UNCTAD LDC 111, Brussels (May 15,2001)

The Challenge of Eradicating Poverty - A global new deal

General Statement by H. C. Golchha, Chairman of the WASME International Committee for LDCs and Past President of WASME

We are living in a time when efforts and issues surrounding poverty reduction are subject to great scrutiny. Alleviation of absolute poverty is one of the mind-boggling challenges facing not only the LDCs but also many developing and third world countries. Based on an international poverty line of $1 a day per capita at 1993 prices, around 800 million poor people lived in the Asian and Pacific region in 1998, accounting for around 67 percent of the world's poor. According to the World Bank Annual Report 2000, nearly half of the world's 6 billion people live on less than $2 a day. These people live in deplorable living conditions, suffer due to acute illiteracy and ignorance, lack opportunity and are extremely vulnerable to unemployment, and. As a result, eradication of poverty has been recognized as one of the major challenges confronting human society. A lot of organizations - governmental and non-governmental as well as individuals continue to fight against this never-ending war against poverty. Thus, poverty alleviation has been and remains to be the hallmark of all developmental efforts and innumerable strategies have been adopted to deal with this challenge. World Association for Small and Medium Enterprises (WASME), with its experience of more than two decades in developing and promoting the cause of small and medium-sized enterprises, is convinced that substantial progress in this direction is possible with sincere and concerted action on the part of all concerned players and stakeholders.

Poverty is a complex phenomenon and its incidence is determined by many factors Related to human development. Achieving a world free of poverty, undoubtedly, is an Enormous and complex undertaking and its solution are far from simple. The fight against poverty is the fight for peace, security, and growth for all of us. This is well reflected in an address of World Bank's President- "No country has been successful in reducing poverty without sustained economic growth. Those countries that have been most successful... have also invested heavily in their people, have put in place the right policy fundamentals, and have not discriminated against their rural sectors. The result has been dramatic: large capital inflows, rapid growth, the substantial poverty reduction." Other regional and multinational institutions, such as the Asian Development Bank and International Monetary Fund have also given high priority to poverty alleviation. Towards this, measures like promoting private sector led economic growth, creating better development opportunities for the poor, and improving human development are noteworthy. Mr. Chairman, I firmly believe that the task ahead is too formidable for any single institution to tackle also because in the next 25 years, the world's population will be added roughly by two billion people- of which almost 97 percent is expected to be in developing countries and that even today a huge army of 2.8 billion poor live in a deplorable conditions with less than two dollars a day, of which 2 billion poor people subsist on less than $1 a day. Such a grave situation calls-on every one of us to work together and to play increasingly important role if we have to achieve the United Nations development targets, including that of reducing poverty level by one half by 2015.

It is my firm conviction that the WASME, with members and associates in 112 countries at present, can play a catalytic role in facing this challenge. WASME articulates the concerns of small and medium-sized enterprises equally in industrialized, developing and least developed countries as well as in economies in- transition in all Regional and International Fora.

While current scenario remains daunting, the good news is that we have entered the new millennium with a better understanding of developmental needs. In other words, we now clearly recognize the important role of small and medium enterprises for the development process. We have also learnt that global developments exert a potential influence on processes of change at national and local levels and that a global action is central to poverty reduction. Further demographic changes will add to the challenge we face in further reducing poverty. In my opinion, to achieve sustainable growth, crucial for poverty reduction, poverty reduction strategies must be multidimensional. These strategies must address macroeconomic as well as social, environmental and institutional needs. Progress must occur on all fronts, ranging from good governance to employment, from education to health and from infrastructure to security. Having said this, now I would like to briefly dwell upon the poverty situation in my own country - Nepal.

Poverty Situation in Nepal

Turning to Nepal, it is an ancient country with deep-rooted and rich cultural heritage but with a vast majority of its population seemingly destined to live a miserable life. After the restoration of democracy in 1990, Nepal made faster but insufficient strides in the infra-structural and industrial development, but task of poverty alleviation remains to be the real development challenge for today's Nepal. . As situation remains today, whatever little growth rates are achieved in national economy needs to be focused for the betterment of the poor mass, who are faced with extremely low quality of life in the form of low life expectancy, high illiteracy rate, thin school enrolment, more so for the girl child and poor medical care even compared to the South Asian standards.

