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The challenges of eradicating poverty

By Dionisio Da Cruz Pereira - posted Thursday, 14 May 2015


Corruption increases the cost of doing businesses and maintaining businesses in the formal economy. It encourages business and entrepreneurs to run their businesses covertly to avoid briberies that they need to pay for obtaining services such as registration licensing or obtaining business permits. It also reduces trust in institutions of governance and this has a detrimental effect in attracting investment.

According to the Transparency International, in 2015 more than 350 businesses worldwide (around 35% of companies) were reluctant to invest in developing countries because of the host country's reputation for corruption. Corruption, thus, discourages investors to invest in productive sectors that might have otherwise led to creating jobs and economic growth.

Combating corruption is often a challenge because corruption itself is usually endemic in high levels of state institutions. Survey by Global Peace Index 2015 indicates that over 50% of people worldwide think that political parties, the police, parliament and the judiciary are more corrupt than other state institutions. Thus, this implies that it is impossible to eradicate poverty where the state institutions themselves are corrupt.

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Secondly, the absence of technology and know-how is another main reason. In many developed countries, the backbone of the economies is powered through the application of the latest technologies such as computer and robots. These technologies enable them to reduce production costs and increase profit maximization.

In developing countries, however, acquiring technology and expertise is a real challenge. Most of the government annual expenditure spent on unproductive sectors such as social services, procuring expensive vehicles, lavish meals and overseas trips, exorbitant salaries, and excessive retirement scheme. In addition, soaring unemployment continually poses both internal security threat to the government; consequently most government expenditure is directed toward acquiring military hardware rather than investing in science, technology, and know-how.

Thirdly, with the onset of globalization in the 21st century, multinational companies are always moving and diversifying their capital around the world through investment. China, for example, since the introduction of its open up policy in the early 1980s, has gained unprecedented economic growth through Foreign Direct Investment (FDI).

Under the leadership of Deng Xiaoping, he ambitiously embarked on modernization of Chinese infrastructures in order to attract investment from outside. In the preceding years, the government built Major infrastructures such as roads, bridges, ports, and improved housing. In addition, the government also introduced land forms as well as reduced government bureaucratic red tape, hence encouraging foreign companies to invest in China.

The Chinese government fully realized that no investor would come to invest in China unless it has something attractive to offer. Today China is ranked the second largest economy in the world thanks to the government's ambitious plan to the modernization of China.

For Other developing countries, lack of infrastructures has been a major impediment to attracting foreign direct investment. War torn countries like Sierra Leone, Sudan, Congo, Afghanistan, Libya, Yemen, Somalia, Iraq, and others all have their major infrastructures compromised. The protracted wars do trigger not only a human tragedy, but also destroy social fabrics that hold society together.

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In short, it can be argued that poverty will remain so over the next few years. Poverty is not merely a policy issue, but a multifarious discourse that requires a holistic approach to addressing. Indeed, the causes of poverty differ from country to country. Nonetheless, no country will ever overcome its poverty without addressing the fundamental questions of bad governance, lack of know-how and debilitating infrastructures.

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About the Author

Dionisio Da Cruz Pereira is pursuing an M.Sc in International Development at the University of Birmingham, United Kingdom.

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