Session 8: Financing the sustainability transition
South Africa has embarked on a drive to attract private investment in ports, with the objective of not only acquiring investments but also as a means to build up local expertise and develop capacity. Due to its strong regulatory and legislative framework, as well solid entrepreneurial culture, South Africa has an advantage compared to many other African countries in attracting private investors. This policy brief explores why there is not more private investment in South Africa's ports and make recommendations on how to increase this.
Author: Wendy Nyakabawo, TIPS Intern, based on a presentation by Dr Sheila Farrell of Sheila Farrell Associates Ltd and Imperial College London
This paper models tourist arrivals into Mauritius from various parts of the world with a view to understand the contribution of different determinants in explaining the success of the island as an international tourism destination. A dual methodological approach was adopted namely panel date and survey frameworks. Results from the econometric analysis indicate that infrastructure capital is positively related to total tourist arrivals as well as on arrivals from the three regions considered. European and American tourists are observed to attach sizeable importance to such infrastructure. Results from the dynamic panel data analysis (GMM methods) are overall consistent those of the fixed effect model. The presence of repeat visits was also detected. Results from the survey analysis overall validate that of the initial set of results particularly to comfort, cleanliness and security. The respondents tended to place lot of emphasis on the availability and quality of public transport, where many of the elements falling under this dimension were rated high with mean score. Univariate descriptive statistics also reveal that public utilities (water and electricity) were the most important. The mean score for the case of soft infrastructure were relatively high side which indicating that the tourists equally ascribe high importance to the soft infrastructure.
Session 3A: Social Grants, State Expenditure and Welfare Outcomes
This paper employs a reduced form Solow Growth framework to investigate the role of public investment on infrastructure on economic performance for the case of Mauritius over the period 1970-2006. Given the non-stationary characteristics of the data, an error correction model is adopted. Public capital is shown to have significantly contributed to Mauritian economic performance. Moreover results suggest that there may be indirect effects via private capital accumulation and the openness channel as well.
Through the analysis of trends in South Africa's higher education enrollment of Southern African Development Community (SADC) citizens over the years, the study investigates the extent to which the country has strategically marketed its educational services and positioned itself as the educational hub of Southern Africa. The analysis reveals that South African universities' export of higher education services has been modeled in line with three of the four modes of supply identified in World Trade Organization's (WTO) General Agreement on Trade in Services (GATS). The three modes that the country has utilized are: (i) cross-border supply, (ii) consumption abroad, and (iii) commercial presence, and as a result of that, it has become the educational hub of southern Africa.
The study found out that South Africa can act as the educational hub of Southern Africa. It has been found out that it is competent in most education attraction factors. It has the highest number of public universities in Southern Africa. South Africa universities dominated the top ten highly rated Universities in Africa. In terms of factors that lead to internalisation of higher education South Africa Universities offers international recognized academic qualifications. South Africa in general is highly rated in terms of local availability of research and training institutions, quality of scientific research institutions quality of overall infrastructure and institutions. The study further provides some policy suggestions as to how best South Africa and SADC countries can improve their respective higher education laws, regulations and strategies in order to attract more foreign students into their respective universities. Some of the possible regulations to enhance enrolment of regional citizens in the universities of member states includes: (i) allowing students on study permit to also work in the country of study whilst studying without having to get a separate work permit, (ii) harmonizing recognition of educational qualifications across the region thus making it easier for potential students from one regional country to apply and be accepted at a university in another country, and (iii) introduction (or increasing) of flexibility in studies for instance, through block release where students come for a limited period for face-to-face tuition whilst distance and online learning constitute a larger proportion of the qualification tuition.
This paper investigates the impact of the quality of infrastructure on exports, with a specific focus on Sub-Sahara Africa. Improving the quality of infrastructure has a positive effect on exports by lowering the transport costs faced by the exporter. This paper provides a new specification on how to model transport costs in the gravity model. Specifically, minimum and maximum infrastructure variables are included in the model rather than exporter and importer infrastructure variables. The gravity model forms part of a Heckman selection model, which is used to deal with the biases induced by excluding zero bilateral exports in the gravity model. The results suggest that it is the minimum quality of infrastructure between two trading countries that matters most for transport costs and therefore trade. This result also holds when using disaggregated export data and specific infrastructure variables. No robust evidence was found that Sub-Sahara Africa exports less than expected or that improving the quality of infrastructure has a significantly different effect on Sub- Saharan exports. However, using disaggregated trade data it was found that Sub-Saharan countries, given its characteristics, export more primary products and less manufactured goods (although the findings for manufactured goods are not robust).
