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Ghana Priorities: Poverty

Poverty remains a problem. There is an overall reduction in national poverty over the last 3 decades, but this masks the persistent spatial concentration of poverty and high inequality.

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Ghana Priorities: Poverty

  1. 1. EminentPanelConference,Accra,August7th -9th,2020 PRELIMINARY FINDINGS: Poverty reduction approaches in Ghana Charles Adjasi, Stellenbosch University, South Africa Brad Wong, Copenhagen Consensus Centre
  2. 2. Poverty in Ghana • Poverty reduction in Ghana has been underpinned by robust economic growth in the last 2 decades - Extreme poverty levels have fallen by almost 80% from 1998/1999 to 2016/2017 when 39.5% of households lived below the national extreme poverty line. - Latest figures from 2016/2017 show only 8.2% of households in extreme poverty. - GDP per capita increased by 88% in real terms over the same period
  3. 3. Poverty in Ghana • Emerging challenges in the fight against extreme poverty. - Extreme poverty barely change between 2012/2013 and 2016/2017. - The national success story also masks regional variation. The rural savannah area contains 75% of the country’s extreme poor and exhibits levels of extreme poverty as high as 36.1% • We examine four well known policy instruments designed to boost livelihoods and improve circumstances of the poor: poverty graduation programs, cash transfers, microfinance and social housing.
  4. 4. Poverty Graduation Program
  5. 5. The solution • Combination of intensive, inter- related and sequenced interventions to boost livelihoods and other skills such that beneficiaries can eventually ‘graduate’ out of poverty. Source: BRAC (2017)
  6. 6. Transfer would cost GHS 9,633 per beneficiary }15% }25% }61% Target population • Selected rural communities in 3 Northern regions based on their poverty levels. Costs = GHS 9,633 • We assume 75% of the costs are incurred in year 1 & 25% of the costs in year 2 of the program. - This cost benefit analysis draws from the Ghana specific findings reported by Banerjee et al (2015) on a similar programme with several adjustments. 5839 2392 1402 0 2000 4000 6000 8000 10000 12000 GHS Cost per beneficiary Asset transfer Other Supervision and training costs
  7. 7. Intervention would result in consumption gains of GHS 17,574 per beneficiary Benefits = GHS 17,574 • Benefits are consumption gains by recipients • This is similar to West Bengal study with assumptions: • A constant growth rate in consumption between years 3 and years 7. • Consumption continues for an additional 23 years for a total of 30 years. • The average beneficiary in the program is 30 years old and continues working until 60. • Between years 8 and 30, annual consumption gain increases in line with projected real GDP per capita - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 2018 GHS Years after asset transfer
  8. 8. Total costs, total benefits and cost-benefit ratio Discount rate 5% 8% 14% NPV (GHS) 26,544 17,574 9,157 Cost (GHS) 9,975 9,633 9,013 BCR 2.7 1.8 1.0
  9. 9. Increase cash transfers under Ghana’s Livelihood Empowerment Against Poverty program (LEAP) to account for cost-of-living differences
  10. 10. The solution • Increasing cash grants of LEAP, first implemented 2008 to poor households. • An increase equivalent to 7% of household consumption for cost-of- living based on GLSS 7. - 7% of the poverty consumption level (GHS 2,289 per year) for a household (accounting for adult and children equivalent) amounts to a cash transfer of GHS 13.35 per month.
  11. 11. The costs • The cash transfer GHS 13.35 per month or GHS 160 per year per beneficiary across 81,600 beneficiaries amounts to a cost of GHS 13m per year. - We assume the distribution follows the national pattern of extreme poor. Together these regions account for 54.4% of the extreme poor in Ghana, with 37.5% in Northern region alone (Ghana Statistical Service, 2017). - Given approximately 150,000 beneficiary households under LEAP this implies a target population of 81,600 households for increased transfers.
