Business Maverick

OP-ED

The Presidential Employment Stimulus: Commitment a crucial and catalytic part of the wider economic recovery

In South Africa, high levels of inequality correlate with deep poverty, so one of the reasons inequality constrains growth is because poor people have so little money to spend. (Photo: Donna van der Watt)

The most immediate role of the Presidential Employment Stimulus is to provide a rapid boost to employment through direct public investment in jobs and livelihoods. This is not an alternative to market-based recovery – it’s a vital contribution to it.

Since its announcement in October 2020, the Presidential Employment Stimulus has been rolling out rapidly. More than 430,000 jobs and livelihood opportunities are already in implementation. This includes over 285,000 young people employed as school assistants, as part of the Basic Education Employment Initiative (BEEI). 

In all, 11 national departments are contributing in different ways and at different scales to the roll-out of the stimulus, which is being implemented at a speed and scale that is unprecedented in South Africa. It includes support to the creative sector, subsistence farmers, sports federations, the global business services sector, rural roads maintenance, environmental programmes and much more

Phase One of the stimulus has a stretch-target of directly supporting jobs and livelihood opportunities for 700,000 people by the end of March, on a budget of R12.6-billion. The intention is to scale this support up further over the medium term, to deliver on the R100-billion for job creation announced by President Cyril Ramaphosa in April 2020.  

As fiscal pressures mount, however, might that enlarged scale of roll-out come under threat? In a context of tough choices, it matters to understand the role of the stimulus in jump-starting wider economic recovery and in supporting South Africa on to a trajectory of more inclusive growth. This is because unemployment is not just a consequence of our low-growth trajectory; it is also a cause of it.

How do our high levels of unemployment constrain growth?

First, they do so because unemployment is the single biggest cause of income inequality in South Africa. For at least a decade, there has been a significant consensus, including in the OECD, the IMF and the World Bank, that high levels of inequality slow down growth. High levels of inequality also means that any growth that does take place tends to reinforce existing unequal patterns of distribution. As one of the most unequal societies on the planet – that’s us they’re talking about. 

Despite this, the received wisdom in South Africa is still that we need growth in order to address poverty and inequality. The reverse is in fact true. We need to address poverty and inequality in order to unlock inclusive growth. That requires systematic and deliberate policies that shift patterns of distribution, to put resources in the hands of the poor. 

Rather than a binary choice between pro-poor policies and growth policies, redistributive, pro-poor policies are growth policies. Until this lightbulb goes on in policy circles, we are trapped in an economic death-spiral. An employment stimulus – at the requisite scale – is a crucial instrument within that redistributive agenda.

In South Africa, high levels of inequality correlate with deep poverty, so one of the reasons inequality constrains growth is because poor people have so little money to spend. Rich people spend a lot on imported goods, so the jobs dividend goes elsewhere. Poor people, by contrast, buy mainly locally-produced goods. But lack of effective demand limits the scale of jobs created by such spending. Right now, the fuel tank needed to drive economic recovery is running largely on fumes. The role of the stimulus is to break this cycle – by helping to fill that tank.

The employment stimulus does so quickly and effectively, with a high level of spatial equity. The schools assistants programme, for example, reaches every poor community in South Africa. This translates directly into spending in townships and rural economies, boosting demand in ways that create local market opportunities. So, while some critics of the stimulus have argued that the funds should rather have been spent on small enterprise support, this misses the point. They have been. Local spending directly supports small enterprise and also reaches the informal sector, which traditional small enterprise programmes struggle to do. This spending starts in poor communities and trickles up into the wider economy from there.

In addition, the stimulus is also directly supporting certain vulnerable sectors of small and informal enterprise. This includes the production grants to subsistence farmers, the stimulus to the creative sector and the grants to help the early childhood development sector back on its feet. Together, these interventions will support more than 200,000 self-employed people. This scale of direct grant support to mainly informal entrepreneurs is unprecedented in South Africa, in equivalent timeframes.

Of course, the employment stimulus is not the only mechanism for boosting demand in poor communities. The vital role of social grants in local economies is well documented. Most of this income is spent on food and it underpins the vibrancy of the food economy in townships and rural areas. Addressing food poverty could hardly be more urgent or important and there can be no economic recovery while hunger haunts households. The grant amounts are, however, small, and from an economic development perspective, their stimulus effects are largely limited to the food sector, which currently dominates township and rural economies. Attempts at diversification in these local economies have focused on supply-side measures. Yet, without demand, these efforts cannot succeed.

