Trade and Investment for Inclusive Growth Evidence and

Trade and Investment for Inclusive Growth, Evidence and Elements of a Coherent Policy Framework – Lessons from Southern Africa Ramos Mabugu Financial and Fiscal Commission, South Africa 9/24/2021 1

What are the issues? 9/24/2021 2

Issues n (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. n (iii) Unemployment is high and poverty is high. n 9/24/2021 3

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……. 9/24/2021 4

South Africa Apartheid ended in 1994 n Country has long tradition of trade liberalisation n Trade policy is guided by multilateral arrangements as well as by bilateral and regional agreements n Member of SACU n Has FTAs with the EU and SADC n Also benefits from USA’s African Growth and Opportunity Act. n 9/24/2021 5

Trade, Technology and Labour Markets Debate on effects of trade on employment and wages n Unemployment blamed on technology and unskilled labour market rigidities n Excessive wages the main cause n BUT prevailing unskilled wages cannot meet basic needs n 9/24/2021 6

Trade, Poverty and Fiscal Policy n n 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 9/24/2021 7

Trade and Education Policy n n 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. 9/24/2021 8

Trade and Social Policy 9/24/2021 9

Trade and Social Policy (cont’d) 9/24/2021 10

Let us now look at Zambia……. 9/24/2021 11

Introduction n A recent study by Ianchovichina and Lundström identifies the key constraints on inclusive (and sustained) growth in Zambia. n We then use it to sequence interventions that may lead us to get inclusive growth going 9/24/2021 12

Approach Uses method along lines of growth diagnostics by Hausmann et al. n Supply and demand side factors preventing poor people participation in growth process identified n Supply side factors refers to constraints hampering poor people access to labor markets or employability n Demand side refers to obstacles to job creation and productivity improvements. n 9/24/2021 13

Bindings constraints to shared growth in Zambia n n n Lack of positive coordination externalities (ruralurban 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 9/24/2021 14

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………. 9/24/2021 15

Elements of strategy (1) n n 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 9/24/2021 16

Elements of strategy (2) n Trade Liberalising Fiscal Policy n Improve access to capital n Poverty relevant social services such as health and education remain vital n Improve governance 9/24/2021 17

Thank You! 9/24/2021 18