The South African government has begun to speed up the delivery of infrastructure. This policy shift is in line with its aim to halve poverty and unemployment by 2014, achievable if the economy grows at an average rate of 6 per cent by 2010. The government was able to demonstrate advances across many fronts at the end of the first decade of democracy. Macro economic conditions had stabilised and the economy was growing. In the socioeconomic arena, basic services were more widely accessible and poverty rates were marginally down. However, the Ten Year Reviewi, published by the Presidency, pointed to a series of crucial challenges to the further improvement of sustained economic growth performance and the elimination of poverty and reduction of inequality. These challenges were acknowledged in the 2005 State of the Nation Addressii, in which the President urged the nation to work to achieve the ambitious goals set out for the next decade: that is, to halve poverty and unemployment by 2014 and raise economic growth to an average of 6 per cent by 2010.
In February 2006, the Deputy President launched the Accelerated and Shared Growth Initiative for South Africa (Asgisa)iii to address these challenges and opportunities. This initiative incorporates the imperative of speeding up delivery and economic growth, and making sure that the more rapid and equitable distribution of opportunities and benefits is promoted and supported. This paper, an extract from the DBSA's 2008 Infrastructure Barometer, will explore exactly this relationship , between infrastructure investment and its impact on both economic growth and development.
In the current three-year budget cycleiv, the South African national Treasury has allocated R568 billion to infrastructure development and maintenance, broadly defined. This follows the period between 1976 to 2002, when annual infrastructure investment fell from 8.1 per cent to 2.6 per cent of GDP, and per capita expenditure from R1 268 to R356.v While it is known at a macro- level, in aggregate terms, what the level of infrastructure investment is and should be, there needs also to be an understanding of the likely impacts and implications of disaggregated sectoral infrastructure investment, where and for whom and under what conditions.
At the macro-level, the acceleration envisaged in AsgiSA sets an earlier date for planned future investment, significantly increasing the total amount available for investment in infrastructure. It is generally anticipated that this will also bring forward the benefits to be gained from such investment. However, although accelerated (increased) spending generally will increase the rate of growth, its impact on reducing poverty and unemployment is not as clear. These outcomes require an understanding of the pattern of spending in terms of sectors and value chains as well as location. Thus, although the economic growth and aggregate poverty and inequality situation might be improved at macro level, at the micro level, where benefits are experienced, the picture may be very different.
In order to test the impact of accelerated infrastructure investment on the South African economy, and specifically on the macro-economic, poverty and distribution performance of the economy, a linked macro-micro economic model of South Africa was developed. The findings and implications of this model will form the basis of the paper.
Empirical explorations of the growth and productivity impacts of infrastructure have been characterized by ambiguous (countervailing signs) results with little robustness. A number of explanations of the contradictory findings have been proposed. These range from the crowd-out of private by public sector investment, non-linearities generating the possibility of infrastructure overprovision, simultaneity between infrastructure provision and growth, and the possibility of multiple (hence indirect) channels of influence between infrastructure and productivity improvements. This paper explores these possibilities utilizing panel data for South Africa over the 1970-2000 period, and a range of 19 infrastructure measures. Utilizing a number of alternative measures of productivity, the prevalence of ambiguous (countervailing signs) results, with little systematic pattern is also shown to hold for our data set in estimations that include the infrastructure measures in simple growth frameworks. We demonstrate that controlling for potential endogeneity of infrastructure in estimation robustly eliminates virtually all evidence of ambiguous impacts of infrastructure, due for example to possible overinvestment in infrastructure. Indeed, controlling for the possibility of endogeneity in the infrastructure measures renders the impact of infrastructure capital not only positive, but of economically meaningful magnitudes. These findings are invariant between the direct impact of infrastructure on labour productivity, and the indirect impact of infrastructure on total factor productivity.
