July 27, 2021
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Identifying Supply and Demand Shocks in the South African Economy 19602020
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( 5 mins) COVID-19 maintains lingering economic disruption in Nigeria
On Tuesday, Nigeria’s National Bureau of Statistics and the United Nations Development Program reported that approximately 20 percent of workers in Nigeria lost their jobs due to the COVID-19 pandemic. In fact, the joint research examining the pandemic’s impact on Africa’s largest economy uncovered a staggering 33 percent unemployment rate in the fourth quarter of 2020. Informal-sector workers particularly struggled to access credit and funding to stay open as commerce slowed. Notably, losses across sectors were not uniform, as more than half of the businesses surveyed managed to retain their staffing levels, a finding which the authors say suggests that Nigeria maintained “pockets of resilience” throughout the pandemic.
In related news, on Wednesday, JP Morgan announced markedly lower economic growth forecasts for Nigeria than the International Monetary Fund (IMF) and Central Bank of Nigeria. JP Morgan now predicts that the Nigerian economy, which contracted by 1.79 percent in 2020, will grow by only 1.5 percent in 2021. The IMF and Central Bank of Nigeria had estimated GDP growth to be about 2.5 and 3 percent, respectively, for the country this year. JP Morgan explained its prediction of a weaker outlook on the country’s “continued lack of foreign-exchange liquidity, underlying economic weakness, an emerging third wave of Covid-19 infections and a slow rollout of vaccines will likely slow the recovery process.”
For more commentary on COVID-19’s impacts on Nigeria’s economy, see: “Understanding the impact of the COVID-19 outbreak on the Nigerian economy.” For more on strategies for creating jobs for Africa’s youth, see the paper, “Addressing youth unemployment in Africa through industries without smokestacks: A synthesis on prospects, constraints, and policies.”
Gabon wants payment for its role in the fight against climate change; South Africa takes steps to reduce emissions
Earlier this week, officials in Gabon stated that the country will be seeking payment for its role in the fight against climate change. Importantly, in March of last year, a study published by the journal Nature found that many areas of the Congo Basin were showing signs of reduced carbon uptake and specifically predicted that, by 2030, the basin will absorb 14 percent less carbon than over the previous 10 to 15 years. This decrease in the carbon-absorbing capabilities of the Congo Basin will be detrimental to the fight against climate change given the area’s key role in regulating moisture transport, rainfall patterns, and the global climate. In fact, according to the study, while the Congo Basin is the world’s second-largest rainforest behind the Amazon, it stores more carbon over the same area of land. Gabon, which is home to 12 percent of the Congo Basin, has managed to protect its share of the rainforest, making it one of the few carbon-negative countries in the world.
In related updates, on Thursday, September 23, South Africa’s cabinet adopted new, ambitious emissions reduction targets. As a result, South Africa, Africa’s biggest emitter of greenhouse gases, is now aiming to reduce emissions to between 350 million and 420 million tons of carbon dioxide by 2030. This announcement comes ahead of the United Nations Climate Change Conference taking place in November where South Africa’s state-owned power company, Eskom, plans to ask for funding to help finance its shift from coal to renewable energy sources. Similarly, an announcement by the Minerals Council of South Africa stated that South African mining companies plan to invest $2.7 billion to construct 2,000 megawatts of power generation capacity. According to Bloomberg, persistent power cuts by Eskom have pushed mining companies to develop power plants, and mining companies have shown a willingness to move away from power fueled by coal as investors become more attentive to the climate crisis.
In other climate news, a startup in Benin has been building computers from jerrycans—plastic containers used for carrying liquids. The startup, BlowLab, has not only been utilizing recycled jerrycans, old computer parts, and other recycled materials to build computers, but has also been teaching others how to build their own for free. These computers are also cost-effective: A traditional office computer can cost between 300 and 350,000 CFA francs ($0.54 and $625) while the “jerrys” can cost between 100 and 150,000 CFA francs ($0.18 and $266). BlowLab has also announced plans to make these computers available to schools in remote areas.
