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Figuring out the best way to reduce poverty in developing countries is a widely discussed topic. While the arc of human history shows a generally positive trend in reducing extreme poverty, there are still significant pockets worldwide.
Africa, in particular, has the potential to benefit from poverty reduction strategies. Research shows that the continent has a long way to go in its fight against poverty. Central Africa is experiencing a severe rate of poverty (54.8%), and Southern Africa is close behind at 45.1%.
But there is hope. With the right poverty eradication action plan, investors can play a pivotal role in reducing poverty. As the world becomes more interconnected, it's never been easier for people in higher-income countries to help reduce poverty in Africa and other parts of the world.
Let’s take a closer look at three primary ways to reduce poverty in the world and how you can get involved through impact investing.
The Importance of Reducing Poverty in Developing Countries
Poverty reduction strategies are instrumental for developing countries grappling with high poverty levels. The World Social Summit identified poverty eradication as an ethical, social, political and economic imperative of mankind. In this section, we briefly touch on the moral and economic case for eradicating poverty.
The Moral Case for Reducing Poverty
Firstly, finding ways to reduce poverty in Africa is simply the right thing to do. As members of the global community, we have a responsibility to help those less fortunate than us. Poverty traps people in a cycle of deprivation that’s very difficult to escape without outside help.
People living in poverty often lack access to basic necessities like food, clean water and healthcare, leading to poor health and a diminished quality of life. Additionally, they need access to productive resources, such as credit, education and training, which those in developed countries can help provide.
The Economic Case for Reducing Poverty
There’s a strong case for promoting economic growth as one of the ways to fight poverty in the world, particularly in developing countries. Studies have shown that a 10% increase in a country’s average income will reduce the poverty rate by 20 to 30%.
And pursuing efforts that reduce poverty couldn’t be more timely. The IMF found that COVID-19 impacts and geopolitical tensions have hindered the growth rate for nearly all African countries. Finding ways to reduce poverty in Africa begins with us.
3 Ways to Fight Poverty in the World
To make an impact on global poverty levels, we need to focus on effective poverty reduction strategies. There are many different ways to reduce poverty, but some poverty eradication action plans are better than others. So, what are some solutions to poverty reduction? Here are three proven ways to reduce poverty in the world.
1. Education
One of the best ways to reduce poverty in developing countries is through education. Education can help break the cycle of poverty by giving people the skills they need to earn higher incomes and live successful lives.
The power of education is well-documented and it has a transformative effect on people's lives. The United Nations Educational, Scientific and Cultural Organization (UNESCO) estimates that 171 million people could escape extreme poverty in low-income countries if all students had only basic reading skills.
2. Infrastructure
Another way to fight poverty is through infrastructure improvements. Infrastructure refers to the basic systems and services necessary for a country or region to function properly, like roads, bridges and power plants. Improving infrastructure is critical for economic development, which helps reduce poverty, but 80% of infrastructure projects fail in sub-Saharan Africa.
According to a publication by McKinsey and Company, there’s a critical need to expand the flow of private-sector financing into more commercially viable assets. Africa has immense unmet needs for infrastructure, reflecting a long history of underinvestment. However, many investors see Africa as a ripe opportunity and are attracted to its potential.
3. Impact Investing
Impact investing is a type of investment strategy that aims to generate a positive, measurable social or environmental change along with a financial return. The impact investing market provides capital to address worldwide challenges in sectors such as renewable energy, sustainable agriculture, conservation and other causes.
It’s suggested that impact investing is yet another way to alleviate poverty in developing countries. These investments can create positive outcomes for marginalized communities, such as providing them with essential resources and creating jobs that improve their quality of life.
With the right poverty reduction strategy, investors can play a part in reducing poverty in developing countries.
Impact Investing: A Way to Reduce Poverty in Africa
There’s no single answer to “What’s the best way to reduce poverty in developing countries?” However, we do know that some effective poverty reduction strategies require financial investments, as outlined in this article. Are you ready to make an impact? Join us in our efforts to accelerate economic growth in Africa through impact investing.
Renew Capital invests in growth-oriented small and medium enterprises across Africa. We identify investment opportunities within Africa's emerging markets that have the potential to generate financial returns and make a positive social and/or environmental impact.
We invest in businesses across various sectors, including healthcare, technology, clean energy and agricultural value chains. Our vision is to change the way the world engages Africa—from a place of giving to one of investing.
If you’re an accredited investor wondering what can be done to alleviate poverty in Africa, consider applying to become a Renew Capital Angel.
Renew Capital Angel members must be accredited investors per the U.S. Securities and Exchange Commission definition. Investments with Renew Capital are speculative in nature and involve a high degree of risk. The Renew Capital Angels invest in companies located and doing business in sub-Saharan Africa. Investors should understand and be willing and able to handle the risks of investing in such frontier markets, which are more significant than the risks associated with investing in securities of U.S. companies or in other developed countries and include the risk of total loss of an investor’s entire investment.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.
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