  12. 12. Benefits • The benefit in terms of consumption increase would equal GHS 255 per beneficiary or GHS 21m per year. • BCR = 1.6 - The benefits are computed as an 11% increase in poverty consumption based on midline and endline reports for a long run evaluation of the LEAP program from January 2010 to July 2016 (Handa et al. 2013; -20 0 20 40 Start Midline Endline % boost to HH consumption as % of starting consumption Monthly consumption relative to control as % of starting consumption Consumption increased by 11pp between midline and end-line due to transfer boost
  13. 13. Total costs, total benefits and cost-benefit ratio Discount rate Costs per year GHS million Benefits per year GHS million BCR 5%, 8% and 14% 13 21 1.6
  14. 14. Microfinance
  15. 15. The solution • A micro-credit loan of GHS 3920, equivalent to the average loan size obtained by household non-farm enterprises in the recent Household Living Standards Survey (GLSS 7) to households in underserved areas - Access to finance would serve as a leverage to propel or increase household economic activities into higher and sustained levels thereby eventually increasing their welfare levels.
  16. 16. The costs • The total cost of providing a loan is GHS 1077. • The cost to the expanded microfinance intervention is at three levels: - the operational cost, - the financing cost and - the default cost. 0% 5% 10% 15% 20% Operational cost of credit Financing cost of credit Default Percentage of loan amount Percentage of loan amount 0% 20% 40% 60% Operational cost of credit Financing cost of credit Default Percentage of total cost of loan Percentage of total cost of loan
  17. 17. The benefits • The total benefit amounts to GHS 1,679 • BCR = 1.56 - We focus only on the first order benefits (welfare) to consumers and MFIs of the intervention. • The welfare value (consumer surplus) is estimated by taking the difference between the willingness-to-pay for microfinance and the actual cost of attaining it. • The MFI benefit is the average revenue from a given loan Benefits Amount (GHS) Consumer Surplus 503 MFI benefit 1176 Total Welfare 1679
  18. 18. Total costs, total benefits and cost-benefit ratio Interventions Benefit (GHS) Cost (GHS) BCR Higher default rate (10%) 1679 1274 1.3 Lower default rate (2%) 1679 961 1.7 Greater responsiveness of credit demand to price (-2.9) 1379 1077 1.3 Lower responsiveness of credit to price (- 0.84) 1876 1077 1.7
  19. 19. Social housing
  20. 20. The solution • The intervention, consists of providing housing facilities in urban areas. • Two types of housing structures are considered. 1. The provision of a two-bedroom semi-detached house built from primarily locally sourced and produced building materials. 2. Building of high rise apartments (one and two bedrooms) to replace improper structures in poorly planned urban areas and slum dwellings.
  21. 21. The costs • For all types of housing structures the cost items are similar and consist of the following; - the cost of land, - the cost of providing infrastructure (e.g. water and sewerage, electricity, road etc.) - the compliance cost, - the development cost and - the construction cost. Unit Total cost (GHS) 2 bedroom house semidetached house 229,265 2 bedroom apartment 212,185 1 bedroom apartment 162,189
  22. 22. The benefits • Market value of the property (assuming that the market value of the property is a function of the stream of future cash flows that can be derived from the investment). BENEFITS Market value BLC GHL 2 bedroom (GHS) 2 Bedroom apartment (GHS) 1 Bedroom apartment (GHS) Rent per month 913 685 465 Market value of property assuming 4% growth in housing prices 5% 1,095,600 821,700 547,800 8% 273,900 205,425 136,950 14% 109,560 82,170 54,780
  23. 23. Total costs, total benefits and benefit-cost ratio Discount rate 2 Bedroom semid house 2 bedroom apart redev 1 bedroom apart redev 5% 4.8 3.9 3.4 8% 1.2 1.0 0.8 14% 0.5 0.4 0.3
  24. 24. Summary of BCR for 4 interventions Intervention Discount Rate Benefit per beneficiary (GHc) Cost per beneficiary (GHc) BCR Quality of Evidence Poverty graduation 5% 26,544 9,975 2.7 Strong 8% 17,574 9,633 1.8 14% 9,157 9,013 1.0 Increase cash transfers under LEAP 5% 255 160 1.6 Medium 8% 255 160 1.6 14% 255 160 1.6 Microfinance 5% 1,679 1,077 1.6 Strong 8% 1,679 1,077 1.6 14% 1,679 1,077 1.6 Social Housing 5% 821,700 201,213 4.1 Limited 8% 205,425 201,213 1.0 14% 82,170 201,213 0.4

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