Tunisian president declares rule by decree
On Wednesday, September 22, Tunisian President Kais Saied announced new measures that will allow him to rule by decree, ignoring stipulations in the current constitution. The measures, which include bestowing himself with the power to unilaterally issue legislative directives and appoint cabinet positions, come on the heels of Saied suspending the Tunisian parliament and sacking the prime minister on July 25. The actions of the past few months have drawn criticism from Tunisian political rivals as well as from Western donors, who have pressured Saied to take steps toward finding a new prime minister and reinstating democratic rule. On Thursday, four political parties in opposition to the president (who ran as an independent)—Attayar, Al Jouhmouri, Akef and Ettakatol—released a joint statement condemning Saied’s decision, stating, “We consider the president has lost his legitimacy by violating the constitution.” The party with the greatest representation in Tunisia’s parliament, Ennahda, also rejected Saied’s claim and had previously called his suspension of the parliament a “coup.”
In Wednesday’s announcement, Saied indicated that he would form a committee to draft amendments to the 2014 constitution with the goal of eventually establishing “a true democracy in which the people are truly sovereign.” In the meantime, Saied indicated that the preamble to the 2014 constitution and any clauses that do not contradict his new legislative and executive powers will still be enforceable.
( 6 mins) Earlier this year China’s government announced that it had eradicated absolute poverty, measured against a standard equivalent to $2.30 per person per day applied to rural areas. The latest Household Survey on Income, Expenditure and Living Conditions data by China’s National Bureau of Statistics, available for the year 2018, suggest that against an international poverty line of $1.90 per day, the poverty rate had declined to below 0.5 percent. This suggests China has reduced the number of poor people by close to 800 million since 1980. Whatever the specific numbers, China’s poverty reduction is a remarkable achievement. Yet, it cannot be the end of China’s efforts. As the country looks to the 2020s, what lessons can the authorities learn from the past 40 years and what should be the focus of policy?
China’s poverty reduction success since 1980 is primarily a story of sustained economic growth. The first decade of reform saw rapid income gains in agriculture, as China removed some of the biggest distortions of the Mao era. In the second decade, industry took the leading role, both in urban and rural areas, as reforms widened and deepened. During the third decade, the dynamism of China’s export-oriented coastal areas spread further inland, as migration to the urban centers accelerated, infrastructure investments (such as with the “Western Development Strategy”) multiplied, and a growing proportion of China’s territory became economically integrated into global value chains. This decade also saw an expansion of China’s social policies, including place-based interventions in the most backward counties and the creation of a basic safety net for China’s rural population. During the final decade, these social policies were widened, culminating in the targeted poverty eradication campaign of the past five years. Only during this final period did transfers become a more important driver of poverty reduction than labor incomes (see Figure 1).
Three lessons stand out:
The speed and scale of China’s poverty reduction since 1980 is partially related to the starting point. As Martin Ravallion points out, China in 1980 was one of the poorest countries in the world, and yet had a relatively healthy and well-educated population—comparable to other East Asian countries with much higher levels of income. China’s savings rates were also high and land distribution equal—initial conditions that allowed other East Asian countries to grow rapidly during the 1960s and 1970s. China in the 1980s and 1990s was thus to some extent catching up with its peers.
Market-oriented reforms drove the expansion of economic opportunities. China’s economic transformation from a largely rural and agrarian country to a predominantly urban, industrial powerhouse followed the country’s comparative advantage, using market signals to create appropriate incentives, and competition among regional governments to test policies and among companies to catalyze productivity gains. China introduced market incentives gradually. But its story of transformation and growth is consistent with classical economic theories of development.
Although markets and business played the leading role, government policy was also instrumental. China’s state is endowed with high administrative capacity and the government used this to provide public goods and overcome collective action failures. This is most evident in the expansion of public infrastructure that helped integrate rural areas with urban economies, and in the coordination of stakeholders in the targeted poverty reduction. High-powered incentives in the management of China’s civil service created a strong performance orientation, while a high degree of decentralization allowed policy to be responsive to local conditions.
China’s conditions today create mixed prospects for growth and income gains among the poor. China’s technological capabilities and the competitiveness of its leading companies are on par with high-income countries, and its best performing schools and students rank top in the world. But these capabilities are not broadly shared. The dispersion of productivity levels across Chinese companies is high. Average educational attainment of the labor force is low by comparison with high-income countries and access to good education remains unequal (Figure 2). China needs to pay more attention to these inequalities.
Market-oriented reforms could be an important catalyst for the greater diffusion of technological capabilities and for improved access to quality services. Among companies, leveling the playing field in access to finance and land could help promising small and medium businesses grow and create the jobs of the future. Lifting the remaining hukou related restrictions to labor mobility could help the current generation of school children access better education and health services in urban areas, improving social mobility and economic opportunities. This would over time help alleviate the risk of shortages of skilled labor, including in the urban service sector, which is likely to drive future productivity growth.
