HO CHI MINH CITY, Vietnam — Over the last two decades, there has been a reduction in poverty in East Africa thanks to strong economic growth. Nonetheless, few Africans gain financial stability, whereas many, specifically in rural areas, sorely lack necessities such as food and health care. Moreover, the economy in East Africa and Africa generally has yet to fully recover from COVID-19. However, the Ukraine crisis is affecting it even more. This has compounded poverty among Africans. In this sense, entrepreneurship has manifested itself as a sustainable solution to poverty. This is crystal clear in East Africa through the work of Village Enterprise, a nonprofit utilizing entrepreneurship to fight poverty.
Inequality and COVID-19 in East Africa
Before the pandemic, East Africa already witnessed inequality. According to the 2022 Oxfam report, notwithstanding the growing economy, the richest 1% own 15.7%, 2.5 percentage points more than the 50% poorest citizens. The income disparity widened most in Burundi, Ethiopia and Somalia.
Abject inequality in East Africa worsened due to COVID-19. By 2022, the richest 10% of East Africans have average earnings of 47% of pre-tax national income. Concurrently, the poorest 50% of citizens earn 13.3%, according to Oxfam.
Furthermore, the pandemic has subjected many Africans to poverty with lagging economic activities. East Africa lost $15.7 billion in GDP in 2020 owing to unexpectedly low growth and working time reduced by 7.2%. This means 10 million full-time jobs disappeared, Oxfam reports. To make matters worse, locust infestations in 2020 took a heavy toll on food crops and livestock pastures. Given drought and flooding, East African citizens struggled with serious food insecurity, particularly rural and nomadic groups.
East African governments were ill-prepared for COVID-19. Around the first half of 2021, access to health care was woefully inadequate. About 90% of the population lacked social protection and 80% barely enjoyed labor rights, according to Oxfam.
Poverty in East Africa reached its peak as the authorities of many East African countries invested in service growing debts instead of the people, inducing massive debts and budget deficits.
This year sees governments’ new strategies to remedy debts and deficits, with nine East African nations aiming to minimize public expenses by $4.7 billion from 2022 to 2026. The plans promise a reduction in inequality and poverty in East Africa.
Ukraine Crisis and Poverty in East Africa
The Ukraine crisis is extending inequality and poverty in East Africa and Africa. The war has threatened global food security and the supply chain. Nations in East, West, Middle and Southern Africa heavily rely on Russia and Ukraine for an enormous proportion of staples like wheat, vegetable and oil imports. Consequently, the conflict has disrupted trade flows to Africa, increasing already high food and fuel prices in the region.
“Many countries in Africa were already in a food crisis,” noted Lena Simet, a senior researcher into inequality and poverty for Human Rights Watch, talking to Vatican Radio on May 2, 2022. “Rising prices are compounding the plight of millions of people thrown into poverty by the COVID-19 pandemic, requiring urgent action by governments and the international community.” African countries were recovering from COVID-19, yet the Ukraine crisis got in the way.
In Kenya, inflation rates rose to 5.56% in March 2022, according to Human Rights Watch. This stems from rocketing prices of food and non-alcoholic beverages (9.92%). Additionally, the goods whose prices soared include wheat (17.68%), cooking oil (35.15%), spinach (19.96%) and kale (20.15%). Considering natural disasters and the ongoing pandemic, Kenya, along with other African countries, is on the brink of great food insecurity and severe poverty.
Entrepreneurship is a cost-efficient and sustainable poverty-reduction method. According to Village Enterprise, a nonprofit fighting extreme poverty in rural Africa through entrepreneurial programs, by arming Africans with skills to run their own business and form savings groups, the people can earn higher income and thus drive themselves out of poverty.
The Borgen Project spoke with Nancy Chumo, Village Enterprise’s Kenya country director, about the entrepreneurship-related programs regarding poverty alleviation. “We have a proven solution – a model with five components,” she noted. “First is defining the output and starting business savings groups. Then, participants take a three-month training before receiving seed capital from us for their business. After six months of mentorship, our participants graduate out of poverty.”
“We have noticed the entrepreneurs lead a happier and healthier life because we not only provide those living on less than $1.90 each day cash transfers, training and mentorship but savings groups as a safety net against financial shocks,” Nancy added. “The ultra-poor have nothing to offer as collateral, but with savings groups, they could guarantee loans from their savings. Such groups work. One has skills mutually complementing others. They thrive in their enterprises.”
“COVID-19 and the Ukraine crisis have made our work more important than ever,” said Nancy. Village Enterprise Development Impact Bond, a funding program partnered with various private sectors to improve low-income communities, surpassed its targets despite the pandemic.
With the outcomes calculated by IDinsight from 2017 to 2021, the bond had positive and sustained growths in household expenses and net wealth — more than $21 million in projected lifetime household income. In total, the development impact bond transformed the lives of 95,000 East Africans (70,000 women and children) and saved them from COVID-19’s economic effects.
“Our entrepreneurs can adjust to the negative impacts of COVID-19, the Ukraine crisis, climate change and even future crises. They have overcome adversity through bouncing back from the loans they take from their savings groups and the skills adopted in our programs. For example, if there is a drought, they will discard livestock to mitigate risks. Or they will take loans and restock products if they foresee scarcity. Thus, they have progressed amid crises.”
Entrepreneurship has reduced poverty in East Africa. Village Enterprise has been working in East Africa and is expanding throughout sub-Saharan Africa. By 2030, the organization aims to have more than 20 million people on a sustainable path out of poverty.
– Lan Nguyen