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Madagascar: Poverty Assessment

Madagascar FY96 PA

Volume 1 (4Mb PDF)

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Poverty Profile

Madagascar is among the poorest countries in the world. Poverty has increased and deepened substantially over the last two and a half decades, with real per capita income having decreased by 40 percent between 1971 and 1991.

The poverty assessment estimates that 70 percent of the population can be defined as being poor and 59 percent as being extremely poor. Almost 80 percent of the rural population are poor compared with almost 50 percent of the urban population. Two-thirds (66 percent) of the rural population are extremely poor compared with just above a third (35 percent) of the urban population. As a result, 86 percent of the poor and 88 percent of the extremely poor live in rural areas. Poverty is also deeper in rural areas than in urban areas.

Farmers (especially smallholders) are the poorest group in the country. They also have the highest poverty gap and severity index of all socioeconomic groups. However, according to many statistics, there do not appear to be significant differences between men and women in terms of poverty and living standards.

Non-monetary indicators of poverty are also very important for understanding poverty in Madagascar. For example, poor and extremely poor households have higher dependency ratios than do non-poor households. Fifty-six percent of poor and 67 percent of extremely poor youngsters aged seven to 20 years old do not attend school and are probably entering the labor force earlier than their non-poor counterparts. Ninety-three out of 1,000 Malagasy children die before reaching their first birthday, and infant mortality is much higher in rural areas.

The poor do not consume sufficient calories, and the quality of the food that they consume is of poor nutritional value. Children in poor households generally have higher rates of malnutrition than those in non-poor households. For drinking water, the poor and the extremely poor are more likely to have to rely exclusively on sources such as lakes, ponds, and rivers that can be easily contaminated sources than the non-poor, more of whom have access to wells, public taps, and indoor plumbing.

To more fully understand poverty beyond these monetary and non-monetary indicators, a participatory poverty assessment sought to ascertain how poverty is defined by those who live it. The general picture that emerges is that poverty is perceived as the inability to be socially integrated and to adhere to local customs and norms. The poor also feel neglected by public institutions and security and isolation are serious concerns. Impassable or nonexistent roads that limited access to markets, information, and basic goods were an important issue for the poor, as was the poor quality of the educational systems, especially teachers.

Incentive and Regulatory Framework

While some progress has been made in recent years in deregulating product and factor markets, the distortions that remain are particularly harmful to the poor because they are concentrated in the agricultural sector and inadequate competitive and regulatory policies. For example, maintaining a competitive exchange rate and liberalizing trade has increased price incentives for exports that are produced primarily by the poor such as coffee, cloves, vanilla, and pepper.

However, the positive effects of the devaluation on the poor would be considerably greater if more efforts were made to eliminate private and public monopolies, which continue to depress producer prices and, thus, the incomes of poor producers. Although export taxation has been reduced for vanilla, private monopolies result in informally regulated trade and storage markets, resulting in extremely low producer prices, low exports, and loss of external markets. Also, price or trade distortions for crops such as cotton, sugar, wheat, copra, and oil palm result in relatively high levels of protection that perpetuate inefficiencies and, in some cases, artificially low producer prices.

Outside agriculture, there are a number of other sectors that need to be deregulated and that are extremely important for economic recovery and the country's long-term development. Private sector development, which is key to providing sustainable jobs to unskilled workers, is constrained by poor regulations governing certain sectors where the state has traditionally been a monopolist supplier--such as electricity, telecommunications, and water supply--as well as sectors where there are restrictions to competition--such as maritime and air transport.

Similarly, there is a need to lift existing restrictions on land transactions, which contribute artificially to increasing the price of land and rents, especially in urban areas, and have significant negative effects on the living standards of the poor.

There is also a need to give a commercial orientation to--if not to privatize entirely--the supply of goods now produced and provided by the public sector such as water in urban areas and irrigation in rural areas--and to ensure that these goods and services are realistically priced. Available statistics suggest that the subsidy implicit in pricing water below cost accrues to high-income groups and that the poor in fact pay a much higher price for water than the rich.

Public Expenditures

Since the late 1980s, public expenditures for education have been gradually declining in terms of their share of total public spending. All education spending (both recurrent and investment) accounted for 16 percent of total public spending in 1994, as compared with 18 percent in 1985. As a share of GDP, total education spending accounted for 2.6 percent of GDP in 1991. During the period 1988-94, per student recurrent expenditures for all levels of education increased steadily in nominal terms. On average during this period, primary-level education accounted for 44 percent of all recurrent spending, secondary-level education accounted for 31 percent, and university education accounted for 25 percent.

There is scope for increasing non-salary recurrent expenditures at the primary level. At the tertiary level, it has been estimated that, assuming perfect efficiency, the university system could operate on one-third of its current budget. This suggests that increasing efficiency at the university level could significantly reduce per student expenditure at the university level, thus releasing resources that could be redirected towards non-salary expenditures at the primary level.

The poverty assessment found that the public sector education subsidy is not well-targeted to the poor. The primary-level subsidy is the most equitably distributed. The poorest quintile receives the smallest per capita subsidy due to the fact that net enrollment rates for the poorest quintile are disproportionately low. At the secondary level, the subsidy is biased heavily towards the richest quintiles, with the richest quintile receiving about 10 times the amount received by the poorest quintile on a per capita basis. At the tertiary level, the average per capita subsidy is absorbed almost entirely by the richest quintile.