Improving commuter rail service delivery is a high-priority programme of the Department of Transport (DOT). Faced with a failing business, the DOT has launched a reform programme for commuter rail, foreseeing increased public investment and possibly an extended role for the private sector. The object of this working paper is to contribute to the emergence of a robust commuter rail reform programme that is built on sound transport principles. It presents a model for understanding the appropriate role and extent of public transport and the harnessing of the private sector to complement government-led reform.
Commuter rail services provide mass transport for the poorest category of commuters, providing 458-million passenger journeys in 2003. However, the effectiveness of the R2.5-billon spent on the service currently is in doubt. The state of the assets and the quality and extent of services are in decline, approaching a critical state. Dissatisfaction, accompanied by outbursts of public anger, is rising because of slow delivery by government on promised improvements in living and economic conditions of the poor who constitute the majority of our population.
Government has to find sustainable ways to improve performance and increase capital spending on infrastructure and rolling stock. It has recognised the urgent need to replace the current dysfunctional industry structure and has acted by launching a process to merge commuter and passenger rail assets into a single entity, PAXCo, under the control of the DOT.
A technical planning team has begun to develop a business plan for PAXCo. It envisages three phases managed retreat and stabilisation, recovery, and service development and growth. The structures of government, management and supporting institutions have to be equipped to manage the fallout of a situation that will worsen before it gets better. This paper provides an analysis of the situation and proposes a basic model for the successful and sustainable delivery of commuter rail services.
In South Africa, there is an increasing trend towards trading health services, both in the public and in the private health sectors, despite minimal formal liberalisation offered by South Africa under the General Agreement on Trade in Services (GATS). Health services trade has been occurring in at least three of the four modes of supply: foreign commercial presence, consumption abroad and movement of natural persons. This paper concentrates on defining regulations in the health sector and determining whether these form barriers to trade or are trade enabling. The paper also provides data on the sector under the categories of human resources, health care providers and health care purchasers. It is concluded that policymakers would be wise to exercise due caution when considering health services trade liberalisation as the impact on the public sector may not be positive.
A priority for the post-apartheid government was the extension of basic infrastructure services to the vast majority of citizens that were not serviced under apartheid. The Reconstruction and Development Programme set objectives for each of these utilities that would be achieved in the first decade of democracy, while departmental policy aimed to find means to achieving these targets. The strategy of choice in most sectors was one of ambitious rollout targets being set for utility operators. Targets were set for individual residential service (what we would term universal service) and for community service outside of individual homes (universal access). Whilst most utilities remained under public ownership, in telecommunications there was partial privatisation of the incumbent Telkom and the entry of privately owned mobile cellular operators. This paper examines how rollout targets and licence conditions for universal service have performed in this sector where private operators exist. It examines the failure of the Telkom licence and draws out some lessons for policy.
A close look at the specific causes of domestic and foreign private investment in the SADC countries is needed. This paper has the aim to look especially at those factors that are under direct control of governments like infrastructure and regional integration and where decisions have to be made in the coming years. In the existing literature on the determinants of investment these aspects haven't been investigated in detail. Therefore this paper focuses on the effects of deepening regional integration and improvement of infrastructure. It covers domestic as well as foreign investment and identifies policy measures for improving the attraction of investment by focusing on investment determinants that are under control of the SADC governments. Only if effects of FDI under specific circumstances are well understood investment policies can be designed that will attract investment in those sectors that can bring the highest benefits to the country and increase the potential for sustainable growth.
In this paper, we report on the preliminary results from an analysis of the macro impact of HIV/AIDS in South Africa. We have constructed an economywide simulation model that embodies the important structural features of the South African economy, into which we have added major impact channels of the HIV/AIDS epidemic. Using available demographic estimates for the impact of the epidemic (on labor supply, death rates, and HIV prevalence) along with assumptions about behavioral and policy responses (household and government spending on health, slower productivity growth), we use the model to generate and compare two scenarios: a hypothetical "no-AIDS" scenario in which the economy continues to perform as it has over the last several years, and an "AIDS" scenario in which the key AIDS-related factors affect economic performance. Focusing on the differential between the "no-AIDS" and "AIDS" scenarios, we find that the impact of the epidemic could be substantial. Over the 1997-2010 simulation period, GDP growth rates in the two scenarios diverge steadily, reaching a maximum differential of 2.6 percentage points. The result is a GDP level in 2010 that is 17 percent lower in the "AIDS" scenario; an alternative measure of "non-health, non-food absorption" is 22 percent lower by 2010. While some of this decline is due to the lower population associated with the "AIDS" scenario, per capita GDP does drop by around 8 percent. In fact, our simulations suggest that, despite the fact that AIDS impacts the high-unemployment unskilled labor category more than others, the net effect of higher AIDS-related mortality and slower growth is to leave the unemployment rate largely unchanged.
