MDG1 Eradicate extreme poverty and hunger

MDG 1 Eradicate Extreme Poverty and Hunger 1 In 1970, Malaysia was predominantly a rural agricultural society with sharp spatial andethnic disparities in income and social well-being. It set for itself an ambitiousdevelopment goal of eradicating poverty. In just about 15 years from 1970, when half of all households were poor, Malaysia more than halved the incidence of absolute poverty. In another 15 years from the mid-1980s, Malaysia again more than halved the level of absolute poverty. By the early years of the new millennium (2002), just 5.1 per cent of households were poor. With this track record, Malaysia can be classified as a success story in attacking absolute poverty, enabling it to reach the MDG target of halving poverty well before 2015. Malaysia is now close to having eradicated extreme poverty. How was this rapid progress achieved? What were the policies and programmes? How were constraints overcome? What are the lessons that can be learnt? This chapter presents Malaysia’s record of achievements in overcoming poverty and the challenges remaining for the future. Malaysia’s experience in poverty reduction is of particular interest because it has been achieved in a multi-ethnic and culturally diverse setting. Furthermore, its economic growth strategy has integrated commitments to poverty elimination and restructuring of society as central objectives in its development vision. Malaysia’s impressive poverty reduction has been, in large part, due to sustained, albeit variable, economic growth––average annual growth rate of real GDP was 7 per cent over the last three and a half decades (Table 1.1). International evidence suggests that the rate of economic growth is a powerful influence on poverty reduction. M A L A Y S I A A c h i e v i n g t h e M i l l e n n i u m D e v e l o p m e n t G o a l s 34 1st 1966–70 2nd 1971–5 3rd 1976–80 4th 1981–5 5th 1986–90 6th 1991–5 7th 1996–2000 8th* 2001–5 Average annual growth rate of real GDP (%) 5.4 7.1 8.6 5.8 6.7 8.7 4.7 7.5 Sources of data: Henderson et al, 2002; Malaysia, Economic Planning Unit, 2001a. * Estimate. Poverty is multidimensional. It is, of course, more than a lack of income. Poverty is also associated with lack of access to basic education, health (including reproductive health) services and information, shelter, clean water, and sanitation. Economic growth increases the income of the population and tends to reduce the number of poor people. Economic growth also increases the government’s revenue, which can be used to provide basic social services and infrastructure. But economic growth alone is rarely a sufficient condition for poverty reduction. Investing in increasing access to, and provision of, basic social services not only helps to provide opportunities for the poor, but also contributes to sustainable economic growth. Malaysia’s impressive improvements in the social sectors can be seen in key Annual Growth Rates of Gross Domestic Product, Malaysia Five-Year Plan Periods (%)Table 1.1 M D G 1 E r a d i c a t e E x t r e m e P o v e r t y a n d H u n g e r 35 human development indicators. Between 1970 and 2000, life expectancy at birth rose sharply for females and males, the combined figure being from 64.2 to 72.8 years, while the infant mortality rate fell from 40.8 to 7.9 per 1,000 live births. Over the corresponding period, the adult literacy rate rose from 60 per cent to 94 per cent, and since 1990 primary school enrolment has been universal for both girls and boys. Poverty definition In Malaysia, the incidence of absolute poverty has traditionally been determined by reference to a threshold poverty line income (PLI). This PLI is based on what is considered to be the minimum consumption requirements of a household for food, clothing, and other non-food items, such as rent, fuel, and power (Box 1.1). There is no separate PLI for urban and rural households. The proportion of all households living below this threshold is the proportion living in poverty––that is the poverty rate. Poverty rates are available for household categories only: they are not available for individuals separately. The concept of hard-core poverty was first used by the Malaysian government in 1989 to help identify and target poor households whose income is less than half of the PLI. It is one indication of the severity of poverty. The term hard-core poverty in Malaysia does not, however, indicate the duration of time spent living below the poverty line. In addition to absolute poverty, the concept of relative poverty is used to assess income disparities between income groups. It is measured here by using income disparity ratios of income groups (top 20 per cent and bottom 40 per cent), and urban and rural dwellers. The Gini coefficient is also used to assess, in summary form, trends in income distribution.1 There are, of course, many welfare measures that can be used in poverty assessments. Each has its strengths and limitations, and no one measure can capture the many dimensions of poverty. The basic indicators used in this chapter are built upon in later chapters which focus on other dimensions of poverty. For example, the education and health indicators used in Chapters 2 and 4 provide information about deprivations requiring policy support in those sectors. While there is overlap in the composition of the groups suffering various types of deprivation, the policy prescriptions differ. 