The recently released Global Economic Prospects report cautions that a second global financial crisis emanating from the Eurozone is a serious threat. Among the policy recommendations for developing countries is to prioritize infrastructure spending, even in a tight budgetary environment, because of its importance as stimulus and for long-term growth. We couldn’t agree more. This is especially relevant for many countries in the Middle East and North Africa (MENA) region, where domestic uncertainty has already lowered short-run economic prospects and unemployment is on the rise.
A forthcoming report (click here for summary), shows that investment in infrastructure contributes significantly to job creation in MENA. In the short-run every one billion of US$ invested in infrastructure has the potential of generating, on average, around 110,000 infrastructure-related jobs in the oil-importing countries, 26,000 jobs in the GCC economies, and 49,000 jobs in the developing oil-exporting countries. Put differently, these jobs would be foregone if countries instead decide to trim their public investment rates by one billion dollars going forward.
Estimated infrastructure needs for the region are US$106 billion per year for a decade. The region could generate 2 million direct jobs and 2.5 million infrastructure-related jobs by meeting these needs, but the potential varies greatly across countries and sectors. Because of per capita income differences, one billion dollars of spending generates more than six times as many jobs in a sector in Djibouti as in Lebanon, but the latter would find it considerably easier to finance investment expenditure. Spending on construction of roads and bridges would generate more than twice as many direct jobs as the same amount of spending in any of the other sectors. Construction of roads and bridges is the most job-intensive activity relative to spending, followed by water and sewage infrastructure, while transport and communication is the least job-intensive activity. For example, Figure 6 shows the wide variation in the estimated cost of one direct job across sectors in Egypt in 2009.
Figure 6: Estimated Cost of one Direct Job in Egypt in 2009 (In US$ thousands)
In addition to providing an immediate stimulus, roads, communications, electricity and other types of infrastructure are all important inputs into long-term growth. The report finds that the employment response induced by infrastructure investment resulting in one percentage point additional growth is expected to be 9 million additional jobs in the course of ten years in MENA, or a little less than 1 million jobs per year. Such a response is significant as it accounts for approximately 30 percent of the jobs created in the region during the 2000s.
Infrastructure investment has the potential to create jobs quickly, while providing a foundation for future growth and employment. This is especially important in oil importing countries, like Egypt and Tunisia, where the infrastructure gap is the greatest and employment needs are growing. However, it is also likely to be most difficult in these countries because of strained finances. Going forward, government decisions on what types of spending to expand, what to cut to achieve balanced budgets, and how to work with the private sector to finance infrastructure projects will have important implications for jobs. Prudent infrastructure development will be critical for both short- and long-term growth and job creation.