. In urban areas, growth rates were similar across the distribution: 19% for those in the bottom 40%, 26% for the top 60% and 24% for the top 10%. The poorest in urban areas enjoyed relatively lower, but still positive, growth rates. However, in rural areas, the pattern was much different. Only one-third of the population experienced some positive growth, whereas approximately two-thirds of the population experienced negative real consumption growth. Consumption fell by 8% for those in the bottom 40%, it barely grew 1% for the top 60% and rose significantly by 10% for those in the top 10%. In other words, prosperity as defined by the World Bank, was not shared in rural Malawi (and therefore nationally) between 2004 and 2010.

In addition, from 2004-2010, economic growth was driven largely by growth in urban-oriented sectors such as services. In contrast, agriculture, a ruralbased sector, did not grow much. Between 2004 and 2011, table 1.3 shows that GDP grew by 51.7%. From the industry side, the most dynamic sectors were mining and quarrying, construction, and manufacturing while the service subsectors included wholesale and retail trade, real estate, information and communications, transport and storage, and professional and other services (See chapter 7 for a discussion on the income returns on different economic sectors). These sectors explain approximately two-thirds of overall economic growth. Notably, the rate of growth of agriculture was below the national average, which could partly explain the stagnant poverty rates in rural areas, where agriculture is the main sector.

Over the period analyzed, poverty in Malawi was relatively irresponsive to the strong growth. While consumption per capita increased by 12.8%, the incidence of poverty decreased by 3.4%, resulting in a growth elasticity of poverty of –0.3. The growth elasticity of poverty measures the percentage change in the poverty headcount for each percentage change in consumption. In other words, during the second half of the 2000s, a 1.0% increase in average household consumption was associated with a 0.3% decrease in the poverty headcount. According to the $1.25 international poverty line, during the same period, the growth elasticity of poverty in Malawi was –0.2, which compares poorly with an estimated average global elasticity of –2.0. Over the same period, poverty was more responsive to growth in Mozambique, Rwanda, Tanzania, and Uganda. Sierra Leone had a similar growth-elasticity-to-poverty ratio to Malawi, and Senegal performed worse against poverty. Over the same period, had Malawi displayed a growth-elasticity-to-poverty similar to Uganda’s, the poverty headcount of Malawi would have dropped by 14.5 percentage points (about two percentage points per year) instead of 1.8 percentage points.