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Why Agenda 2030's Sustainable Development Goals are not being met
Part 1


Hector McNeill
SEEL-Systems Engineering Economics Lab

In 2015 the United Nations launched Agenda 2030 consisting of 17 Sustainable Development Goals (SDGs) associated with over 230 indicators. Unlike the Millennium Development Goals (MDGs) which addressed specific goals related to low income countries, Agenda 2030 addressed countries of all levels of development.

After only four years, the United Nations has asked an expert group to assess progress. For such an ambitious task for goals to be met by 2030 - 11 years to go - four years is a bit early. However, there are signs that goals are not being met.

Reviewing the SDGs it is evident that there are some gaps and, indeed, some confusions.

In the case of low income countries, there are logical reasons why there are difficulties in meeting objectives. One reason, of relevance to this online publication, is that project and initiative designs need to result in actions that can overcome the principal constraints of population dynamics and inflation. This is principally a supply side and real incomes issue.



Principal constraint 1. is population size and growth



Principal constraint 2. is the level and distribution of real incomes


Real income is the purchasing power of nominal income. Nominal income is the value of income measured in currency units. Real income is measured by dividing nominal income by the product of quantities of needed products and their unit prices. If unit prices rise, the purchasing power declines, and therefore, so do real incomes. Nominal incomes do not provide a reliable estimate of their value in terms of tangible assets or ability to satisfy needs.

In the graph below there are two lines equivalent to a nominal income of 1 and another equivalent to a nominal income of 2.

Point "a" is a starting point where nominal income is 1 and unit prices are also 1 and the real income is 1. If average unit prices are reduced from 1 to 0.75 real incomes rise to point "b", a further decline down to 0.50 traverses point "c" to end up at point "d" where real income has risen to 2. In the case of inflation, for example unit prices rising by 50%, real income declines to point f. A doubling of unit prices halves real income.




Source: SDGToolkit Manual: Strategic agricultural analysis; pp. 10-11, HPC, 2019.
What is going wrong?

In a recent interview posted on Sci Dev, the headline, "Most SDGs ‘going into reverse’ " is an alarm bell that climate change goals are not being met. This article reports on some early conclusions expressed by Dr. Jean-Paul Moatti, the director-general of the French National Research Institute for Development (IRD). He is also a member of the expert group charged by the UN with evaluating progress of Agenda 2030 and SDGs so far.

Dr. Moatti states that there is a need to decorrelate economic growth from its negative social and environmental impacts. He explained that as soon as economic growth goes back on track, the SDGs start to go backwards. Dr. Moatti highlighted three SDGs as problem areas requiring more effort. These are reduction of inequalities (SDG 10), the limitation and adaptation to climate change (SDG 13) and the reduction of the environmental and ecological footprint of our modes of production and consumption (SDG 12). He considers these to be key goals but also where the alarm needs to be sounded.

Moatti's observations refer to developments which, from a real incomes perspective (see box on right - principal constraint 2), are predictable, whereas from a conventional macroeconomic point of view, they may not be.

Real incomes perspective
Addressing the constraints of population growth and inflation on real incomes


The real incomes approach is concerned with the design of activities that deploy resources to bring countries from a low income status to a higher income status. Central to this objective is to:
  • carry out all assessments in terms of real incomes
  • raise real incomes
  • reduce inequalities in real income distribution
Usually, low income countries have general price inflation and lower income segments tend to have high birth rates. Real incomes are impacted by:
  • high growth rates in population numbers because this creates a constant downward pressure on per capita indicator performance values
  • inflation rates because purchasing power of the currency is constantly reduced
This is why in order to calculate the challenges to raising real incomes all preparatory phases involving the identification of gaps, needs and constraints need to include:
  • nominal income levels and growth rates
  • general price inflation
  • population size and population growth
These fundamental relationships establish a project or a programme's overall operational environment. The relationship between real incomes growth, nominal incomes, population growth and inflation is provided below:

dR = dN – dP - dI …………….. (i)
or
dR = dN – (dP + dI) …………….. (ii)

Where:
dR is the growth in real income;
dN is the growth in nominal income;
dP is the population growth rate;
dI is the inflation rate or rise in average unit prices.

