ENOCH GODONGWANA: We must balance growth interventions, job creation, social grants
While temporary interventions are necessary SA needs policies that will best empower our youth for a productive life
There is general agreement that SA has one of the highest levels of unemployment in the world and as a consequence is a highly unequal society where millions find it hard to make ends meet.
According to Stats SA, the rising level of unemployment, based on a long history of exclusion and worsened most recently by the impact of the Covid-19 pandemic, is the major driver of poverty and inequality.
Based on economic analysis it is possible to identify a number of reasons for the country’s poor performance. As outlined in the government’s “Towards a 25-Year Review 1994-2019” some of the key factors that have led to slowdown in economic activity include:
- The end of the commodity boom in 2011, which helped generate growth for a decade between 2002 and 2012;
- Electricity shortages and high prices, which have had a negative effect on growth;
- The slowdown in public spending and investment because of fiscal constraints;
- Weakening government institutions because of corruption;
- A decline in demand caused by mostly stagnant household incomes, the high costs of living and low wage growth.
In the context of rising poverty and hunger made worse by the effect of the Covid-19 pandemic, it is not surprising that there are calls for social protection in the form of a basic income grant (Big). It is a reasonable and legitimate call given the high level of poverty. No-one would disagree with the need to protect vulnerable members of our society.
Leaving aside the debate about the affordability of a Big, given other pressures and commitment imposed on the fiscus by the fight against the pandemic as well as other items not budgeted for, such as rising student debt and the funding of Gauteng’s e-tolls, I wish to focus rather on the structural nature of SA’s unemployment, which exhibits the following features:
- Despite falling in the early 2000s, unemployment has remained high and has continued to increase for more than 10 years;
- There is a slowdown in the speed at which jobs are filled;
- There is a lengthening of the time spent in unemployment;
- There is a low labour force participation rate as millions of people have lost hope that they will be able to find a place in the labour market.
The structural nature of unemployment requires a multipronged approach, sometimes termed an “active labour market policy”, combined with a growth strategy. While it is broad concept, I will confine myself to one element of an active labour market policy, helping young people transition to work. A closer look at Stats SA’s recent Labour Force Survey, using the narrow definition, reveals the following about the labour market dynamics:
- The number of unemployed aged 15-24 years is 1.67-million. If the education system was functioning optimally this category should be in the education system.
- The number of unemployed between 24 and 35 years is 2.82-million.
- The above two groups constitute 62% of the unemployed.
- It is also interesting that 151,000 are graduates and 540,000 have some tertiary qualification.
The question then arises: why should we condemn these young people, the majority of whom are black, to a life as grant recipients? Should we not be investing in their transition into the world of work and more productive, better paying economic activity?
To create a fertile ground for such a strategy we must simultaneously focus on growing the economy. Key elements of such a growth strategy will include, among other things, structural reforms, public investment, particularly in infrastructure, and small, medium and micro enterprise (SMME) support, including access to finance.
This should be accompanied by temporary interventions to cushion the impact on the poor, those who have been affected by the Covid-19 pandemic and those who have been historically marginalised. First, expanded and extended public employment programmes will help create employment opportunities and experience, and second, income support to vulnerable members of our society in addition to the extension of the R350 grant. The design of income support programmes must be temporary and must not involve higher income than public employment programmes, so as to facilitate migration to employment opportunities.
Most importantly, we need a new growth and transformation model for SA that will get us out of the growth trap, focusing first on the extension of social infrastructure to meet basic needs, second on the expansion of economic infrastructure, including energy security, water and transport infrastructure, and third on the promotion of industrial investment and related education and training policies.
To support this we will need appropriate macro policies animated by a series of pro-investment reforms. We will need to further develop the government’s Economic Reconstruction & Recovery Plan from a broad vision statement into a detailed programme for economic reform and economic growth — with the support of the social partners and embedded in the work of relevant government departments at national, provincial and local government levels. Social dialogue and social compacting must be upscaled to facilitate increased private and public levels of investment in economic and social infrastructure.
In summary, we need to be clear on the balance of policies that will best empower our youth for a productive life in future. Temporary interventions to deal with vulnerability will be necessary, and this does not preclude a debate about appropriate social security policies for SA. But we must also be sure to put in place an effective growth and transformation strategy because without growth and transformation the very base of sustaining social security and a better life for all will be eroded.
• Godongwana, a former deputy minister of public enterprises and of economic development, is head of economic transformation for the ANC and chairs the Development Bank of Southern Africa.
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