Transform economy for inclusive growth

Inclusive and sustained economic growth was the theme for the 2017 World Economic Forum for Africa (WEF) held in Durban two weeks ago.

To achieve inclusive and sustained economic growth, greater attention will have to be placed on transforming the structure of the economy. This would require investing in human capital and infrastructure. Government policy and public-sector participation is also required to facilitate this process.

In the Inclusive Growth and Development Report 2017, the WEF notes that support for regulatory institutions in areas such as tax administration, competition, investment, anticorruption, the judiciary, labour, the environment, social protection and business-government relation is important for a more inclusive economy.

A shift in how the economic performance of a country is measured would also have to be assessed.

The WEF suggests that broad-based progress in living standards should perhaps be the ultimate measure of economic performance rather the expansion of national output (GDP). Many African economies have reported exceptional GDP rates over the past couple of years, but this has not necessarily translated into inclusive growth, or a meaningful improvement in the living standards of all citizens.

The backdrop to the 2017 forum was not a favourable one. Global growth is improving but remains low by post-World War 2 standards. Granted, growth in advanced economies is expected to lift this year, but most of these economies are expected to report growth below 2%.

Reduced risk of a hard landing in China, firmer commodity prices and continued portfolio flows into emerging markets should support higher growth in 2017 for emerging markets.

In sub-Saharan Africa, the improvement in commodity prices is expected to lift growth. However, infrastructure inadequacies and heightened political uncertainty will limit this growth trajectory.

Advancements in technology, migration and deregulation have boded well for national income, but they have also created changes in the labour market. In advanced economies specifically, it has increased pressure on wages and created a lot of discontent and inequality, and has sparked debates about social inclusion.

One of the key topics at the forum was the fourth industrial revolution, which is growing at an exponential rate thanks to breakthroughs in artificial intelligence, robotics and the internet. This revolution will not only have a meaningful impact on supply- side efficiency, it will also contribute to the affordability and improvement of goods and services. 

While this stands to improve national income, it may not necessarily translate into broad-based improvement of living standards. Those who stand to benefit the most are highly skilled individuals and providers of capital, potentially leaving low-skilled individuals in a worse position.

Many economies are not equipped or prepared to fully reap the benefits of the change that is upon them. However, there is recognition that access to quality basic education and effective school-to-work transition will have to be prioritised. 

Furthermore, the WEF highlights that active labour-market policies, gender parity and nonstandard work benefits and protection are other human capital areas that need to be addressed to keep up with changing labour market dynamics. The development of the youth needs to be at the centre of policy formulation.

Nxedlana is FNB chief economist