1 The Gini coefficient is a number between 0 and 1, where 0 means perfect equality (everyone has the same income) and 1 means perfect inequality (one person has all the income, everyone else has nothing). The lower the Gini coefficient, the more equal the distribution of income of a country. 36 Malaysia’s Poverty Line Income (PLI) is based on theminimum requirements of a household for threemajor components: food, clothing, and footwear, and other non-food items such as rent, fuel, and power; furniture and household equipment; medical care and health expenses; transport and communications; and recreation, education, and cultural services. For the food component, currently the minimum expenditure is based on a daily requirement of 9,910 calories for a family of five persons, while the minimum requirements for clothing and footwear are based on standards set by the Department of Social Welfare for welfare homes. The assumed family of five consists of 1 adult male, 1 adult female, and 3 children of either sex aged 1–3, 4–6, and 7–9 years. The other non-food items are based on the level of expenditure of the lower income households, as reported in the Malaysian Household Expenditure Survey (HES). The PLI is updated annually to reflect changes in the levels of prices by taking into account changes in the Consumer Price Indices. The PLI is calculated to reflect differences in prices and household size in Peninsular Malaysia, Sabah, and Sarawak. The incidence of poverty is monitored through the Malaysian Household Income Survey (HIS). The HIS is conducted once in every two to three years and is primarily designed to collect information on household earnings, income sources, and other social data, such as education, health, water supply, electricity, housing, and mode of transport. Poverty rates, as measured using Malaysia’s PLI, differ from those implied by the one US dollar a day (purchasing power parity) poverty line used by international organizations. The latter has fixed purchasing power across countries and, therefore, facilitates international comparisons more readily. There are always conceptual and empirical problems in deciding what constitutes a minimum standard of living, as well as data problems in measuring it. In comparison with the US$1 PPP standard poverty line, the Malaysian PLI, when converted on the basis of US$1 PPP, results in a higher poverty rate because of its higher standard of living below which households are counted as poor. The current methodology clarifies households as poor if their incomes are insufficient to meet the needs of around 5 persons. This may well exaggerate poverty rates of small households and underestimate the poverty rates of larger ones. The methodology for computing the PLI and poverty measures in Malaysia is under review. MA L AY S I A’S PO V E R T Y LI N EBox 1.1 Poverty Line Incomes, 1990–2002 (RM per month per household)* Peninsular Malaysia Sabah Sarawak 370 544 452 1990 425 601 516 1995 510 685 584 1999 2002 529 690 600 Trends in poverty rates Malaysia’s poverty rate has declined dramatically over the past three and a half decades (Figure 1.1). About half of Malaysian households lived below the poverty line in 1970, falling to 16.5 per cent in 1990 and to just 5.1 per cent in 2002. The MDG target, to reduce the proportion of the population living below the poverty line by 50 per cent, between 1990 and 2015, was achieved in 1999 when the poverty rate declined to 7.5 per cent. Both the speed and the magnitude of the decline were well ahead of the MDG target. M A L A Y S I A A c h i e v i n g t h e M i l l e n n i u m D e v e l o p m e n t G o a l s * Adjusted based on an average household size of 4.6 in Peninsular Malaysia, 4.9 in Sabah, and 4.8 in Sarawak. 