The employment stimulus contributes to this diversification agenda, complementing and augmenting the stimulus role of social grants. So, for example, the 285,000 school assistants currently employed as part of the Presidential Employment Stimulus are all earning R3,500 a month – the national minimum wage. With 10 times the income of Special Covid Grant recipients, their spending is more diverse –having an impact on clothes, cosmetics, mobile services, furniture, white goods, construction materials, and more. This enables diversification in local economies, with trickle-up effects across more diverse value chains. In addition, while the social grants are vital in moving the dial on poverty, they don’t have much impact on inequality. It is only when earnings are at the level of wage incomes that this starts to happen. If we accept that addressing inequality is necessary to unlock more inclusive growth, then direct investment in employment creation is a vital part of the mix.

As fiscal pressures mount, however, might that enlarged scale of roll-out come under threat? In a context of tough choices, it matters to understand the role of the stimulus in jump-starting wider economic recovery and in supporting South Africa on to a trajectory of more inclusive growth. This is because unemployment is not just a consequence of our low-growth trajectory; it is also a cause of it.

Most of the impacts of unemployment discussed above relate to its income effects on poverty and inequality. This is, however, just part of the story, with strong non-income effects also. This includes huge social costs as well as negative impacts on productivity and our levels of economic dynamism.

Globally, unemployment is strongly associated with stress, depression and anxiety – even where access to unemployment benefits cushions the income effects. This affects mental health – and all dimensions of health. Hopelessness and homelessness rise. Unemployment often goes hand in hand with social exclusion and low self-esteem. Anger and frustration can feed anti-social behaviours, from substance abuse to gang participation. For young people, such participation is often fuelled by the need for a sense of group belonging, purpose and status. 

Current narratives of masculinity mean that for young men, forming and supporting a household is seen as part of the transition to adulthood. An inability to do so locks them into status limbo within their communities. All of this can in turn feed negative social dynamics such as gender-based violence. All of this takes a huge toll on communities. The effects of unemployment are also intergenerational, with unemployment in the household affecting school attendance, child nutrition and future prospects.

By contrast, participation in work at decent standards – including in self-employment – builds important attributes and capabilities. These include increased access to networks, to life-skills, teamwork, management skills, access to information, a greater sense of agency, and community respect and recognition. It is also often in the workplace – or the marketplace – that people learn organising skills, which build leadership. Work experience also enhances the success rate of later enterprise activity.

Those who have never worked may never gain such skills. This is why employers place so much of a premium on “previous work experience”, in the process raising the bar insurmountably high for new entrants. Even for those who do have such experience, unemployment erodes their skills and productivity. Formal skills that are not applied are also quickly lost, diminishing the value of the massive social investments currently made into skills development. All of this means that the longer people are unemployed, the more unemployable they become.

The scale and duration of high unemployment in South Africa means its social costs and negative impacts on productivity and economic dynamism are now systemic and endemic. For many, unemployment has become an inter-generational norm – with the Covid crisis steeply exacerbating a crisis that was already there.

We have to intervene to break the cycle, before the current downward spiral becomes a tail-spin. Breaking our low-growth, low-employment trajectory requires an aggressive and ambitious redistributive agenda. This needs to recognise that employment matters too much to society and to our economy to leave to markets alone – particularly in a context of crisis in which markets face unique constraints. 

We need direct public investment in special employment and livelihoods support programmes at scale. Nor is there any shortage of work to be done to improve the quality of life in poor communities and to address social, environmental and other challenges. The stimulus provides an instrument through which we can do so – creating new forms of public value in the process.

Phase One of the stimulus ends at the end of March. The crisis will not do so, however. And to achieve the kinds of systemic impacts highlighted here, a medium-term commitment to the employment stimulus at the requisite scale remains a crucial and catalytic part of the wider economic recovery. DM

Kate Philip is currently supporting the Project Management Office in the Private Office of the President, in the design and coordination of the Presidential Employment Stimulus. She writes this in her personal capacity.

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