Recovery needs jobs, not just growth
The World Bank’s chief economist for Africa, Albert Zeufack, has warned resource-dependent economies on the continent that an over-reliance on exports has led to growth – but no jobs. With rising unemployment, a policy shift is needed to place greater focus on employment creation. The experience of the past decade, when the continent witnessed exponential economic growth rates but stagnant job markets, has brought this point to bear. Covid-19 has driven it home.
The predictions of yesteryear are fast becoming the realities of today. The World Bank, among other institutions, has long identified the fiscal and structural problems reinforcing South Africa’s status as one of the most unequal societies in the world.
Covid-19 has not only made these visible cracks more apparent, but the outbreak of the virus has also highlighted the perils of inertia in administering much-needed change. In the latest edition of the World Bank’s
Africa’s Pulse, Zeufack and his team look at how the region has fared since the onset of Covid-19. They prescribe a rethinking in order to effect a sustainable, inclusive recovery.
While the publication covers a cross-section of issues, these are the most salient in a South African context: the effects of Covid-19 on health and education, the deteriorating fiscal metrics and economic performance, and the remedy to effect sustainable reforms.
The Covid-19 crisis has crystallised the fact that the public sector can no longer afford to remain an incubator of administrative inefficiencies. In addition, corruption must be dealt with head-on.
Achieving those aims will require leadership at the highest levels to act in a manner that ensures transparency and accountability in how public affairs are conducted.
The task is made more urgent because there remains uncertainty about Covid-19.
The US and European Union are grappling with second-wave infections. As Africa prepares to reopen its economies and resume international travel, second-wave infections are unavoidable.
“It is important to continue strengthening public health systems and to continue to work with local communities to prevent Covid-19 from spreading,” Zeufack says.
This is because the pandemic crisis threatens to disrupt human capital accumulation in sub-Saharan Africa and set back progress in health and education, according to the World Bank.
“In South Africa … where 80% of the students already experienced learning poverty … 13 million students were affected and left without any form of schooling between April and June 2020,” note the report’s authors.
Furthermore, “[the] high youth unemployment rate has been aggravated by the decline in economic activity”.
It is estimated that Africa will have the largest number of young people in the world by 2050. In essence, Africa is the repository for the future global workforce.
The World Bank recommends that countries in the region implement short-term policies to reconstitute the fiscal space lost because of Covid-19 and increase efficiency in public spending.
World Bank economists looking at the region say most countries in Africa will emerge from the Covid-19 with large budget deficits.
“Fiscal deficits in the region will widen, on average, by 3.5 percentage points of GDP in 2020. Debt burdens will be heavier. The risk of debt default has started to materialise for one country in the region.”
As for South Africa, its fiscal performance is expected to weaken significantly in 2020.
In general, there has been a contraction in activity and a reduction in economic growth.
Export revenues are down. International tourism has only just opened up. People in the African diaspora have not been able to send remittances back home. Foreign investment is declining. And the decline in remittances has crippled six countries, where remittances account for 10% of their GDP.
Globally, more than 90% of countries are entering a recession in 2020. Demand for Africa’s minerals has declined. Exports from African countries have slowed down.
These conditions make reform a compelling and necessary goal. However, pursuing an economic growth agenda will defeat the aims of policy reform.
Experience has taught Zeufack that economic growth alone is not enough. “We’ve seen it in the past 10 years. A number of African countries have been experiencing growth rates of 5% to 7%. Yet, poverty has not declined significantly. This is because we are not creating enough jobs,” he says.
Rather, the bank suggests closing the urban-rural digital divide, reforming the export models of some regional economies, and spatial integration should be the priority areas for policy reform to take shape.
The current model of exporting raw materials does not create jobs – not enough jobs for the youth, not enough jobs for women, points out Zeufack.
Coming from the World Bank’s chief economist for the region, this statement is both refreshing and eye-opening. It is also important to note the departure from a growthcentric discourse to one that incorporates social policy considerations. This has long been the criticism levelled against SA’s macroeconomic framework: it prioritises growth to the detriment of other considerations.
In short: “The road to recovery must be paved with sound economic policies, especially those that lead to job creation. Ultimately, that’s what will make our recovery sustainable and inclusive,” concludes Zeufack. DM168