Estimating Employment Gains of the Proposed Infrastructure Stimulus Plan in Post-Covid-19 South Africa

Abstract

For the economic recovery in the wake of Covid-19 pandemic, South Africa announced the launch of an ambitious ZAR 2.3 trillion infrastructure investment plan. This paper uses a simplified yet reliable method to analyse the potential growth and employment effects of this stimulus plan. Based on lower and upper bound values of the country’s estimated fiscal multipliers, we built a scenario prediction template with which output and employment expansion can be analysed within specified constraints on the fiscal space and the country’s economic dynamics. Our estimation model suggests that with a 50% state participation in the recovery investment, the best case scenario of fiscal stimulation would enable the economy to create 2.23 million jobs over the first 5 years of the stimulus investments (of which 1.74 million would be attributed to the stimulus effect), while the more realistic scenario based of the lower bound value of the fiscal multiplier with only 30% state participation predicts the creation of 1.67 million additional jobs, of which 1.18 million would be attributable to the stimulus. Our analysis also suggests that investing in the types of infrastructure that shift the production technology could change the long-term growth trajectory, while focusing on employment-intensive investment may only generate temporary effects.

The Impact of Interest Rates on the South African Equity Market

“…Studies conducted to examine the relationship between interest rates and the equity market include cross-country studies, country specific and a plethora of macroeconomic variables (Haider, 2018;Mbulawa, 2015;Kumuda et al 2016;Herranz, 2017;Brooks, 2014;Muriuki, 2014;Barakat et al 2015;Habiyaremye et al 2022;Mutheu, 2016;Liang et al 2022;Boachie et al 2016;Msindo, 2015;Michlian, 2014;Kganyago and Gumbo, 2015;Teitey, 2019;Ali, 2014;Tursoy, 2019). These studies were carried out in different regions and different countries with varying results as the relationship was found to be either insignificant or significant, either positive or negative and having a causal effect.…”

“…Meanwhile, in South Africa, interest rates have been declining gradually since 1998 as the country's central bank focused on reviving the economy with a monetary policy that has continued to lower interest rates (Habiyaremye et al, 2022). Figure 3 is a graphical representation of the interest rate cycle.…”

“…The COVID-19 outbreak caused central banks to reduce interest rates further. Thus, the central bank responded by lowering interest rates to revive the economy (Habiyaremye et al 2022). "The average interest charge on government debt was 15.2% in the years before the pandemic and the South African Reserve Bank (SARB) lowered the key interest rate with 300 basis points to respond to the Covid-19 crisis, our baseline assumptions are based on lowering future borrowing rates by the same 300 basis points" (Habiyaremye et al 2022, p. 553).…”

The direct employment impact of public investment

“…For example, Alloza and Sanz [2021] use a staggered difference-in-differences approach in Spanish on municipalities and estimate that local investment projects reduced unemployment by 7.4 jobs per EUR 1 million (i.e., 6.4 jobs per US$1 million at the average 2020-2021 exchange rate). Habiyaremye et al [2021] use a "bucket" method [Batini et al, 2014] and estimate that the South African ZAR 2.3 trillion (US$120 billion) stimulus infrastructure plan contributed to 14.7-18.6 jobs per US$1 million, where 9.8-14.5 jobs per US$1 million are directly attributable to the stimulus program. Nonetheless, there is a lack of global empirical evidence.…”