DEVELOPING COUNTRIES Neil Coleman Co-Director Institute for - PowerPoint PPT Presentation

MAKING SENSE OF FULL EMPLOYMENT IN DEVELOPING COUNTRIES Neil Coleman Co-Director Institute for Economic Justice Neil.Coleman@iej.org.za ILO The Future of full employment symposium Geneva 12-13 December 2019

Stimulate, stabilize, structurally transform • In South African context IEJ has developed approach of: Stimulate, Stabilise, and Structurally transform. • Use a range of policy tools to achieve these goals: • Stimulate- macro economic stimulus package • Stabilise- MEP to reduce volatility and social protection, MW and measures to stabilize struggling sectors • Structurally transform- targeted and well resourced industrial policy to diversify economy, SA and region. • Broader continental context. Can adapt but critical pillar is resource mobilisation strategy for investment.

The need for policy coherence • Examples of developmental strands in individual countries policies. But no coherent, coordinated development strategies on the continent provide an example. Progressive elements of some countries policies are contradicted by others, usually drawn from orthodox ME strategies, which either constrain them, or render them largely ineffective, and aren't part of a strategy of systematic structural transformation: • SAs industrial strategy largely negated by contractionary ME policies. • Botswana's effective monetary policy interventions. • Ethiopia's state led investment etc. • Francophone Africa monetary peg creates its own dynamics. • The trajectory of African economies under neoliberalism-Africa's path dependency ; lack of economic diversification; the relatively small size of the domestic market etc. poses the need for a fundamental shift in approach if there is to be any real prospect of a full employment and decent work agenda.

Africa growth story • Impressive growth story • Despite the collapse in commodity prices since 2014, the IMF projects that Sub-Saharan Africa (SSA) will grow by 3.2% this year, above the global projection of 3% and the advanced economies projection of 1.7%. • 20 economies SSA, accounting for about 45% of the population and 34% of the region’s GDP, are estimated to be growing faster than 5 percent this year. • But growth has failed - to change economic structure: remain resource constrained - to generate decent employment

IEJ Diagnostic for ILO study on pro employment MEP Employment 1. Africa’s relatively strong growth during the 2000s did see some improvement in employment dynamics but these were insufficient given massive growth in the labour force. Employment is still highly precarious: The proportion of vulnerable employment is at 71%, slightly down from 76% in 1991. • One-third of employment in Africa in 2018 remained in extreme poverty and a further 22% was moderately poor (ILO, 2019a). Highest of any continent. ILO: the African working poor represented more than half (56%) of the world’s working poor in 2018, while African employment represented only 14% of global employment. • Youth and women are more vulnerable: 39% of Africa’s employed youth lived in extreme poverty compared to 31% of Africa’s employed adults in 2018; and 37% of employed women were poor in 2018, compared to 30% of employed men • Informality: 86% of employment in Africa is informal; 90% of employed women are in informal employment; 95% of youth who work, work in the informal economy.

Diagnostic 2 . Economies not structurally transformed / diversified • There was shift of the labour force into formal sector employment work and away from agricultural employment. But to services sector: now accounts for 31.4% of employment in Africa in 2017, up from 20.48% in 2000. • This did not dramatically boost productivity in Africa. Much of the service sector work was in low-paying, quasi-informal, work. • Africa’s manufacturing sector’s contribution to GDP and employment remains small (less than 10% for most economies) .Dominated by small, not particularly productive, firms. • As a result, self-employed workers declined by only 4 percentage points between 1991- 2017 for SSA and remains at 74% in 2017 . 3. Commodity constrained Around 85% of Africa’s economies remain commodity -dependant today Africa is not, first and foremost, demand-constrained but instead commodity-constrained, defined as a lack of diversified and productive domestic capacity and capabilities. This is what limits the ability of Africa’s growth to transform its labour market and what leads to internal balance coming at the expense of unsustainable external balance. As a result, Africa’s relatively strong real GDP per capita growth during the 2000s not followed by big increases in formal sector employment .

South Africa austerity • This year Treasury announced full blown austerity plan, following moderate austerity pursued over last few years. In context of close to 40% unemployment on expanded definition and economy on brink of recession. • the Treasury proposes government expenditure reduction of R487bn over the next three years: cuts in public employment; cutting government spending on goods and services; reducing government transfers and subsidies; reducing general government investment in economic and social infrastructure • ADRS modelled impact: The proposed expenditure reductions, which are equivalent to 3% of GDP during the first year, translate to negative direct and indirect demand shocks to the economy • Model results show that the proposed fiscal austerity programme will shave 0.16 of a percentage point from the average annual growth rate and raise the average unemployment rate by 2.2 percentage points. • By 2022 the measures are expected to reduce total employment by 550,000, mainly due to the cuts in public employment. Negative effects of reduced household income and expenditure on output and employment will persist well beyond 2022.Overall, by 2030, total employment is projected to be lower by 730,000

Indicators for pro-employment macroeconomic policy IEJ working on pro employment macro economic policy guide for Africa as part of ILO project, in collaboration with the AU. Some indicators suggested to measure whether MEP pro-employment • Aggregate employment • Disaggregated employment – age, gender, etc. • Form of employment - formal/informal, permanent/casual etc. ; and underemployment • Labour force size and trends • Skills and training • Wage levels

Policy proposals 1. Price and exchange rate stabilisation (short-run): • Maintaining a stable exchange rate and stable domestic prices. Avoiding Dutch Disease affects through reserve asset accumulation. 2. Managing financial integration: • Capital management techniques. 3. Developmental monetary policy: • Expanding the tool box of monetary policy instruments to direct credit in the economy in way that is expansionary and structurally transforms the economy. 4. Revenue mobilization: • Through greater capturing of mineral rents and revenues; as well as using institutionalized rules-based mechanisms to help reinvest the revenues over time.

Policy proposals 5. Fiscal policy – investment facilitation and demand management: • Domestic spending management to limit balance of payments imbalances while maximizing domestic employment. Increasing investment. Counter-cyclical demand policy during low commodity prices by increasing revenue 6. Productivity enhancing social expenditures: • Technology, human capital accumulation, infrastructure, and capacity building. This includes productivity-enhancing inclusive social policies. 7. Industrial policy and sectoral planning: • greater value addition and greater productivity. Investment coordination. Infrastructure and skills.

*Revenue mobilization • Need to ensure increased domestic revenue mobilization while encouraging foreign investment. • Tax • Limiting incentives competition to avoid base erosion and excess profits • Proper capturing of revenues through removing exemptions • Increased progressivity of tax structure (WAEMU area, Mauritania, Senegal, Ugandan examples). • Taxing mineral revenues - taxes can occur on excavation, land, income, windfall profits, and resource rent taxes. And this can be applied through royalty, licensing, leases, joint ventures, and a variety of other instruments. (Zambia, Mozambique, Botswana and Norway). • Combating illicit financial flows and tax evasion

Macroeconomic regime and structural transformation • This shows the important link between macroeconomic policies and structural transformation • Structural transformation must aim to achieve a diversified industrial structure that allows for productivity gains and climbing value chains. This can be employment enhancing. • Macroeconomic policy must facilitate this structural transformation. • Appropriate transformation will also ease constraints on macroeconomic policies, e.g. foreign exchange and inflation

(*)Contextual constraints to macroeconomic policy • The current structure of many African economies places constraints on macroeconomic policy choices • Monetary sovereignty • Limited by hard pegs and monetary unions • Limited by nature of financial liberalization • Currency hierarchies • Fiscal space • Potentially limited by growing debt levels (contextual if this is true or not) • Cost of borrowing • Denomination of debt • Small domestic financial sectors / low savings