Major Constraints to Inclusive Growth

Inclusive Growth has been defined as, ‘growth that not only creates new economic opportunities, but also one that ensures equal access to the opportunities created for all segments of society, particularly for the poor’ (Ali and Son, 2007, p. 12), others have resolved that; growth is inclusive when it allows all members of a society to participate in and contribute to, and benefit from, the growth process on an equal basis regardless of their individual circumstances (Ali and Zhuang, 2007).
This essay seeks to discuss the major constraints in promoting inclusive growth in Zambia. The key terms used in the essay shall be defined and the main concept which is inclusive growth will outlined, thereafter the constraints that hinder inclusive growth will be articulated and elaborated in detail and this will be accompanied by a conclusion.
The following are the definitions of some of the key terms that stand out in this essay:
A constraint refers to a limitation or restriction. Therefore, the constraints of inclusive growth are factors that limit inclusive growth (Dictionary.com).
Economic Growth may be defined as ‘a quantitative increase in the national production of goods and services over a given period, usually a year’ (Chigunta, 2012).
Inclusive growth is more than broad-based growth. While economic growth (i.e., increased economic output or income) is a well-defined but narrow concept, inclusive growth, by implication, focuses on a subset of such growth episodes. Since not all growth episodes are inclusive, it is necessary to separate those that are from those that are not (Klasen, 2010).
Therefore, it is necessary to determine what characterizes growth episodes that qualify as inclusive. Two options are possible. One focuses on process, in the sense that the actual growth included many people who participated in that growth (i.e., inclusive growth is based on inputs from a large number of people). In this context, inclusive growth is somewhat related to broad-based or labour-intensive growth. However, “inclusive” carries with it the notion of non-discrimination, a feature that is less clear with the other terms. Thus inclusive growth can be characterized as broad-based growth that includes non-discriminatory participation’ (ibid). ‘The second option focuses on outcomes of the growth process i.e., inclusive growth benefits many people (ibid). This option is closely related to the concept of pro-poor growth. ‘Growth is pro-poor if the incomes of poor people grow faster than those of the population as a whole. In other words, for growth to be pro-poor on this definition, income inequality must fall’ (DFID, 2004) this is its relative definition; ‘according to its weak but absolute definition, pro-poor growth refers to increased income for the poor, while its relative definition refers to growth that leads to disproportionate increases in incomes among the poor’ (Klasen, 2010).
With that said; the inclusive growth definition is in line with the absolute definition of pro-poor growth, but not the relative definition. Under the absolute definition, growth is considered to be pro-poor as long as poor people benefit in absolute terms, as reflected in some agreed measure of poverty (Ravallion and Chen, 2003). In contrast, under the relative definition, growth is “pro-poor” if and only if the incomes of poor people grow faster than those of the population as a whole, i.e., inequality declines.
However, while absolute pro-poor growth can be the result of direct income redistribution schemes, for growth to be inclusive, productivity must be improved and new employment opportunities created. In short, inclusive growth is about raising the pace of growth and enlarging the size of the economy, while levelling the playing field for investment and increasing productive employment opportunities.
Despite positive, relatively broad-based and stable growth record in recent years and immense untapped potential in agriculture, mining and services, Zambia’s poverty rates have not declined significantly and remain high. (Ianchovichina and Lundstrom, 2008). Regardless of its mineral wealth and fertile soil Zambia is one of the poorest countries in the world. Its rank in the UN Human Development Index for 2007-08 is 165 out of 177 countries. As a nation has experienced unprecedented percentages of economic growth over the past few years, this rapid economic growth is evident in the increase of the country’s GNI per capita to $1070 in 2010. This has led to the country being reclassified by the World Bank from a Low Income Country to a Middle Income Country (World Bank, 2010).
However, 68% of Zambians are currently living below the international poverty line of US$1.25 per day. This statistic is a matter of concern because it means that out of approximately 13million Zambians, about 8.8million are approximately living in poverty. (ibid)
This has led to many advocating for inclusive growth in the nation, Growth is inclusive when it allows all members of a society to participate in and contribute to, and benefit from, the growth process on an equal basis regardless of their individual circumstances (Ali and Zhuang, 2007).
