/ 7 February 2024

A call to action through economic modelling

How can it be claimed that the trio’s work is “reducing world poverty”?
Poverty doesn’t need to be the future for 8.2 million South Africans living on less than $2 or R38 a day

Poverty is not an inevitable fate. It is a choice — and a very expensive choice — that, unfortunately, the more privileged often make on behalf of the less fortunate. 

Globally almost a billion people live in extreme poverty, according to the World Bank — 18.2 million are South Africans living on less than $2 or R38 a day.

These headline numbers, read insightfully, are a window into a complex multidimensional challenge. 

Poverty is created by the deprivation of resources, it is perpetuated by systems. In a situation of poverty, people lack access to education, basic services, healthcare, opportunities, assets and jobs. Poverty is amplified by political instability and corruption; income, social and economic inequality, and mobility limitations. 

Cyclical un- and under-employment combined with low or inadequate wages complicates a poor person’s ability to change their situation. Mixed with other external factors, such as natural disasters, climate change and environmental degradation, poverty becomes an inescapable legacy for generations with no end in sight. 

In a world where economic disparities persist and social injustices continue to thrive, it is imperative to recognise that there are pathways out of poverty; and there are tools we can use to illuminate those paths. One such tool is economic modelling. 

Economic modelling, when built to reflect the inner workings of actual, not idealised economies, allows useful foresight into what the likely impact and outcomes of specific policy choices will be. 

Yet, the effectiveness of such tools demands that they be in the capable hands of leaders committed to using them to address poverty. Wielded wisely, economic modelling can help reshape the future. 

We have seen it do so throughout the developing world and in countries where it is a standard means of testing ideas prior to implementation. We have seen it used through monitoring and evaluation, to ensure that the policies have the desired impact for maximum effectiveness. 

In South Africa, economic modelling supported, for example, powerful foresight thinking when used as part of the Indlulamithi Scenarios 2030

Still, the power of economic modelling has not been harnessed to its full potential here, nor applied to the extent needed throughout government. Surprisingly, economic modelling has been limited to one South African department — and mainly geared to free market economics. Fixing this creates a clear pathway out of poverty for those 18 million people and generations to come.

A policy compass

Through economic modelling, we hold in our hands the power to plan our way out of poverty. Economic modelling is more than just a set of complex equations and statistical analyses. It is a visionary compass that empowers policymakers to design and simulate the impact of various scenarios, foresee potential outcomes and navigate the totality of economic and social policy as a means towards shared prosperity with evidence-based knowledge at hand. 

In the midst of multiple crises and unprecedented shocks, economic models that reflect a country’s reality — and then support strategic decision making — can guide us towards a more equitable and sustainable future.  

Such power was demonstrated in the ADRS study, Covid-19 and South Africa’s Future Economic Outlook, that examined the likely developmental impact of Covid-19 and presented recovery policy pathways.

But to unleash the potential of economic modelling, we must first recognise the urgency of the situation. A recent study that used an economic model of South Africa to analyse the effect of a basic income grant (BIG) is an urgent case in point.

The report, Macroeconomic and Developmental Impacts of Selected Basic Income Grant Pathways for South Africa, highlights the transformative effect of a BIG for South Africa.

The study, which models three basic income scenarios, shows there is no trade-off between a BIG and economic growth and fiscal sustainability. Instead, a basic income grant produces win-win outcomes, significantly reducing poverty and inequality while fostering positive macroeconomic outcomes.

The model vividly illustrates that a BIG decision could disrupt the cycle of poverty and pave the way for inclusive prosperity. 

Using the compass that is economic modelling, the study shows that we are not powerless in the face of poverty; rather, we have the ability to shape our destiny, and even with low ambition, GDP can grow between 2.8% and 3.5% when we support the most vulnerable.

Minding the skills gap

Understanding the intricacies of economic modelling requires more than just recognising its potential. It demands acquiring the skills necessary to interpret and implement these models effectively across the public and private sector. 

Skilled application of economic models will change South Africa’s future pathway and can ensure a swing toward shared growth for all. 

To tackle poverty and drive shared prosperity, we propose five essential steps:

  1. Invest in skills development: Governments and businesses must prioritise investing in the skills development of their economists, researchers, and leaders. Equip them with the expertise needed to navigate the complexities of economic modelling and make informed decisions that drive positive change.
  2. Executive training and re-skilling: Recognise the need for executive training and re-skilling programmes within government institutions. These programmes should focus on enhancing the understanding of complex poverty dynamics and the multifaceted factors associated with it. 
  3. Leverage economic modelling for strategic planning: Encourage the integration of economic modelling into strategic planning processes. By incorporating data-driven insights, policymakers can design targeted interventions that address the root causes of poverty and promote sustainable development.
  4. Promote interdisciplinary collaboration: Foster collaboration between economists, social scientists, and policymakers. Break down silos to use comprehensive models that consider the interconnected nature of economic, social, and environmental factors influencing poverty. 
  5. Advocate for inclusive policies: Advocate for policies that prioritise inclusivity and equitable distribution of resources. Economic modelling can highlight the potential impact of such policies, guiding decision-makers towards choices that uplift the most vulnerable in society.

The call to action is clear: poverty doesn’t need to be the future.

It is time for businesses and governments to embrace economic modelling as a powerful tool for change and use it. 

By investing in these skills, promoting collaboration, and making informed evidence-based  policy decisions, we can collectively steer our societies towards a future where prosperity is not a privilege but a shared reality.  

In South Africa, the tools exist. Readily available training also now exists. It is imperative that we use them, and irresponsible if we do not. The choice is ours.

Cynthia Alvillar is the chief executive of the Economic Modelling Academy and Dr Asghar Adelzadeh is the EMA director of academics at the Gordon Institute of Business Science.