external debt grew to account for over 300% of exports for the whole region and over 250% of exports for the sub-sample of resource-rich countries [Easterly (2002), World Bank (2001)].<sup>22</sup> Paradoxically, the debt overhang built on external financing of current account deficits in SSA has also been accompanied by a dramatic deterioration of living standards. As a consequence of high growth volatility and declining income in real terms, the persistence of widespread poverty provides another evidence of absolute divergence between the two regions. The dramatic increase of poverty and widening welfare gap between the rest of the developing world and SSA has led scholars to characterize the latter as “the economic tragedy of the 20<sup>th</sup> century” in reference to the enormous consequences of abysmal growth performance on human welfare in the region [Easterly and Levine (1997), Artadi and Sala-i-Martin (2003)].

Evidence of further deterioration of living conditions in Africa is provided by Sala-i-Martin’s estimates which are based on the standardized one dollar a day poverty line.<sup>23</sup> According to these estimates, the fraction of African population whose consumption is less than one dollar a day increased from 48% to over 60% between 1970 and 2000 [Artadi and Sala-i-Martin (2003)]. At 60%, this headcount index is extremely large, even by developing country standards. Essentially three Africans out of five are now poor, up from one out of two in the 1970. Almost surely, this 25 percent increase in the headcount index over the last three decades has propelled hundreds of millions of more Africans into poverty.

Still, the depth of poverty in SSA is better illustrated by its depth and breadth across the entire region. Poverty is widespread in the region, and no country is exempt, even the very few which now enjoy the middle-income status. For instance, Botswana’s incidence of rural poverty rose to 45% in 2003, in spite of sustained economic growth rates which have raised aggregate per capita GDP above US$4000 [Moepeng (2007)].<sup>24</sup> Similarly, the welfare context is not any better in South Africa; though it has become the prime destination for continental migrants in search of employment opportunities. Approximately 57% of individuals in South Africa are living below the poverty line [Schwabe (2004)]. In part, the persistence of widespread poverty in South Africa reflects the structurally high unemployment rates, which at 41% falls in the very high end of developing countries overall rates [Klasen and Woolard (2008].<sup>25</sup> The sustained deterioration of welfare in SSA is in sharp contrast with the remarkable improvement of living standards at the global level. Indeed, during the same period, world poverty rates embraced a rapidly declining trend, falling to the lowest rate of 16% at the turn of the millennium from about 22 However, the majority of these countries have since received debt relief under the Enhanced Highly Indebted Poor Country (HIPC) initiative, which improved their external debt ratios. However, keeping external debt thresholds to post-HIPC Completion Point levels remains a real challenge for the majority of countries. Already, a World Bank review of HIPC-Completion Point countries has highlighted a renewed deterioration of debt thresholds in a number of Completion Point countries in the region [World Bank (2006)].

23 Cross-country comparison of poverty and welfare is always a challenge [Deaton (2001)]. However, in the context of this study, we draw on Sala-i-Martin (2003) methodology which combines individual income surveys with aggregate national income data to estimate the entire distribution of income for each country.

24 And given that the overwhelming majority of Botswana’s population resides in rural area, this relatively high rural poverty incidence suggests that a disproportionately large population of Botswana continues to be poor. Hillbom (2008) attributes the persistence of poverty in the midst of growth to absence of structural transformation in the patterns of growth, which could have resulted in employment creation and rapid reduction of poverty.

25 This rate is based on a broad definition of unemployment, which includes those who are willing to work but are not actively looking for a job. However, even a narrow definition of unemployment which includes only those who are willing to work and are actively searching produces unemployment rates comparable to US Great Depression rates—over 28% [Statistics South Africa (2004), Klasen and Woolard (2008)].

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