MXOLISI ZONDO: The state must avoid imposing regulations that can destroy whole sectors of the economy

In its Quarterly Labour Force Survey released on May 31 Stats SA stated that the unemployment rate had decreased to 34.5%, down from 35.3% recorded in the first quarter of 2022. Although this is the first decrease since 2017, the country is far from turning the economic tide — it will take a while to recover the jobs lost in 2020 due to the coronavirus and subsequent lockdown measures to curb its spread.

With eight years left SA is unlikely to achieve its National Development Plan (NDP) Vision 2030 goals, which included a vastly reduced unemployment rate of 6% by 2030. The government needs to change its thinking and strategy to address what has become a monumental crisis.

Given the dire socioeconomic effects of joblessness, which include poverty and inequality, the government ought to put in place policy and regulatory measures that support rather than stifle job creation, especially when it comes to taking advantage of the opportunities brought about by digital technologies.

SA’s emerging digital economy presents both challenges and opportunities. While seeking to address those challenges, it is important that government be more forward-looking in its regulatory thinking and craft policies that enable, rather than hinder opportunities presented by digital technologies. Despite the disruptive effects of digital technologies on traditional businesses, new sectors present clear opportunities for revenue and labour absorption.

Regrettably, government seems to be out of touch with market dynamics, as evidenced by its recent Employment Services Amendment Bill, which seeks to create a traditional employer-employee relationship in the digital economy space. In brief, the amendment bill proposes that service providers that provide cleaning, delivery and transport services on platforms provided by digital technology operators need to derive full benefits that would ordinarily be due to employees in a traditional setting.

The government’s proposal rests on a misunderstanding or disregard of the business model of most companies in the digital technology space. For instance, vehicle owners use the Uber platform to connect with passengers, and pay Uber a fixed fee for use of that platform. Similarly, people offering cleaning services pay SweepSouth an agreed fee to connect with homeowners who require their services. The relationship between the digital platform owner and the service provider is that of a partnership, which allows the service provider the opportunity to access multiple income streams on multiple platforms at any given point.

Lack of a socioeconomic impact assessment

The draft Employment Services Amendment Bill seeks to classify e-hailing driver-partners as employees of the platforms. This will not only disrupt the platform's business model but, crucially, deprive scores of South Africans of an opportunity to earn an income from these types of services. It is unrealistic to expect a company whose business model is based on partnering with suppliers to suddenly become a mass employer of its partner-suppliers. Not only would this necessitate a re-evaluation of company business models, but it may even call into question the viability of such businesses. The ultimate losers in this will be both the South Africans who currently derive an income from these platforms and their clients.

At this point it is impossible to evaluate the projected gains of such a policy proposition by the government. As has become normal, the department of employment and labour, the sponsor of the amendment bill, has not produced a socioeconomic impact assessment report outlining how the proposed amendment will affect digital economy players large and small. It is not clear what the benefits or detrimental effects are likely to be, how companies are likely to react, and what the economic effects of such proposals will be in the medium to long term. What we know is simply that the government deems it necessary to make companies in the digital economy mass employers, without any thought given to how some of these companies are going to respond, including whether they will wish to re-evaluate their investments in SA.

In his reply to the EFF in parliament on June 3, employment and labour minister Thulas Nxesi explicitly acknowledged that the government was currently working on defining the role of digital industries in the economy. He also acknowledged that the National Economic Development Council was currently working on defining the “employment dynamics” of the sector.

This is commendable, but it is counterintuitive for the minister to acknowledge these processes while his department is pre-empting the outcome by including the digital economy under the ambit of traditional employment through the proposed amendments to the act. Nxesi would do well to allow these processes the necessary space to be concluded prior to changing the legislative framework governing relationships in this sector.

Government intervention beyond legislation

It seems trite to expect that the government would have developed a policy on the digital economy focusing on platform industries prior to amending the law. Instead, the government prefers to amend a law affecting employment services in response to growing nationalist sentiments to control immigration, and in so doing redefine the entire business models of whole sectors of the economy. Instead of simplistic responses to narrow nationalism, the government’s response to SA’s unemployment crisis and economic inactivity should identify key points of intervention that could help increase participation in the sector. Beyond supporting new developers in the space, the current drivers of the sector must be enabled and supported.

In a time when South Africans are desperate for income-generating opportunities, the government has a responsibility to avoid imposing regulations that can destroy whole sectors of the economy. This is important to sustain the stuttering recovery. Moves to the contrary will only unsettle existing businesses and discourage new investors from investing in the country.

As it is, SA is underperforming its potential. The last thing unemployed South Africans need is an overzealous government driven by ideology rather than pragmatism.

• Mxolisi is a public policy and research intern at Frontline Africa Advisory.