We also use the model to "decompose" the overall decline in growth performance into the contribution of the various channels. Given our current assumptions, the largest share (close to half) of the deterioration in growth is attributable to the shift in government current spending towards health expenses (which increases the budget deficit and reduces total investment), while an additional third stems from slower growth in total factor productivity (TFP). The decomposition illustrates the importance of considering the slow moving nature and hence long duration of the epidemic. If the epidemic imposes a drag on the rate of accumulation of knowledge (reduced TFP growth) or the rate of accumulation of capital (through a switch from savings to current expenditure), these effects become amplified over time. Over the course of a decade, the implications for macroeconomic performance are substantial.
Looking forward, our analysis suggests several avenues for further investigation. First, the parameters used in specifying the various AIDS effects are based on fairly limited empirical evidence, and it will be important where feasible to supplement these with additional data. For example, we have limited the impact of AIDS on household expenditure patterns to an assumed increase in health service spending, but there may well be other shifts that will occur and that could be incorporated, based on survey results. Second, there are important dynamic effects that are not yet included in the model: for example, lower private and government spending on education (because of higher AIDS spending) will slow down skills accumulation and change labor force growth rates. Third, consideration must be given to how to capture the impact of alternative "intervention" policies - for example, at present there is no feedback between possible government policies to slow the spread of AIDS, and the demographic (and subsequent economic) trajectory of the epidemic.
Finally, interactions between the epidemic and alternative growth and development strategies should be examined. We find that interactions with key economic features, such as the unemployment rate, do not necessarily conform to the results that one might expect from a casual analysis. And, key policy decisions, such as financing for AIDS related government expenditures, are shown to be very important. These results suggest that, while the human crisis appears to be practically unavoidable, appropriate economic policy measures have the potential to significantly palliate the negative economic effects of the epidemic. For the policy-making process, the slow moving nature of the epidemic needs to be borne firmly in mind. The AIDS crisis does not require the snap policy decisions of, for example, the Asia financial crisis. Instead, deliberate speed, careful planning, and competent execution by government and other actors could substantially ameliorate the economic aspects of the AIDS crisis.
There is a line in the works of an ancient poet that reads ‘The fox knows many little things, but the hedgehog knows one big thing’2. Scholars have differed on the exact meaning of these dark words. Taken figuratively, these words provide a comparison of the deepest differences that divide economists on the question of infrastructure delivery. On the one hand, many argue for a singular vision of infrastructure delivery, as meeting basic needs, within fiscal constraints. Moreover, that accelerating delivery will require the introduction of private sector management and finances. On the other hand, there is a growing body of literature that is focussed on understanding infrastructure delivery as part of programme for eradicating poverty, reducing income inequality and employment creation. This school of thought prioritises the understanding of social, economic and human development linkages in infrastructure delivery. This paper argues that the delivery of water and sanitation, housing, energy and roads must be assessed through the capabilities they provide, rather than the narrow focus on meeting delivery targets.
Today, development economics has embraced a wider set of considerations, than simply meeting basic needs. Recent studies have suggested that poverty is best understood as the being excluded through “lacking resources” (Townsend P:1985), or the absence of certain “capabilities to function” (Sen A. : 1993). The importance of these emerging approaches – which have many variants- are that they focus evaluation of government programmes away from simple figures towards understanding the wider impacts on society. Moreover, it poses the questions of directly and indirectly creating employment squarely within the ambit of public action.
Drawing on this approach to assessing public action, this paper explores two themes. First, an assessment of the economic impact of infrastructure delivery is provided. This analysis focuses on income security and employment opportunities. In arguing for a wider set of development objectives to be met through infrastructure delivery, the question of whether the public sector has the capabilities to meet a wider set of outcomes is raised. The question of public sector transformation (and in particular the ownership of state owned assets) is then succinctly addresses as the second theme.