37 U r b a n – r u r a l d i f f e r e n t i a l s Malaysia’s poverty has been a predominantly rural phenomenon (Figures 1.1 and 1.2). Figure 1.1 gives details of the number of poor households expressed as a percentage of the total number of households. It also shows the contribution to this total of urban and rural households; for example, in 1970, 49.3 per cent of Malaysian households were below the poverty line. The number of poor rural households as a percentage of the total number of households was 44 per cent, the remaining 5.3 per cent being urban. In Figure 1.2, the poverty rates are defined as the number of poor rural (or urban) households expressed as a percentage of the total number of rural (or urban) households. In 1970, poverty rates were markedly higher in rural areas, where the bulk of the population lived. Subsequently, the poverty rate has declined for both rural and urban areas, but more conspicuously in rural areas, such that the urban-rural poverty gap is much reduced in absolute terms, but not in relative terms. The rural poverty rate in 1970 was two-thirds of its 1980 level; it more than halved in the next 10 years and was halved again from 1990 to 2000. The urban poverty rate was halved every 10 years from 1970 to 1990. By 2002, just 2 per cent and 11.4 per cent respectively of urban and rural households were living in poverty. Although the urban poverty rate is very low, rapid urbanization that has occurred over the decades means that the number of the urban poor is now considered significant. M D G 1 E r a d i c a t e E x t r e m e P o v e r t y a n d H u n g e r Incidence of Poverty as a Percentage of Total Households, Malaysia, 1970–2002 Figure 1.1 1970 60 50 40 30 20 10 0 49.3 37.4 16.5 5.1 ‘80 ‘90 2002 Ho us eh ol ds li vi ng b el ow p ov er ty li ne Rural poor Urban poor (%) Sources of data: Malaysia, Economic Planning Unit, five-year plans, various years. Note: Data for 1970 are for Peninsular Malaysia. 38 Poverty in Rural and Urban Areas as a Percentage of Total Rural/Urban Households, Malaysia, 1970–2002 Figure 1.2 Rural Ho us eh ol ds li vi ng b el ow p ov er ty li ne 58.6 70 60 50 40 30 20 10 0 24.6 1970 ‘80 ‘90 2002 12.6 7.5 2.0 37.7 21.8 11.4 Urban (%) In the late 1980s, Malaysia began to focus its poverty-eradication programme on the hard-core poor. In 1990, the proportion of hard-core poor households was 3.9 per cent of total households. Total hard-core poor declined to 2.1 per cent in 1995 and 1.0 per cent in 2002 (Figure 1.3). Rapid declines in hard-core poverty have occurred in both rural and urban areas, especially in the mid-1990s. By 2002, the proportion of hard-core poor households had fallen to 0.4 per cent in urban areas and to 2.3 per cent in rural areas. M A L A Y S I A A c h i e v i n g t h e M i l l e n n i u m D e v e l o p m e n t G o a l s Sources of data: Malaysia, Economic Planning Unit, five-year plans, various years. Hard-core Poverty in Rural and Urban Areas as a Percentage of Total Households, Malaysia, 1990–2002 Figure 1.3 Rural Total Urban Ho us eh ol ds li vi ng b el ow p ov er ty li ne 6 5 4 3 2 1 0 1990 ‘95 2002 5.2 4.0 3.6 2.2 0.9 2.3 1.0 0.4 1.3 (%) Sources of data: Malaysia, Economic Planning Unit, five-year plans, various years. 39 E t h n i c d i s p a r i t i e s Malaysia’s three main ethnic communities are the Bumiputera (Malays and other indigenous groups), Chinese, and Indians. Historically, they were separated both geographically and occupationally, reflecting their differing settlement patterns. In 1970, when just 27 per cent of Malaysia’s 10.4 million persons were living in urban areas, the Bumiputera (55 per cent of the population) were predominantly rural. They were engaged mainly in rice cultivation, fishing, and rubber tapping, far away from the growing urban economy. The Chinese (36 per cent of the population) were a more urban community, dominating trade and commerce, as well as tin mining and commercial agriculture, while some Indians (approximately 10 per cent of the population) had settled in towns and were mainly concentrated in the rubber estates and plantations. Not unexpectedly, given the above, in 1970, poverty was markedly higher among the Bumiputera than the other communities. Approximately two-thirds of Bumiputera households were living below the poverty line––poverty rates among Chinese and Indian households were 26.0 per cent and 39.2 per cent respectively (Figure 1.4). As a result of policies adopted by Malaysia, there have been tremendous absolute declines among each of the ethnic groups, such that by 2002 the poverty rates were 7.3 per cent, 1.5 per cent, and 1.9 per cent for the Bumiputera, Chinese, and Indians respectively. Poverty Rates by Ethnic Groups, Malaysia, 1970–2002 Figure 1.4 Ho us eh ol ds li vi ng b el ow p ov er ty li ne 1970 ‘85 ‘90 2002 0 10 20 30 40 50 60 70 IndiansChinese Bumiputera All ethnic groups (%) M D G 1 E r a d i c a t e E x t r e m e P o v e r t y a n d H u n g e r Sources of data: Malaysia, Economic Planning Unit, five-year plans, various years. Ethnic income differentials generally narrowed over the period 1970–2002 as is clear from Figure 1.5. The ratios of mean household income of Chinese and Indians to the mean household income of Bumiputera have generally fallen over this period, most notably in the 20 years up to 1990. However, over the last decade of the last century, relative incomes have been broadly constant, and absolute differentials in income have widened (Figure 1.5). Moreover, the Chinese mean household income remains about two times higher than that of the Bumiputera. 