For all levels of education combined, the richest quintile receives three times more on a per capita basis than the poorest quintile does, and people in urban areas receive a per capita subsidy that is three times larger than that for people in rural areas. The reason for this is the inequality in the distribution of the university-level and the secondary-level subsidies. The education subsidy is generally evenly divided between men and women. This reflects the fact that girls have about the same enrollment rates as boys at all levels of education, a situation that is atypical for an African country.

Public spending on the health sector has increased between 1988 and 1993 in nominal terms. As a share of all government recurrent expenditures, it has increased incrementally - from 4 percent in 1988 to 6.3 percent in 1994. A particular problem is that the budget for drugs and pharmaceutical supplies is very limited, amounting to only 11 percent of public health spending in 1993.

In absolute terms, the health subsidy is biased towards the non-poor. In other words, the poor receive a lower proportion of the public health care subsidy, at any level of service, than their share of the population. For instance, the poorest 20 percent of the population receive only 15 percent of total public expenditures on health, whereas the richest 20 percent receive 27 percent of the subsidy. The subsidy for basic health care is distributed more equally than the subsidy for hospitals.

Safety Nets

Monetary and in-kind transfers to and from households are made but only to a limited extent. While transfers are proportionately a more important source of income for the poor than for the non-poor, at present the rich receive the majority of the benefits.

Community and family networks also provide informal safety nets in times of economic trouble, although the drop in purchasing power has probably made it difficult for families and communities to keep up with their obligations.

Both temporary seasonal and permanent migration by household members is another important way in which poor families supplement their income. In the most impoverished area of the country in the South, the participatory poverty assessment found that almost half of the households surveyed had migrated during the five years prior to the survey (1987-1992). Solidarity among migrants from the same region is another important informal safety net.

Not all of the mechanisms are informal; some are provided by the government. For example, the Social Fund Project has been highly successful, having helped within its first year of operation to create 213,000 person days of temporary employment for the poor in building essential infrastructure. The Bank-supported Urban Works Pilot Project has provided approximately 14,000 person-months of employment, in many cases to the poor to improve the dilapidated infrastructure of the capital. The SECALINE project has reduced malnutrition in its target communities by about 40 percent, while the Community Nutrition Program provides a low-cost nutritious snack to poor children and is actively tackling iodine deficiency among the poor population by distributing capsules and by iodizing salt.

Poverty Strategy

Madagascar has enormous potential for growth, a well-trained labor force, and abundant and varied natural resources. Its comparative advantage in labor costs makes it an attractive place for investment in goods that are labor-intensive to produce.  There is potential for increasing the production of traditional food and export crops and of high-valued agricultural export crops such as tropical fruits, essential oils, and shrimp. The country also has sizable mineral resources that have not yet been exploited, and with its ecological diversity and unspoiled beaches, it has enormous tourist potential.

It is clear that the government must concentrate on improving living standards in rural areas to reduce poverty. A strategy for rapid and dynamic pro-poor growth involves getting the macroeconomic environment right but, to have the maximum impact possible on poverty, it also requires actions to ensure that the poor are situated to take advantage of the opportunities presented by growth. In general, these two goals will require:

  • Adopting a rigorous and stable macroeconomic policy that will control inflation and stimulate domestic and international confidence;
  • Establishing a legal and regulatory framework conducive to private sector activity that will then be able to provide sustainable job opportunities for both skilled and unskilled labor;
  • Raising the productivity and incomes of farmers by improving rural infrastructure and diversifying agricultural production for export; and
  • Investing in human resources.

Statistical System

The preparation of the poverty assessment has highlighted the need for accurate data on poverty in Madagascar. Some years ago, the government and the World Bank had planned to establish a monitoring system of living conditions that would be implemented by the National Statistics Institute (NSI). Of the three household surveys initially planned, only one survey was executed by NSI by the time of this poverty assessment, due mainly to a lack of funds and inadequate technical assistance.

The one national household survey, the Enquete permanente aupres des menages (EPM), carried out between April 1993 and April 1994, was a nationally representative survey that collected data on expenditures and living conditions from over 4,500 urban and rural households in the six Malagasy provinces. The survey methodology was based on the World Bank's Social Dimensions of Adjustment Integrated Survey. The EPM was the first survey of this scope implemented in Madagascar. The data have proven to be very useful, although there have been some problems in the quality of the data gathered.

Donors are currently attempting a thorough assessment of the country's statistical capability. Some areas that warrant attention are:

  • Timely and regular production of national data on living conditions;
  • Ways to monitor targeted groups and communities;
  • Regular dissemination of outputs; and
  • The integration of findings into policy.

The NSI has set up a special department for implementing household surveys, consisting of the EPM team. The next survey is planned to be fielded in 1997, and will focus on households' consumption. The second one planned for 1999 will focus on employment and social indicators for health and education.

However, making poverty monitoring efficient in the country may require the establishment of an "Observatory of Living Conditions" to monitor activities for gathering and analyzing data related to poverty and living conditions. The role of this Observatory would be to follow up on the various operations for monitoring poverty in the country, to seek funding to support them, to ensure proper dissemination of the results by means of bulletins, specific studies, seminars, and workshops at the national and regional levels.

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