Private Investment, Labour Demand And Social Welfare In Sub-Saharan Africa

ABSTRACT Private investment, employment and social welfare are key socio-economic development policy variables of many a developing nation. Over the two decades (1990-2009) that this study covered, Sub-Saharan Africa (SSA) has experienced interesting dynamics in private investment, employment and social welfare. Key among them is a dwindling public sector investment and a marginal increase in private investment coupled with an increase in employment which is mostly driven by a surge in female employment as against a dip in male employment. These interesting dynamics have coincided with an improvement in the social welfare of the citizens of SSA with initial. In the wake of the above developments, this study was conducted to evaluate the relationship between private investment, labour demand and social welfare in SSA. To achieve this, three main sub-objectives were pursued: 1) assessing the possibility of a bi-causal relationship between private investment and public investment; 2) evaluating the relationship between private investment and labour demand in SSA; and 3) evaluating the relationship among private investment, labour demand and social welfare in SSA. In Chapter two, we set out with the basic objective of exploring the possibility of a bi-causal relationship between private investment and public investment in SSA. The study contributes to the unsettled debate on whether public investment facilitates (crowds-in) or discourages (crowdsout) private investment. Based on a Panel Vector Autoregressive model, the results show that public and private physical capitals are compliments and mutually dependent. However, when private and public investors compete for financial resources, they become substitutes. The results stress the need for governments in xviii SSA to reduce their activities in the domestic financial markets by being fiscally disciplined probably through strong commitment to Fiscal Responsibility Laws. This would not only facilitate private investment but also reduce the burden on governments for public investments. Thus, we argue that a public-private partnership based on a thorough comparative analysis of the respective strengths and weaknesses of public and private investment would facilitate development in SSA. In Chapter three, we concentrated on the second objective, that is, assess whether employment generation (total, male, female and youth) is part of the benefits that SSA economies get from private investment. We estimated a derived neoclassical labour demand model that allows for the inclusion of private investment, real labour cost, human capital and public investment. The results indicate that while private investment has a substitutive effect on employment (total, male and female), public investment compliments employment. Also, real wage rate and human capital have significantly negative relationships with labour demand. Meanwhile the result on the youth employment effect of private investment is inconclusive. Thus it is suggested that employment incentives policies should be offered to private investors to help mitigate their negative impact on labour demand while measures to sustain public investment are undertaken. Also, in Chapter four, the study concentrated on the last objective of assessing the effect of private investment and employment on social welfare in SSA, after accounting for economic inequality. We estimated a derived welfare function within the framework of random effects panel methodology. The results offer support for the growth-poverty-nexus by showing that growth components like investment and employment help explain social welfare dynamics. xix Also, economic inequality and poverty worsen the social welfare condition of the citizens of SSA. Consequently, SSA countries should intensify policies aimed at improving per capita private investment, enhancing the efficiency of per capita public investment, offering good jobs and reducing poverty and inequality since they are conduits for improving the social wellbeing of the citizenry. These policies should target real interest rate and wage cost reductions, tax reforms that will motivate private sector to employ more while at the same time getting more tax revenue from the rich to facilitate social intervention programmes, fiscal discipline, control corruption and population and encourage labour intensive economic growth.