Judging in the historical perspective, alleviation of poverty got higher priority by planners and politicians of Nepal when the concept of basic minimum needs was introduced in the Sixth Five Year Plan document. The needs identified were: food, clothing, shelter, education, health and security. The minimum of each of these items in terms of appropriate units of measurement was fixed. This reminds us of the social safety nets concept introduced in Europe and North America as early as in the last quarter of the nineteenth century. Thus the planners gave attention to supply side of the basic needs. However during the plan period, no concrete measure was taken to create effective demand from the people below poverty line. As a result, this concept could not be materialized and thus was deferred for subsequent plans to address this issue. The next periodical plan -Seventh Plan came up with the concept of basic minimum needs available to the poor, which clearly aimed at alleviating poverty. However due to the lack of resources and commitment, no worth-mentioning result could be achieved towards this and poverty continued to dominate the socio-economic scenario of the country. Although the Eighth Plan also announced new poverty alleviation strategy, nothing concrete happened. It is the current Ninth Plan, which has clearly spelt out poverty alleviation as its primary focus. The plan aims at accelerating the pace of growth through poverty alleviation. The plan document also made it explicit that the distributive justice based on effective performance of productive sectors would be the sustainable means of poverty alleviation.

Notwithstanding the concerted efforts of all partners in Nepal's development efforts, the pace of poverty reduction is, however, quite slow. In the year 2000, real GDP growth rose by 6 percent- 2percentage points higher than the previous year. The industrial sector grew by 8.7 percent, led by manufacturing, which expanded by 13 percent. Trade with India, tourism sector, and carpet and garment industries registered strong performance. Inflation rose by a low of 3.5 percent, due to fairly stable food prices owing to the favorable monsoon. The budget deficit remained stable at almost 4 percent, though domestic revenue collection was substantially lower than the budgeted amount. According to a forecast made by the Asian Development Bank, the prospects for 2001 are for growth in the range of 5 to 5.5 percent. While Nepal has potential for growth rates exceeding 5 percent a year, actual growth is primarily vulnerable to changes in weather conditions. In 2001, industrial growth is expected to moderate somewhat to 7 to 8 percent, with the final outcome determined primarily by export growth rates. Over the same period, agricultural growth is also expected to decline slightly to about 4 percent from 5%

The Nepal Living Survey, conducted by the Central Bureau of Statistics, estimates the incidence of poverty in Nepal to be about 42 percent. Given that the majority of the poor in Nepal i.e., as high as 88 percent live in rural areas, the Asian Development Outlook 2001 clearly focuses the importance of agricultural development in addressing poverty. Besides, large disparities are seen in poverty incidence across various geographical regions. It is estimated that 44 percent of the rural households and 23 percent of the urban households were estimated to lie below the poverty line.. Another key factor to poverty reduction is the introduction of meaningful civil service reform and governance reforms. Success of this effort will depend both on the degree of consensus that the political leadership can build, and on its own resolve.

The financial sector is yet another key area where fast development in the number of institutions is recorded, extensive reforms is needed. Given the economy's limited access to foreign capital markets, Nepal's savings rate is too low to support the investment needed for sustainable reduction in poverty. On the other hand, inefficiencies in the financial sector hamper the mobilization of domestic resources. The key issue for Nepal is not so much the lack of resources, particularly foreign assistance but its use has to be more effective in line with the recommendation of the Public Expenditure Review Commission, which has focused on the overall efficiency of public expenditure, including the prioritization of development expenditure.

As poverty in Nepal is more rampant, severe and pervasive in rural areas and as determinants of rural poverty. Poverty in Nepal is also exacerbated by a low economic growth, low social and economic infrastructure, a relatively high (2.37 percent) population growth with consequent higher demands on fragile lands, and low access to non-agriculture income or the secondary occupation. In addition, the weakness of institutions and processes both at the governmental and non-governmental level is the other main reason for the prevailing poverty situation and its perpetuation.

Low Economic Growth Rate:

Over the last 3 decades, Nepal's economy has been growing at an average pace of about 4 percent, which only marginally exceeds the rate of population growth of 2.37 percent. The growth rate in the agricultural sector over the same period is even smaller, less than 2.5 percent with inconsistent behavior reflecting overwhelming dependence on the monsoon. As a result, Nepal has slowly but steadily turned from a net exporter to a net importer of food grains. This is the single most responsible factor for the increase in the poverty incidence and severity of the rural areas.

