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TWO INTERVENTIONS TREASURY CAN MAKE TO STIMULATE SA’S GDP AND BOOST YOUTH EMPLOYMENT

Duma Gqubule, Kristal Duncan-Williams and Clotilde Angelucci | 28 March 2023

South Africa is stuck in a low-growth trap. With poor educational outcomes and sluggish GDP growth, we are not producing the volume and type of jobs needed to reverse historical trends. But we could be if we keep building on social employment and incentive programmes for young people.


Compare the South African economy to a solution of salt. Add a few spoons and the solution becomes saturated, unable to dissolve any more salt. If we had more solvent, the formal labour market could absorb more job-seekers, but that solvent is a bigger economy. With a compounding GDP growth rate of just 0.7% since 1994, our formal economy has similarly reached a saturation point.


So, we are stuck with a stagnant economy and, in the short term, the only way to increase labour absorption is to change the properties of the solution — give it more energy and build more connections.


South Africa is categorised as a developing country with a relatively young workforce. Yet, only six in 10 young people between the ages of 15 and 34 were able to tap into learning or earning opportunities in the fourth quarter of 2022.


The reasons are complex: on the one hand, our education system is not creating a pathway that sets young people up for future success, and on the other hand, our formal economy is not growing fast enough to create opportunities for the majority of job-seekers, especially young people who fall within the categories of low- and semi-skilled.


The consequence is unemployment levels treble those of comparable middle-income countries like Brazil, India and Malaysia.


For instance, research comparing 100 countries shows that the quality and quantity of education, using learner completion rates and test scores as proxies, are significantly related to economic growth. In South Africa, educational outcomes are not conducive to growth: roughly one in 10 children fail their grade each year, and 300,000 learners drop out of school annually.


And, those entering the formal labour market are finding fewer options because sectors that used to drive productivity, such as agriculture and manufacturing, have been shrinking for years.


The positive relationship between the size of a country’s productive output (GDP) and its ability to create and sustain jobs is widely accepted by most economists. As a report by PwC confirms, we need faster and more sustainable growth to reduce unemployment.

But that alone won’t do the trick; we also need to ensure that once in school, a post-secondary qualification or a first work experience, young people are supported to finish what they started.


The good news is that we’re already out of the starting blocks, because the policies and programmes already exist, but they must be improved, expanded and better funded. As part of a robust package of economic policies to stimulate growth, National Treasury must broaden access to social employment programmes and incentives for small, medium and micro businesses to hire more young people.


These policies have demonstrated their ability to put money in people’s pockets so they can buy food and basic necessities. Often, they spend their income at the stores and businesses close to where they live, which is good for local economies.


Spending stimulates growth, so businesses and the economy benefit when individuals and households have more disposable income. This is how social employment programmes and state-sponsored incentives can stimulate economic growth at a time when seven out of the 10 major industries are getting smaller.


Powering social employment programmes


The government has introduced numerous programmes to address the country’s youth unemployment crisis; for example, the Presidential Employment Stimulus, launched in December 2020, included the establishment of the largest employment programme for young people, the Basic Education Employment Initiative (BEEI).


To date, the BEEI has provided short-term work experience for one million young South Africans and its value to schools and learner support is starting to become clear. Siilarly, the Social Employment Fund (SEF) has done what the Expanded Public Works Programme failed to do by creating pathways for personal progression and skills development.


While these programmes are steps in the right direction to prepare young people to be work-ready, their future is uncertain as public funding is confirmed only until 2024. It would be a travesty and a major missed opportunity for this country if the energy and new connections created by these programmes were lost. We should be building on them, growing their synergies with skills development and the formal labour market.


Closer collaboration should be created with a variety of sectors, such as the green economy, to equip young people with the hard and soft skills needed, as well as the social connections and mentoring relationships that can help them to find work.


Recalibrating existing small business incentives


In 2014, the government developed the Employment Tax Incentive (ETI), a rebate for employers who hire young people. Employment data shows that more than 60% of all employed people are working in small, medium and micro businesses, which have fewer than 50 staff.


Ideally, schemes such as the ETI should fuel the growth of these small businesses; however, research by Youth Capital shows that only a minority of small businesses have made use of available state-sponsored incentives. Many of them are not aware of these incentives or how to access them, and those who are, are unable to do so because of red tape.


With funding confirmed until 2029, the ETI could enable the growth of small, medium and micro enterprises; and in turn, these businesses could hire more young people. But to do so, the ETI’s criteria must be tailored to the needs of small business owners, many of whom require reliable information and assistance to access these state-sponsored benefits.


Empowering social employment programmes and improving the efficacy of business incentives are not the only answers, but they are interventions that, if fueled by appropriate government spending, have the power to increase young people’s ability to earn an income and stimulate the national economy in the process.


This will add energy and new connections to the existing economy, enabling greater labour absorption in the short- to medium-term and contributing to a bigger solution through economic growth over the longer term.


‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.



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