One of key ingredients of inclusive growth is economic growth. There can be no inclusive growth without economic growth, so essentially speaking; when economic growth is hindered it is automatic that inclusive growth is also constrained. In Zambia, the main sectors that constitute economic growth are; the mining sector, agricultural sector and also the construction sector. Any depreciation in any of the outlined sectors leads to contractions in economic growth and definitely limitations to inclusive growth.
With regards to the construction sector, Koyi (2012) states that Poor Infrastructure Services are another major constraint of inclusive growth. Despite progress in extending infrastructure services, these still fall far below the level required to promote accelerated economic and inclusive growth in Zambia. Poor infrastructure is undermining the country’s export competitiveness and constraining both growth and job creation.
Zambia has made substantial progress in extending some infrastructure services, especially telecommunications and international transit routes. Delivery in other areas, however, such as electricity, feeder roads, rail and air transport, and water supply and sanitation has been poor (World Bank 2008a).
According to Hikaumba (2012) Infrastructure in Zambia still remains poor and limited and is a major hindrance to socioeconomic development. Thus, there is need for appropriate fiscal policies to move away from a consumption oriented economy to expanding fiscal capacity for infrastructure development. Fiscal policies are decisions made by the government about levels of spending and tax rates. Hikaumba suggests that the Zambian government should allocate more funds to the Infrastructural sector in order to promote economic and inclusive growth. Central to this is Zambia’s failure to attract the resources required by the ailing sub-sectors through a Public Private Partnerships strategy. This section concludes that while all infrastructure services are key to inclusive growth, the most binding constraints for Zambia lie in the areas of power, roads, and water supply (Bwalya et. al., 2011).
Zambia also lacks a comprehensive industrial policy that would create trade, investment, employment creation and diversification. Industrial development is important for structural transformation and overall development of the economy. Although, the current industrial policy identifies diversification, the main shortcoming is the absence of a distinct definition of the kind of diversification and lack of clear policies on what kind of investment and Foreign Direct Investment (FDI) should be promoted. Promotion of higher value added and more tech-intensive products would raise incomes. Currently, FDI inflow determines industrial policies instead of the industrial development determining the kind of FDI to attract (ibid).
As earlier stated Inclusive Growth is growth that not only creates new economic opportunities, but also one that ensures equal access to the opportunities created for all segments of society. From this definition, one of the aspects of Inclusive Growth is the creation of new economic opportunities. And since poor infrastructure undermines a country’s export competitiveness it can be deduced that the Zambia’s economic potential is hindered by poor infrastructure hence restricting inclusive growth.
According to Koyi (2012) one of the major constraints of inclusive growth in Zambia is the low quality of Human Capital or Human Capability. Human capital is basically the abilities and skills of any individual, especially those acquired through investment in education and training, which enhance potential income earning.
With the above said it is of great importance to look at the economic agent in the shared growth diagnostics framework which focuses on the individual rather than the firm, we assume that the main instrument for a sustainable and inclusive growth is productive employment. Employment growth generates new jobs and income for the poor from wages in all types of firms, or from self-employment, usually in micro firms, while productivity growth has the potential to lift the wages of those employed and the returns to the self-employed. The ability of the poor to be productively employed depends on the one hand on their employability, which in turn depends on their individual resources. An employability analysis would include analysis of:
a. The existing stock of human capital, such as education and health.
b. The ability of the poor to acquire skills and stay healthy.
c. Access to labour markets where individuals can earn income by offering their skills.
On the other hand, the ability of the poor to be productively employed depends on the opportunities for the poor to make full use of these resources as the economy evolves over time. The analysis therefore looks at ways to strengthen the productive resources and capacity of the poor on the labour supply side as well as ways to open up new opportunities for productive employment on the labour demand side (Bwalya et. al., 2011).
Zambia’s low education status which, for the poor, is a result of the high cost of post-primary school education, limited secondary school places and insufficient opportunities for tertiary education. The situation is not helped by the low quality of education at all levels which has been deteriorating over time despite improvements in enrolment. Poor health is a symptom of the high prevalence of diseases such as HIV and AIDS, malaria and tuberculosis. Poor health due to chronic diseases such as HIV and AIDS is a major cause of low productivity for example, other triggers for poor health services include high burden of health payments, weak health systems and low incomes. This can be demonstrated by the state in rural areas, the burden of disease mounts during the rainy season when labour demand for agriculture activities is also high and when hunger is at its peak because food stocks are at their lowest. Unless the complexity and dynamics of this problem are appreciated, initiatives to relax the constraint of low employability may not amount to much (ibid).
