Inequality in Africa: key drivers and ending it

Regressive fiscal policies are at the heart of the matter

- IMRAAN VALODIA & ERNEST ARYEETEY

THE relationship between inequality and economic growth is a complex one, especially in Africa. Inequality is the result of a host of factors, including policy choices, institutional legacies and power structures that favour elites.

Firstly, structural adjustment policies. Many African countries undertook these during the late 20th century, often encouraged by international financial institutions. These policies included public sector retrenchments, the removal of subsidies, and reduced social services. They disproportionately affected the poor by weakening the state’s role in redistributing public goods, and limiting access to essential services.

The programmes also increased income inequality by choosing free markets over social protection. Later efforts to address the consequences were often “too little, too late” Secondly, taxation and fiscal policies. Most tax systems in Africa have relied on indirect taxes (such as VAT or consumption taxes) rather than progressive, direct taxes on income and wealth. As a result, poorer households often bear a heavier relative tax burden while the wealthiest benefit from exemptions or evasion. Early post-independence taxation rarely did much to redistribute wealth, and efforts to tax the informal sector have been minimal or poorly designed. They have failed to capture significant resources for social spending

Thirdly, education and healthcare investment. Policy choices have often perpetuated access gaps between urban and rural populations and among socioeconomic classes. Investments tended to favour cities and privileged groups, so that not everyone had the same opportunities. This “urban bias” in public spending reinforced existing inequalities. Rural people’s needs remained unmet. Fourthly, weak social protection. Until the expansion of more comprehensive schemes in the 2000s, many Africans were left poor and vulnerable, without adequate safety nets.