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What kind of fiscal stimulus for Africa?

Shanta Devarajan's picture

I said earlier that more important than the level of additional aid is what governments do with their own and donors' resources. My colleague Jorge Arbache provides some answers. He observes that, even if the recession was caused by a commodity price decline, public spending should not necessarily be spent on the commodity exporting sector--unless it employs large numbers of people, as does the cotton sector in West Africa, for instance. He also advocates expenditures on infrastructure (maintenance and even new investment) because they create jobs in the short run, and leave the economy better placed to benefit from a turnaround in the global economy in the medium-run.

Comments

Submitted by Anonymous on
Agree - investment in infrastructure is a must. There are many different ways that investment in infrastructure can be spent - I am thinking particularly of investment in infrastructure that is labour intensive - ie, the spending seeks to maximise job creation. Maximising the labour intensiveness of infrastructure spending has not exactly been at the forefront of public debate, but if stimulus is spend in this way, the impact of infrastructure expenditure can be far broader reaching and sustainable (both in terms of employment duration and quality of asset). There is also a diverse range of infrastructure investment - both physical, social and environmental - that can be included in stimulus packages. But, it will be no good if the budget is not spent labour intensively. If infrastructure investment is to be spent labour intensively, 30 to 40 per cent should be spent on employment that is accessible to those poverty (i.e., unskilled). The cost per job that is created should be monitored closely. Many commentators have suggested that a greater portion of the stimulus funds should be directed towards cash transfers, in order to stimulate demand and alleviate poverty. I would stress that this creates a situation in which need for consumption can be fulfilled, but aspirations for employment and the intrinsic social and capacity building role of participating in paid work is undervalued. Further, consider what we get from employment - money, social contact, daily structure, activity, stimulation, identity… Public works on a massive scale can be mobilised relatively quickly; one can consider the Jefes de Hogar programme from Argentina. In the interim social transfers can and should address administrative or capacity constraints related to organising employment, but the priority should lay with inclusion through employment. Warmest thanks to the readers who’ve taken the time to read and comment on my piece.

Submitted by Heide on
Many thanks Shanta for your cutting-edge information and thoughts on Child Survival (http://siteresources.worldbank.org/EXTAFROFFCHIECO/Resources/fiscal_stimulus_for_africa.pdf), and on the idea of fiscal stimulus packages in Africa. These are separate topics, but linked by key concerns about effective approaches to break the vicious circle of poverty and poor health. Using components of fiscal stimulus packages to invest in health services and health workforce, particularly at the community level, is potentially an investment with excellent returns, both in terms of health gains and stimulation of local economic cycles - but more systematic and evaluated approaches may be needed to learn from country experience. I would be grateful for your thoughts on this particular linkage.

Interesting. So you don't think fiscal stimulus should go into general budget support - even in countries seen as 'safe' for GBS? Albert www.internationalbudget.wordpress.com

Submitted by murlat on
I think investing in infrastructure is a positive move. Yet there is reason to believe that it is a matter of time before Africa and its people will feel the adverse effects of global crisis. From Ghana to Kenya for Governments it is increasingly difficult to find money for infrastructure projects and to manage the official debts.

Submitted by Heide on
How can investments for health be used in such a way that they stimulate local economic cycles at the same time? For example, investments in quality-controlled local production of essential drugs and other commodities for child survival, in training and remuneration of health professionals and of community health workers/community resource persons, etc.? - A useful link on local economic cycles, with further references: http://www.apreis.org/docs/eco.dev.loc_karl.birk_ev.pdf Quotes the Greater London Council, 1985: “Are Londoners so well housed; are their homes so warm and so well furnished, are Londoners so well clothed and so healthy that there is nothing for 400.000 unemployed people to do?” - Couldn't the same be asked for developing countries, where both unmet needs and levels of unemployment are much greater? Hence, the questions above with regard to developing countries, especially in Africa.

Submitted by YorTz on
I think investing in infrastructure is a positive move. Yet there is reason to believe that it is a matter of time before Africa and its people will feel the adverse effects of global crisis. From Ghana to Kenya for Governments it is increasingly difficult to find money for infrastructure projects and to manage the official debts.

Submitted by Alex Nyembo Kalenga on
I think the are a lot of scope in all type of investment in Africa. Talking of The Congo, the government need to help investors to feel like bringing money by removing few law and give incentive. The world continent suffers from power scarcity, they should introduce law to invite green business and specially in energy sector.

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