The impact of population growth and inflation can be dramatic. For example a typical inflation rate in an East African country of 6% and natural population growth rate of 2.8 will result in a reduction of purchasing power of 8.8% each year which is equivalent to a decline in purchasing power of the currency of 37% in 5 years. For real incomes to rise over this period would require a rise in nominal incomes, over the same period of at least 37%, or an annual increase in excess of 8.8%.The table below indicates this rate of purchasing power erosion which rapidly reduces income to below levels necessary to sustain the consumption of essential products such as food.

Real incomes erosion as % of 100
at the end of each year
Year 1
Year 2
Year 3
Year 4
Year 5
91.2%83.2%74.8%68.3%62.3%


Macroeconomics
Managing aggregate demand


In the case of higher income countries, population growth rates tend to be lower and inflation is considered to be managed by a applying various types of incentives based on a so-called Aggregate Demand Model (ADM). This model is based on the assumption that levels of economic activity are in response to demand levels made up by the quantities and prices of goods and services. Income levels, calculated at the national level, are assumed to be the overall levels of national consumption divided by the estimated population size. It is assumed therefore that to sustain incomes while avoiding inflation, policy instruments, all of which are market impositions, are applied. The theory is that these impositions create positive or negative incentives for behaviour designed to trade-off nominal growth against inflation. These consist of:
  • varying levels of taxation and duties on income, products and services
  • varying the levels of interest rate
  • varying government expenditures on public goods and services
  • raising government debt
  • paying off government debt
In essence all of these incentives vary the amount of disposable funds available for consumption of goods and services.

A paradoxical part of this policy is that "price stability" is considered to be achievable when policy can achieve a 2% rate of inflation. In reality 2% inflation represents a constant treadmill that reduces purchasing power and real incomes by around 18% each decade.

In the case of a low income countries higher birth rates result in the rate of real income erosion to be considerably higher and this is exacerbated, usually, by higher rates of inflation.

Therefore, lower income segments in low income countries, who have few options to raise their nominal incomes, suffer from rates real incomes decline that are more damaging than those with higher nominal incomes brackets. This leads to increasing inequality and the inability of the poor to purchase essential goods and services. Food becomes an increasing part of expenditure up until the point at which diet and nutritional status can become serious issues for low income families and, especially, the young.

Demand and consumption transactions

In the case of low income communities and in the context of Agenda 2030, there is a distinction between demand and consumption requirements. Demand, from the standpoint of ADM is simply the state of consumption or value of transactions. The word demand does not relate to what people want or need. This is because lower income segments might well desire to purchase higher amounts of goods and services but can not do so because of deficient purchasing power or low real disposable incomes. Where consumption levels fall below critical values related to nutrition, health and wellbeing, this represents a "demand" which is not expressed in the market because there are no transactions covering these consumption needs. This has an important significance in terms of the analysis of market price equilibrium or ruling unit prices. This is often expressed as "supply and demand" analysis. However, as set out above the dynamic of the process of declining real incomes where purchasing power is adjusted for unit prices, finds no analytical expression because supply and demand is expressed in nominal terms.
Monitoring and evaluation

A recent report by the OQSI recommends that the DAC evaluation criteria of relevance, efficiency, effectiveness, impact and sustainability be applied to the following project cycle phases on the basis of a due diligence procedure:
  1. Design and project plan
  2. Evaluation of the project context, appropriate scales and implementation policy frameworks
  3. Project selection process and decision-maker preferences applied
  4. Oversight and recording of:
    • Implementation and the impacts of change
    • Decisions taken in response to change
    • The impact on project performance of decisions made
    • The overall level of impact achieved
  5. Future operational sustainability (post-funding period)
The PACM approach provides a level of analytical detail facilitating this approach resulting in more transparency for project selection, more rapid adaptive decision during implementation and the development of a central project memory.