40 S p a t i a l d i s t r i b u t i o n o f p o v e r t y The spatial distribution of poverty maps closely to Malaysia’s pattern of development. This, in turn, is closely linked to ethnic settlement patterns and industrial structures. Historically, the Bumiputera community lived in settlements along the coasts and riverbanks. Chinese and Indian migrants settled along the western coastal plains around the tin mines, agricultural estates, and urban centres. Relatively few of these communities settled in the east coast states, especially in Kelantan and Terengganu, which were sparsely populated in 1970. The big states of East Malaysia, Sabah and Sarawak, were also sparsely populated and undeveloped. At that time, the most populated states were Selangor, Perak, and Johor: only these states had more than one million persons. In 1970, there were wide disparities in poverty levels between the states (Figure 1.6). Poverty levels were lowest in the west coast states of Melaka, Selangor, and Johor and highest in Sabah, Kelantan, and Terengganu. There have been significant reductions in poverty rates for all of Malaysia’s 13 states and the Federal Territory of Kuala Lumpur over the three decades since 1970 (Figures 1.6 and 1.7). However, there are still sharp state differentials. Geographical and historical factors continue to matter. The west coast states of Peninsular Malaysia are more developed and have tended to attract more foreign direct investment (FDI). The railway and road system started in these states which are more accessible to the seaports facing the Straits of Malacca, a key maritime highway for international trade in South-East Asia. By contrast, Kelantan and Terengganu, until the discovery of offshore oil in the east coast, were less accessible and have attracted much less FDI. Currently, Malaysia’s poor are mainly concentrated in the states of Kelantan, Terengganu, Kedah, Perlis, and Sabah, and in particular in the rural areas of those states. In 2002, while the national poverty rate was 5.1 per cent, the poverty rates for the poorest Ethnic Group Disparities in Mean Monthly Income, Malaysia, 1970–2002Figure 1.5 0.0 1970 ‘73 ‘76 ‘79 ‘84 ‘87 ‘90 ‘95 ‘99 2002 0.5 1.0 1.5 2.0 2.5 Ra tio o f m ea n m on th ly h ou se ho ld in co m e Line of equality Chinese/Bumiputera Indian/Bumiputera M A L A Y S I A A c h i e v i n g t h e M i l l e n n i u m D e v e l o p m e n t G o a l s Sources of data: Malaysia, Economic Planning Unit, five-year plans, various years. Johor Pulau Pinang Pahang Melaka Perlis Sabah Negeri Sembilan Kedah Sarawak Selangor Kelantan Federal Territory Kuala Lumpur Perak Terengganu MALAYSIA 41 states were as follows: Sabah, 16.0 per cent; Kelantan, 12.4 per cent; Kedah, 10.7 per cent; Terengganu, 10.7 per cent; and Perlis, 10.1 per cent (Map 1.1). Overall, these states have levels of poverty that are two to three times higher than the national level. With the exception of Terengganu, these states also have per capita GDP levels significantly below the national average, and their populations are predominantly Bumiputera. Incidence of Poverty by State, Malaysia, 1970–2002Figure 1.6 Ho us eh ol ds li vi ng b el ow p ov er ty li ne 80 70 60 50 40 30 20 10 0 1970 ‘76 ‘84 ‘90 ‘95 2002 Kel Ter Pls Ked Pah Png Prk N.S Mal Joh Sel Mel (%) M D G 1 E r a d i c a t e E x t r e m e P o v e r t y a n d H u n g e r Sources of data: Malaysia, Economic Planning Unit, five-year plans, various years. 42 State Poverty Rates, Malaysia, 1990 and 2002Map 1.1 M A L A Y S I A A c h i e v i n g t h e M i l l e n n i u m D e v e l o p m e n t G o a l s Peninsular Malaysia: 1990 2002 2002Sabah and Sarawak: 1990 Sources of data: Malaysia, Economic Planning Unit, five-year plans, various years. 0.5% 1% 3% 10% 11% 8% 1% 2% 2% 4% 12% 11% 4% 9% 12% 17% 30% 19% 8% 9% 10% 30% 31% 10% >20 <5 Households below poverty line (%) 15–20 10–14.9 5–9.9 16% 6% 30% 21% 43 F o o d p o v e r t y The decline in the incidence of poverty in Malaysia is revealed by trends in other direct measures of welfare, especially nutrition. Improvements in the average levels of nutrition are likely to reflect improvements in the nutrition of low-income groups, since nutritional levels do not change substantially at higher income levels. Chronic hunger has never been a serious problem in Malaysia. Nutritional status, a crucial component of most poverty indicators, can be measured in various ways. One is the number of calories consumed by an individual during a given time period. The World Health Organization (WHO) defines this as the consumption of fewer than 1,960 calories a day. Other measures include the intake of protein and nutrients, while child nutrition may be measured by the weight by age and h