# 2. Poverty, Shocks, and Household Welfare

The analysis of the vulnerability of households to shocks and its impact on their welfare is particularly important for a country such as Sudan where many households face the risk of being exposed to idiosyncratic and covariate shocks. Most of these households who face significant risk exposure to shocks also lack the capacity to mitigate the impact of such shocks when they occur. Empirical studies have shown that this is largely because they are often the poorest households- particularly in developing countries (Jalan and Ravallion (1999). As a result, they face significant risk of consumption and/or income fluctuations and poverty traps.. In Sudan, recent data shows striking similarities in the key attributes of the profiles of affected households and the stylized facts described above. For instance, in 2009, the poorest households—the bottom 20 percent of the distribution—in Sudan had low asset levels (see the annex of the World Bank [2011]). More than 60 percent of them are engaged in agriculture-related activities, and hence they have high exposure to agroclimatic-related shocks. In 2009, 21 percent of the poorest households in Sudan were affected by droughts or floods; 28 percent were affected by crop diseases; and 34 percent reported stolen livestock as a shock (World Bank 2011). Added to these, other covariate shocks such as the presence of conflict in and around Sudan is likely to affect economic activities of households, thereby increasing vulnerability.<sup>5</sup> The exposure of households (particularly the poorest) to the risk of shocks may have long-lasting negative effects on household welfare. Understanding the nature of the impact of shocks on household welfare has been the subject of several studies. These studies provide insights on how shocks affect households by identifying the households most affected by shocks, the extent to which various indicators of household welfare are affected by various shocks, the duration of the such impacts, and the effectiveness of coping strategies in mitigating the impact of shocks. Using consumption as a measure of welfare, several studies have shown a negative effect of shocks. For instance, Jacoby and Skoufias (1998) as well as Dercon and Krishnan (2000), among others, observed that poor weather may affect household welfare by lowering household income, which also lowers consumption. Other studies such as Skoufias and Quisumbing (2005) examine the impact of shocks by disaggregating household consumption into food and non-food consumption. They showed that food consumption is better ensured than non-food consumption, particularly against idiosyncratic shocks. The reduction in non-food consumption, they argued, can be interpreted as a strategy to better ensure food consumption. Aside from consumption/income, shocks may also significantly affect other measures of household welfare such as assets, health, and vulnerability to future poverty (Hoddinott 2006); Hoddinott and Kinsey (2001); and Porter and Hill (2015). In addition to various indicators of welfare, the impact of shocks may also vary across shocks—idiosyncratic shocks (those affecting individual households such as death of a household member, theft of livestock or crops, and so on) are often better insured than covariate shocks (those affecting all households in a community such as floods and droughts) (Harrower and Hoddinott 2005).

Access to social protection and safety net programs and households’ capacity to effectively cope with shocks are likely to influence the impact of shocks on household welfare. Most households in developing countries, where credit, asset, and insurance markets are missing/incomplete and/or social protection and safety net programs are unavailable, cope with shocks by using strategies that may trap them into

> 5 The most recent data on these indicators were provided by the 2014/15 NBHS, which is the main dataset used in this paper. Using this dataset, we discuss recent trends in poverty and vulnerability in Sudan with emphasis on changes following the secession of the South later in the paper.

9