As a result, Nepal continues to be one of the poorest countries in the world with per capita GDP of U.S. $244 and little over US$ 1200 as per PPP, with wide variation in income distribution. With low per capita income and skewed income distribution, poverty issue appears to be much acute. This fact speaks out the reality that the magnitude of problem to be tackled is gigantic. Reducing the level of poverty thus continues to be the Government's major development challenge, which needs to be addressed in the forthcoming Tenth five-year Plan too. Nothing

Higher Growth Rate of Non-agricultural Sector:

The non-agricultural sector, driven mostly by the growth in the urban service sector, grew slightly above 6 percent but has not been strong enough to have any significant spill - over effects on the rural poor. The kind of jobs created in the growing urban economies have tended to favor skills that rural areas are just not able to provide except for low-paying, manual, unskilled jobs but even these have not been created in sufficient volumes to have any significant impact on the rural poor. The number of new jobs created is far less than what is required for the new entrants to the labor force. In addition, the nature of these jobs have tended to discriminate against the rural poor who are for the most part severely handicapped by their low human development attributes. It is under such a situation that I would like to recommend immediate actions in the following two specific areas which are fundamentally complementary- each is important in its own right and each enhances the others.

Promoting secondary occupation along with agriculture:

The national objective should be to create opportunities in such a way that each individual could afford to live with human dignity. The evidence and experience of the past decade vividly reveals the growing importance of secondary agriculture plays a central role in the lives of the rural population, agricultural production and specifically land ownership and land quality are the principal occupation along with agriculture in rural areas and along with other occupation in urban areas. The agriculture community has plenty of time between the crops, which rather than becoming productive, tends to empty their pockets for the sake of vices. Hence, they need to be taught and persuaded to adopt such occupations. Towards this, a vivid pocket-wise survey of available opportunities is required. Following this, they need to be furnished technical know-how, availability of infrastructure, marketing and financing facilities. It will reduce the poor people's vulnerability to unemployment and policy-induced distortions.

Revamping present educational system:

The experiences of countries, which attained prosperity, suggest that development in human capital have and can contribute a lot in relieving poverty at a shorter span of time. In this context, primary and secondary education should be made accessible to all. At the same time, there is a need for revamping the present educational system itself in a way that will alleviate and ultimately eliminate the problem of educational unemployment, which is remaining in the form of social barrier. Towards this two steps are necessary. One, only those students who are able to meet the prescribed norms of academic excellence should be encouraged to proceed for a university degree. For the remaining, they should be canalized to Professional and Vocational degrees, such as, Hospital management, School management, Secretarial services, Mechanical and Civil Supervision jobs, Technical Supervision in Agriculture, Horticulture, Floriculture, Sericulture and Animal Husbandry etc and so on. In the same vain, empowerment of women in terms of accessibility to education and professional degrees should be given high priority.

There is no simple universal blueprint for reducing poverty. A set of policy prescribed in the Nepalese context may not prove to be altogether suitable even to another least developed country, simply because structure of its economy is different. Consequently, developing countries need to prepare their own mix of policies to reduce poverty, reflecting national priorities and local realities. Choices will, of course, depend on the economic, socio-political, structural, and cultural context of individual countries. Priorities will have to be set in individual cases based on resources and what is institutionally feasible. Actions by international community and development cooperation will continue to be essential.

Nonetheless, one thing must be common for development need of every country, and that is the "Balanced Development in the True Sense". This terminology comprises of four elements, viz., Economic, Environmental, Spiritual and Value based developments. In this respect, more than 26 centuries ago, Lord Mahavir asked the people to restrain from over exploiting the natural resources, limit ones own desires based on the needs, attachment to material and mundane things and refrain from deliberate hurting the living beings, which include the plants, air and fire, to attain the world peace. I am sure, if the sizeable human population starts following these principles, there will no disparity, no wars and no sorrows.

Finally, I would say that in the forgoing context, the potential for economic growth and poverty reduction is heavily influenced by state and social institutions. Action to improve their functioning helps both growth and equity by reducing social constraints to economic action and upward mobility. However, devising and implementing these changes require strong political will, especially when the changes fundamentally challenge social values or entrenched interests. Governments can do much to influence public debate to increase awareness of the societal benefits of pro-poor public actions and build political support for such action. WASME, with its strong focus on promotion of small and medium-sized enterprises, should be fully supported by National Governments, International Organisations and Donor Agencies to play a more meaningful role in the decade 2001-2010.

Thank you.