SETP No. 14 The Economic Value of Incremental Employment in the ...

8.10 Second, the analysis did not take into account the potential for learning on the job
and other labour productivity gains that can be achieved using a programme
approach to project planning. Many commentators advocate the virtues of using a
programme approach for labour-based methods and increasing labour usage in
an incremental and financially viable manner.
8.11 A second strand of the investigation focussed on the macroeconomic
consequences of the choice between labour and equipment-based methods with
the objective of determining whether labour-based methods have macroeconomic
advantages over using machines. In most developing countries there is little
debate and labour-based methods have far greater macroeconomic benefits than
equipment-based techniques. South Africa is different. South Africa makes its
own earthmoving equipment, produces a substantial amount of its own oil,
produces spare parts locally, and has specialised mechanics and technicians
who are residents not contracted expatriates. Hence macroeconomic estimates
were made for labour and equipment-based methods.
8.12 This part of the analysis was challenged by limited information on locally
produced equipment and local content had to be estimated within bounded
assumptions.
8.13 It is shown under these assumptions that labour-based methods have
considerable macroeconomic advantages over equipment-based methods for
both fully imported and locally made wheeled loaders. However this advantage
becomes marginal when the capital cost of the wheeled loader has been
amortised.
8.14 Better information on the cost of equipment might prove that there is no
macroeconomic advantage to labour-based methods.
8.15 One of the most debated issues is the saving of foreign exchange. There is no
doubt that a reduction in imported capital equipment will save on foreign
exchange. This foreign exchange is then available to fund other kinds of imports
or to be kept in the country and fund local production. It should be recognised
that, if there are cost premiums involved, these savings on foreign exchange are
at the expense of standards of living.
8.16 A policy conflict exists if it occurs that labour and equipment-based methods have
similar macroeconomic effects and labour-based methods cost more. This conflict
is between the promotion of a demonstrated comparative advantage in the
production of construction equipment and the generation of economic
empowerment and a less skewed distribution of income. In this case the choice of
labour-based methods is based on the argument that equipment-based methods
prevent the very poor from participating in the formal economy. They are
therefore marginalised and disempowered. Hence labour-based methods have
positive externalities that go beyond anything that can be measured using
conventional macroeconomic techniques.
8.17 The overwhelming case that must be made for using labour-based methods is the
contribution it will make to economic empowerment. Roads, dams and other
infrastructure are good for the regional economy and will allow it to grow. Using
labour-based methods will generate jobs and provide incomes further promoting
the regional economy. Involving local communities will help in capacity building.
Using small and emergent contractors will generate sustainable incomes and
opportunities.
62