Jobs, not growth alone, hold key for sustainable economic recovery – World Bank

The predictions of yesteryear are fast becoming the realities of today. The World Bank, among other institutions, has long identified the fiscal and the structural problems reinforcing South Africa’s status as one of the most unequal societies in the world.

Covid-19 has not only made these already visible cracks more apparent, but the outbreak of the virus has also highlighted the perils of inertia in administering much-needed changes – or “reforms” in World Bank parlance. 

In the latest edition of the World Bank’s Africa’s Pulse, the institution’s chief economist for the continent, Albert 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 and inclusive recovery.

While the lengthy 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.

“We believe the road to recovery will be long,” concedes Zeufack. He discussed the report’s core findings during a live stream late on Thursday. 

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 and resource management systems strengthened.

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 much 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 keep our guard up. It is important to continue strengthening public health systems and continue to work with local communities to prevent Covid-19 from spreading,” Zeufack said.

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. Thus, investments in the continent’s human capital are non-negotiable.

The World Bank recommends countries in the region implement short-term policies to reconstitute the fiscal space lost because of Covid-19 and increase efficiency in public spending.

Covid-19 has exposed acute macroeconomic vulnerabilities across Africa, according to the international development finance institution.

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,” they warn.

“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 an attendant 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 direct investment is declining. Private capital flows are drying up.

Cape Verde, the Seychelles and Mauritius have been the worst affected by the travel bans. 

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%-7%. Yet, poverty has not declined significantly. This is because we are not creating enough jobs,” he says.