China’s administrative capacity is an asset in its transition to high income, but the government’s role in supporting the poor and vulnerable will have to shift. China’s poverty line is below the level in most upper-middle-income countries, and less than half the $5.50 per day typical of upper-middle-income countries. Adopting a higher line would change the profile of the poor: At $5.50, around one-third of the roughly 180 million poor would be in urban areas, for example, and many of them would be informal, migrant workers outside of agriculture. Among these groups, poverty is more likely to be transient, associated with spells of unemployment and out of pocket health and education expenses. Social policies would need to recognize these differences, just as targeted poverty reduction was based on an evaluation of household needs in rural areas.
Following the eradication of absolute poverty, China has set the year 2035 as the target date to achieve common prosperity. This is understood as providing the opportunity for a decent standard of living to all Chinese citizens. Ensuring equal access to education, health care, and other services, leveraging market signals and competition to encourage innovation and the diffusion of technologies, and repeatedly adjusting government policies to ensure social transfers target key vulnerabilities and help China’s citizens manage the risk of a rapid socioeconomic transformation—these are the lesson of the past 40 years. They will continue to serve China well on the road ahead.
( 8 mins) Originally published on September 24, 2021 16:30 by Brookings Institute. Link to original report By Brahima Sangafowa Coulibaly and Eswar Prasad Undoubtedly, the economic recovery from the COVID-19 pandemic will dominate the agenda for the
( < 1 min) I. A poor election and a Government under pressure Inflation, the exchange rate, and economic activity are moving in election mode. The government is using all its firepower to keep the main economic variables under
( 6 mins) Impending debt defaults by Evergrande are not China’s “Lehman moment”; regulators have the capability to control systemic risk. The more important question is whether Evergrande’s collapse will force policymakers to reverse the tightening measures designed
( 7 mins) With COVID-19’s disruptions in employment, child care, and education, it is unsurprising that child poverty substantially increased in 2020—roughly 1.2 million more children were living in poverty in 2020 when compared to 2019 (an increase from 15.7% to 17.5%). As child poverty is unequally distributed in America, so too were its increases—poverty rates grew the most among Latino children (4.2 percentage points), Black children (2.8 percentage points), and children from female-headed families (4.1 percentage points), while they remained flat for white and Asian children.
In response to these trends, President Biden signed a bill this March that restructures the child tax credit (CTC) for one year—making it larger ($3,000 per child between the ages of six and 17 and $3,600 per child under six), broader (gradual phaseouts start at $75,000 for individuals and $150,000 for those married filing jointly), and more periodic (monthly payments). This restructuring would allow the CTC to act like a child allowance, which has been used in a variety of other countries. While the new CTC officially launched in July of 2021, policymakers are already considering whether or not to extend the new CTC beyond 2021. Here, policymakers are not only considering the impact that the new CTC will have on child poverty, but also the impact that it could have on family social mobility.
Concerning child poverty and racial/ethnic equity, researchers from Columbia University estimate that the new CTC could cut child poverty by 45 percent and would have the largest impacts on Latino and Black children. Considering other outcomes, some scholars argue that the new CTC could disincentivize parental employment and thus curb social mobility, while other scholars argue the contrary: Cash payments can simultaneously decrease child poverty and increase mobility. Some scholars also suggest that policies like the CTC could increase birth rates, an important consideration given that recent declines in U.S. birth rates may pose both social and economic challenges such as reductions in GDP growth rates.
Our findings suggest that the child tax credit will not only act as a tool for decreasing child poverty in the short term, but also as a tool for increasing family social mobility in the long term.
As policymakers grapple with whether or not to extend the new CTC beyond 2021, it is important to understand how families will use the CTC payments. To inform these policymakers, we utilized a probability-based online panel to survey a nationally representative group of 1,514 U.S. parents eligible for the credit. The survey was administered immediately before the first CTC payments were delivered. One of the key questions we asked parents in this survey was how they planned to use their CTC payments. Our findings suggest that the CTC will not only act as a tool for decreasing child poverty in the short term, but also as a tool for increasing family social mobility in the long term.
Figure 1. Planned usage of the child tax credit
Source: Employment, Financial and Well-being Effects of the 2021 Expanded Child Tax Credit, Social Policy Institute. Notes: n=1,056 – 1,078 respondents who anticipate receiving the CTC. Responses differ slightly across categories as some respondents skipped answering yes/no for certain categories.