One assumption of the ADM demand and supply model is that demand creates or generates supply. However, as has been reviewed, an increase in aggregate nominal transactions does not necessarily result in consumption levels for specific income segments rising to sufficiently high levels; this is of importance at the margin where items like food become inaccessible for specific real income segments.

PACM-Production, Accessibility and Consumption model

The limitations of the ADM supply and demand analysis is that it is based on demand-pull concepts that have expression when the size of the national turnover is manipulated applying the policy instruments listed above. Another approach to this analysis and one which provides a more transparent analysis of the state of affairs of real incomes and consumption associated with these, is the Production, Accessibility and Consumption model (PACM). This is a supply side model that provides a more relevant analysis of supply and demand by changing the focus to production and consumption. This approach also exposes policy instrument alternatives that are not inflationary but in fact are able to moderate inflation. The elements of the PACM are the following indicators:
  • Production
  • Accessibility of products and services in terms of:
    • Unit prices
    • Sustainability of availability of product and services and support to consumer
    • Available information for consumer concerning quality and prices
  • Consumption
Phantom impact projects

It is self-evident that there is very little point in investing in projects and initiatives for a specific target group if the target group does not have the purchasing power acquire and use the output or in more drastic circumstances if there are inadequate budgets to provide subsidies. There are cases of projects where the real incomes realities have not been taken into account and the cost-benefit analyses have been calculated on unrealistic unit prices. More often than not, the mistake made is to assume the incomes of the target group at the end of a project will be the same as when the project started; this is, almost invariably, never the case in real terms. As a result the investment cannot be recovered and this can result in the sale of the output to higher income consumers while the state of affairs of the original target group is not addressed and they end up in a worse situation. Such phantom impact projects are essentially failed projects whereas from the financial standpoint of the investor they might end up being judged to be financially successful.

Need for better oversight supported by due diligence procedures

In the case of low income countries, there is a need to avoid phantom impact projects through better oversight of project design and selection. There is a need for a more rigorous system based on due diligence design procedures to ensure that those selecting projects for funding have a reliable basis for judging that all of the necessary factors have been taken into account.
Bottom up and not top down

The ADM macroeconomic framework is top down. Paradoxically the so-called "supply side economics" approach is also a top down policy related to marginal tax rates.

The PACM macroeconomic framework and the real incomes approach is based on a bottom up analysis that places the decision-making power in the hands of producers who are provided with incentives to raise their aggregate margins according to the degree of constraint applied to unit price increases.

Further specific details in Part 2 of this article.

The PACM analysis is also the foundation of real incomes approach to economics where all calculations take account of the time-based transitions in costs, prices and real incomes over time and during the project implementation phases. As a supply or production-side analysis the progression of analysis starts with the production process and analysis of the range of options to production according to unit costs and unit price options. As a result accessibility in terms of unit prices, according to disposable real incomes, can be determined and the consumption levels can be compared with desirable levels. Therefore there is a more direct correspondence between SDG indicators and the solutions to achieving desired levels output and consumption so as to impact the related national level indicators. As a production or supply-side analysis, the emphasis is on testing the viability of sustainable production in terms of producer margins and in terms of feasible accessibility for people with lower real incomes.

Returning to Dr. Moatti's list of problem areas for Agenda 2030, he refers to "responsible consumption and production" (SDG 12). This generic term can be rationalized in terms of sustainability. Responsible consumption is one where the lowest income segments are able to access and consume the minimum desirable level of consumption per head. Responsible production is the organization of technology, technique and use of natural resources so as to sustain the carrying capacity of the natural environment and ecosystem. As can be appreciated this is preeminently a supply or production side and real incomes issue. No amount of "nominal demand" can solve this challenge.

What are the implications of this analysis?

