Trade and Investment for Inclusive Growth, Evidence and Elements of a Coherent Policy Framework

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Trade and Investment for Inclusive Growth,
Evidence and Elements of a Coherent Policy
Framework Lessons from Southern AfricaRamos
MabuguFinancial and Fiscal Commission, South
Africa
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• What are the issues?

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Issues

• (i) Although Southern African countries have
  followed trade liberalisation and regional
  integration for some time, the reality is
• (ii) Investment in infrastructure in the region
  has been on the decline.
• (iii) Unemployment is high and poverty is high.

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• The main purpose of the presentation is to
  suggest some core elements of a coherent approach
  to trade, investment and inclusive growth in
  Southern Africa based on selected observations
  and recent literature.

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South Africa

• Apartheid ended in 1994
• Country has long tradition of trade
  liberalisation
• Trade policy is guided by multilateral
  arrangements as well as by bilateral and regional
  agreements
• Member of SACU
• Has FTAs with the EU and SADC
• Also benefits from USAs African Growth and
  Opportunity Act.

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Trade, Technology and Labour Markets

• Debate on effects of trade on employment and
  wages
• Unemployment blamed on technology and unskilled
  labour market rigidities
• Excessive wages the main cause
• BUT prevailing unskilled wages cannot meet basic
  needs

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Trade, Poverty and Fiscal Policy

• Studies find small positive output gains in short
  run
• But slight increases in poverty and inequality
  especially for poor rural Black women and
  children
• Labour market participation increases at expense
  of leisure
• Allowing for accumulation, trade induced total
  factor productivity increases accelerate growth
  and reduce slightly the incidence of poverty and
  inequality

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Trade and Education Policy

• South Africa suffers from severe skill shortages
• Expansionary secondary and tertiary education
  policy boosts employment and leads to improvement
  of the skilled labour endowment of households
• Certain undesirable long term outcomes including
  skilled unemployment, increased foreign
  indebtedness and reduced government savings
• If the education policy financed by a direct tax
  on households, this would be too expensive for
  households and would lead to a crisis for the
  economy.

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Trade and Social Policy
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Trade and Social Policy (contd)
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• Let us now look at Zambia.

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Introduction

• A recent study by Ianchovichina and Lundström
  identifies the key constraints on inclusive (and
  sustained) growth in Zambia.
• We then use it to sequence interventions that may
  lead us to get inclusive growth going

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Approach

• Uses method along lines of growth diagnostics by
  Hausmann et al.
• Supply and demand side factors preventing poor
  people participation in growth process identified
• Supply side factors refers to constraints
  hampering poor people access to labor markets or
  employability
• Demand side refers to obstacles to job creation
  and productivity improvements.

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Bindings constraints to shared growth in Zambia

• Lack of positive coordination externalities
  (rural-urban connectivity)
• Poor government effectiveness
• Regulatory uncertainty and government
  interventions (stop doing harm before doing good,
  especially severe in agriculture)
• Real exchange rate appreciation (international
  connectivity)
• Access to post-primary education and health for
  the poor

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• We can now bring the two bits of observations
  about each country to propose elements of a
  coherent strategy needed in Southern Africa to
  achieve inclusive growth.

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Elements of strategy (1)

• Promote greater regional integration through
  financing infrastructure
• Promote broad-based participation in economic
  activities
• Skills development Improve the quality of and
  access to secondary and tertiary education and
  health.
• Social Protection Government transfers to the
  indigent should remain part of measures to fight
  poverty

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Elements of strategy (2)

• Trade Liberalising Fiscal Policy
• Improve access to capital
• Poverty relevant social services such as health
  and education remain vital
• Improve governance

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Thank You!