23.05.2004 Feature Article

Breaking The Vicious Cycle of Poverty

Breaking The Vicious Cycle of Poverty
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One of the greatest and wisest kings, who ever lived, once oor is he who works with a negligent hand but the hand of the diligent makes rich”.

Poverty has been a subject of discussion for many centuries dating back to civilizations before Christ. Poverty has been described as the enemy of mankind. It strips people of their livelihood making them live through deprivation of life. Many nations especially developing countries have had to deal with poverty for many ages. Various reasons have been assigned to explain why people are poor in Africa.

Economists have long argued that people are poor because of a low level of savings. Their argument is deeply rooted in the concept of vicious cycle of poverty. This concept holds that low productivity leads to low income, low income leads to low savings, and low savings leads to low investment and low investment to low productivity. According to a World Bank report on Gender, Poverty and Environmental Indicators on Africa (2002-2003), the major causes of poverty vary across countries. The report stressed that the main factors behind chronic poverty in Africa is low levels of production technology, high illiteracy rates and under developed rural infrastructure. The concept of vicious cycle of poverty has dominated modern economic thinking. I believe the time has come for Africans to break away from the vicious cycle of poverty. The irony of Africa's problem is that, the continent is the richest continent in terms of resources in the world. According to African Kingdom Business Forum “ Africa today is known from statistics to be the most resource rich continent on the face of the earth”. Available statistics as at 1997 confirmed that Africa has 99% of the world's chrome reserves 85% of the world's platinum reserves 70% of the world's tantalite reserves 68% of the world's cobalt reserves 54% of the world's gold reserves.

There is therefore no correlation between the richness of resources in Africa and the current state of poverty that pervades the continent. This situation has led civil society and social commentators to argue that it is politically wrong, economically unjustifiable, socially immoral and intellectually unacceptable for Africa in general and Ghana in particular to still wallow in the quagmire of poverty. It is in this light that Ghanaians are being called upon to embrace a new concept known as the “virtuous cycle of wealth creation” as a stepping stone for their economic development. This is a time-honoured key to breaking away from the vicious cycle of poverty. The “virtuous cycle of wealth creation” draws its validation from the biblical maxim “wealth obtained by fraud dwindles but one who gathers by labor increases it”. Proverbs 13:11.

The main thrust of this concept is that with a little bit of sacrifice and hard work on the part of the leadership and citizens of a nation, a low income economy can translate her self into a high savings economy over time. For an increase in savings is a prerequisite for a corresponding increase in investment.

Research has shown that there is a direct relationship between investment and productivity. With increase in investment, the productive sectors of the economy will pick up which will then translate into high income and high investment for the virtuous cycle of wealth creation to continue. The reason for this is that though a country is poor, putting a small amount of money aside as savings through the principle of compounding interest will enable such a country to be transformed from once a low-income country into a middle-income country over time. Encouraging people to save no matter how little their income, is a sine quanon for accelerating Ghana's economic development Experimental studies and empirical observation shows that most of the economic development that took place in the East, especially among the Asian tigers, can be attributed to a strong internal resource mobilization and a high level of savings. Just think about this. If 3 million Ghanaians decide to save and invest ¢50,000 a month, this is how much money we can mobilize. Month 1 =¢150,000,000,000

Assuming we invest this amount in a money market mutual fund at a rate of 20% per annum. Year 1 = ¢1.9 trillion At the current Exchange rate of ¢9000 to a dollar we should be expecting around $219,391,084 in a year We can channel this amount of money into developmental project .You see we have been sitting on pure gold and crying about poverty. I believe it is more than possible for only 3 million Ghanaians out of over 20 million citizens to contribute a minimum of 50,000 every month. On the family and individual level let see how a poor family was able to break away from the vicious cycle of poverty.

A story is told of Ghanaian who hails from a poor village. His great grand parents were poor and had been wallowing in poverty for many years. Though his parents were very poor, they determined to put him through school. The first thing they did was to rationalize their expenses. They cut down on the amount of money they spent on funerals and sometimes they had to work long hours just to save enough to put their son through school. Though it was very difficult because through determination, they managed to help their son complete his education. The young man is now a pharmacist and earns regular income through which he remits part to his parent back home. He has been able to support his younger sibling to complete college. From the little savings and sacrifice of his parents they have been able to break away from the vicious cycle of poverty. Poverty to them is now a vestige of the past. The time has come for Ghanaians to rise up to confront the problem of poverty.

First of all there is the need for us to change our attitude towards work and respect the dignity of labor. Secondly no matter how small our income, we can still create a comfortable future for our selves and families by embracing the concept of the virtuous cycle of wealth creation. Let us quit the talkshop and dreamshop and start investing today. For according to the Holy Scriptures “in all labor there is profit but mere talk leads only to poverty.” (Proverbs 14:23) Nana Kumapremereh Nketiah Investment Analyst Databank Asset Management Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.

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