In low income countries, most national indicators are below desirable levels as a result of the circumstances surrounding low income segments. In order to design projects to support each SDG, the dimensions of the constraints imposed by population number and growth rates need to determined alongside estimates of inflation projections. These basic calculations provide an indication of the scale of the issues a project, a programme made up of multiple projects or policy needs to address. Current consumption levels of the population, the national production and use of land and other resources provides a basis for determining the carrying capacity of national resources. Constraints on future carrying capacity can then be projected on the basis of current levels of consumption and population growth. This is then repeated including the desired per capita consumption for the target cohorts (target groups). The target cohorts that have deficient consumption can be identified in terms of numbers and their real income levels to project necessary increases in production and availability at the indicated unit prices. This provides important information for designing the production solution and review of production technology and technique options, including technology transfer and adaptation. An important consideration is how best to achieve the dissemination of information on best practice and demonstrations of improved technologies and techniques in the field through extension services. The key target is sustainability. Just as it is not feasible to expect people with inadequate incomes to purchase high priced food, responsible consumption and production also has the connotation of a process that is not wasteful but fits within the limits or constraints facing us. So sustainability is a complex of various trade-offs between sustainability indicators of the way activities are conducted within a project or programme that need to fit within what can be referred to as a "feasibility envelope" which is bounded the specific constraints represented by the indicators for each type of sustainability. Understanding these facts helps project designers identify solutions as processes that transition from reducing to eliminating the contribution of our activities to climate change. These indicators are:
  • human population size and growth rate
  • general macroeconomic framework and policies to contain inflation
  • technical quantitative input-output relationships of any process
  • economic quantitative input-output relationships
  • financial quantitative cash flow resulting from economic relationships over time
  • financial return to economic units
  • social and real income distribution and inequality status outcomes
  • physical environmental impact status
  • ecosystem impact status
Change strategy options

Project and programme design needs to identify the scope and content of the options that represent change strategies that are relevant to identified needs and that remain within the feasibility envelope while demonstrating efficiency and effectiveness, sufficient SDG indicator impact and sustainability. To achieve this it is necessary to group these project level indicators and then study the trade-offs between them in influencing attainable national level indicator values (SDG level). There are cross-dependencies that exist between these. The overall objective remains to maximize national natural resources and ecosystem carrying capacity. This requires a reiterative process to identify basic feasible solutions (BFS) which are then refined and optimised aiming to slow down the reduction in carrying capacity, arresting it and if possible restoring it to higher levels. The groups are shown below:

1. Human population size and growth is linked to physical environmental impact and ecosystem impact to determine the natural resources carrying capacity of the ecosystem plus human population.

2. In terms of climate change and sustainability, this is related to the carrying capacity which should not become negative.

3. Modes of reducing resources consumption are tied to productivity so the means of reducing motivations leading to high risk activity leading to reductions in carrying capacity are related to the optional state-of-the-art technologies and techniques to be deployed in processes all of which tend to occupy physical space and generate secondary outputs which can have environmental impacts. All processes and actions usually require legislative frameworks, regulations and oversight ensure that everything proceeds within the context of environmental protection.

4. Similarly, modes of reducing resources consumption are tied to sustaining productivity so the means of reducing motivations to include any high risk activities leading to reductions in carrying capacity. These are related to the balance between the financial return to economic units, the social and real income distribution and in product and service quality and unit prices requiring appropriate macroeconomic framework that provides appropriate incentives to match production with needed consumption and reduce inflation.

Making projects successful

Dr. Moatti's identification of shortcomings under Agenda 2030 is informing us that so far solutions are not totally relevant, efficient or effective. As a result they are not having sufficient impact and are unsustainable and therefore not addressing climate change issues. I have reviewed issues which as far as I can see do not make up an adequate part of the exchanges within the Agenda 2030 domain. These remain pressing problems. For low income countries these remain population size and rates of growth and macroeconomic frameworks that are not able to control inflation. These are basic contributors to rising inequality. Technological solutions are therefore battling against serious odds. In the second part of this article I will identify and describe the practical change strategies which require specific types of policy instruments to move Agenda 2030 forwards. In particular these will address the core subject of reducing inequality and shaping initiatives to secure responsible, that is sustainable, production and consumption as essential steps in addressing climate change.