Munthali (2012) states poor health status and low productivity are binding constraints of inclusive growth. For instance, HIV/AIDS has lowered annual real GDP growth on average by 0.3 percentage points since 1992. Even though HIV/AIDS does not discriminate between the poor and the rich, it is more fatal to the poor because of their low standards of living. Low standards of living usually constitute poor dieting and therefore, poor people tend to be more unproductive. Therefore, the whole purpose of equal contribution to growth is defeated.
While on the subject of health status the issue of water and sanitation arises. Without a substantial increase in the amount of resources dedicated to water and sanitation, it is unlikely that Zambia will meet the Millennium Development Goal that aims to reduce by half the proportion of people without sustainable access to safe drinking water (World Bank, 2008b). This means that valuable resources will continue to be devoted to fighting avoidable waterborne diseases such as cholera and malaria. At 58% water supply coverage, Zambia is below the regression line for the region, suggesting that water supply levels are inadequate to meet the country’s level of development (Bwalya et. al., 2011).
Access to water supply and sanitation is a binding constraint for rural areas: There has been an overall decline in access to both piped and improved water since the 1990s in Africa. Zambia’s decline has been more rapid than most. Zambia’s provision of water is also less equitable than in many other countries when measured both in terms of the rural-urban divide and distribution by income (ibid).
In Zambia, the average walking distance to a source of water is estimated to be between one and three kilometres, more than the national recommended target maximum walking-distance of 500 metres. Increased pressure on water points has led to longer waiting times, increasing the amount of time spent going to collect water. The burden of collecting, transporting, and storing water on foot falls mainly on women and children whereas collection by animal or vehicle is performed more often by men. Inadequate water supply and sanitation services in poor urban areas have caused annual outbreaks of waterborne diseases during the rainy season. This not only puts a heavy economic burden on already impoverished communities, but also places a strain on public health services.(ibid)
Another issue that surfaces when looking at this subject is that of the poor and unsupportive business environment and this arises from two binding constraints: low levels of access to finance and or financial services for the small and medium enterprises and low returns to economic activity.
Access to finance is generally not a problem for large enterprises, although access to credit and other financial services and the high costs associated with them are still major constraints in Zambia for SMEs (Small and Medium Enterprises), a segment of the economy that has great potential to boost economic growth and reduce poverty. The main reasons for this are large interest rates spreads which result from high overhead costs driven by a scarcity of critical skills, fuelling the high cost of human capital in the financial sector. Signs of improvement can however be found in both empirical and perception data, indicating that financial services and infrastructure are responding to new economic opportunities. A main reason for poor financial intermediation in Zambia, particularly in rural areas, is low demand for financial services as a result of low incomes (Bwalya et. al., 2011). Finally gender inequality is taken into account. The economic infrastructure in Zambia is somewhat biased against female citizens as it does not really consider the participation of women in growth. It follows that women also do not benefit adequately from growth.
Chiwele (2011) outlines the following statistics; the ratio of boys to girls in secondary education is 0.88 to 1, the ratio of girls to boys in tertiary education is 0.74 to 1, and the ratio of literate women to men between the ages of 15 and 24 is 0.8 to 1. The share of women in wage employment is only 34% and the proportion seats held by women in parliament are only 14 as compare to 136 for men. These statistics on their own, show that women are not adequately included in the growth process and logically it follows that, women do not benefit adequately from the outcome of growth. The fact that women are left out of the growth process shows that gender inequity is main constraint to inclusive growth.
In conclusion it can be said that the constraints cited above truly have an adverse effect in promoting inclusive growth in Zambia. Issues such as economic growth; that is constituted by the mining, agricultural and construction sectors, any depreciation in any of the outlined sectors leads to contractions in economic growth and definitely limitations to inclusive growth. Others include Infrastructure which still remains poor and limited and is a major hindrance to socioeconomic development, low education status at all levels which has been deteriorating over time despite improvements in enrolment. Poor health, income inequality and gender inequality also have proven to be major constraints to the improvement of inclusive growth in Zambia. With the above said, constraints mentioned in this paper have proven to be a major hindrance to promotion of Inclusive growth.