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.