Overall, 64 percent of eligible parents anticipated receiving the CTC. We examine how these parents planned to use these payments in Figure 1. The most common planned use was building emergency savings (75%), followed by paying for routine expenses (67%), essential items for children (58%), purchasing more or better food (49%), starting or growing a college fund (42%), and paying for child activities (42%), moving or making home improvements (32%), health care expenses (29%), child care expenses (26%), spending more time with children (20%), and purchasing gifts or entertainment (20%). Relatively few parents planned to use the CTC to pay for tutors for children (7%), working less or changing jobs (6%), or sending their children to a different school (6%).
In Figure 2, we look at the relationship between planned uses of the CTC and families’ income in 2020. Overall, we find that:
Families across the income spectrum planned to use the CTC to build emergencies savings at similar rates.
A greater proportion of lower-income families (76%) planned on using their CTC for routine expenses than middle- (64%) and higher-income (54%) families
A substantially greater proportion of lower-income families (75%) planned on using their CTC for essential items than middle- (52%) and higher-income (37%) families
A substantially greater proportion of lower-income families (66%) planned on using their CTC to purchase more or better food than middle- (44%) and higher-income (27%) families
A slightly smaller proportion of lower-income families (38%) planned on using their CTC to start or grow a college fund than middle- (42%) and higher-income (50%) families
A slightly greater proportion of lower-income families (45%) planned on using their CTC for child activities than middle- (44%) and higher-income (32%) families
A slightly greater proportion of lower-income families (29%) planned on using their CTC for emergency savings than middle- (24%) and higher-income (24%) families
A substantially greater proportion of lower-income families (28%) planned on using their CTC to spend more time with their children than middle- (16%) and higher-income (11%) families
A greater proportion of lower-income families (12%) planned on using their CTC to hire tutors for their children than middle- (5%) and higher-income (3%) families.
Figure 2. Planned usage of the child tax credit, by 2020 household income
Source: Employment, Financial and Well-being Effects of the 2021 Expanded Child Tax Credit, Social Policy Institute.Notes: n=1,049 – 1,071 respondents who anticipate receiving the CTC. Responses differ slightly across categories as some respondents skipped answering yes/no for certain categories.
There are four main takeaways from these results:
The results show that the new CTC will likely have the intended effect of alleviating child poverty, as seen in the relatively large proportions of respondents planning to use their CTC for emergency savings, routine expenses, essential items, purchasing more or better food, and paying for health care and child care expenses.
The results show that the new CTC will likely increase social mobility both for families and their children. For example, when considering family social mobility, a relatively large proportion of respondents planned to use their CTC for moving and making home improvements or starting/growing a college fund for their children.
While some fear that the CTC will disincentive work, this fear appears to be relatively unfounded, as only 6 percent of families planned on working less or changing jobs.
These results show that low-income families planned to use the CTC to both cover the essential expenses for their households and children, while also commonly planning to use the CTC to build their emergency savings. This is important for promoting the financial well-being of these families, who often struggle with severe budgetary constraints and have very minimal amounts of emergency savings.
U.S. families, and low- and middle-income families in particular, must often manage tight budgets that make it difficult to build even modest savings and put them at risk of taking on high (and often expensive) debt burdens. Based on these results, it appears that the CTC will help give families a little more slack in their budgets to help them meet their essential needs, while also allowing them to make important investments in their children’s future, such as college savings or paying for extracurricular activities. Both of these functions may help improve children’s well-being both now and over the long term, and policymakers should consider these benefits as they debate whether or not to make the CTC permanent.
( 5 mins) Thailand will push forward with a broader reopening of its tourism sector in the fourth quarter due to the relatively positive experience in Phuket of foreigners not being a major source of transmission. The Phuket
( 5 mins) The Bank of Japan (BOJ) held steady on policy and interest rates and remains cautiously optimistic on growth prospects, despite growing headwinds across Asia. Governor Kuroda also gave additional details of the new Climate Response
( < 1 min) Who should bear more and who less of the burden achieving climate policy goals?
( 4 mins) President Jair Bolsonaro’s controversial speech at the UN shows his continued need to focus on narrative-building as opposed to actual governing. Congress has occupied the vacuum, though significant differences of approach prevail between House and
( 4 mins) The African National Congress (ANC) appears to have largely closed its self-inflicted candidate registration gap this week, but the party’s electoral troubles do not end here. With just under six weeks to go to the