Opinionista Kenneth Diole 17 May 2019

Bold measures are needed to solve the joblessness crisis

Our high rate of unemployment, and especially youth unemployment, is a major crisis for South Africa. Solving this will take innovative measures that include cutting red tape for small businesses, breaking up of monopolies, and promoting labour-intensive industries.

Statistics South Africa recently announced the latest quarterly labour force survey results. We learnt that the unemployment figure increased to 27.6% with the narrow definition, and 38% with the expanded definition (9.9 million people). Most of the unemployed are young people at a staggering rate of 55.2%.

The gravity of these numbers is further exacerbated when contextualising them by race, gender and region. The survey indicates that black women, in particular, are the most susceptible to unemployment, and people in rural and peri-urban areas of the country find themselves also at a greater disadvantage, with Limpopo, Eastern Cape and KwaZulu-Natal enduring some of the highest unemployment figures in the country.

To better comprehend and hopefully mitigate the unfolding crisis of unemployment in South Africa, we ought to understand the trends of unemployment — at least within the framework of the past 10 years, the impact of skills on unemployment, challenges hindering the growth of SMMEs in creating jobs and the potential role that government can play in order to mitigate this crisis.

When looking at the employment and unemployment trends over the 10 years since the 2008 financial crisis, there are a number of notable elements that require deeper analysis.

First, from 2008, the number of employed people has grown at a dismal net effect of 175,000 jobs a year to its current 16.3 million employed.

Second, though quarterly figures are indicative to some extent about the growth of our economy, they do not give a holistic picture to real economic growth, or the lack thereof. Usually, the economy tends to do well in the fourth quarter due to the uptick of the services and retail sector for the festive season, and then the first quarter generally sheds most of those jobs, leaving the second and third quarter to give a more apt indication of the health of our economy.

Last, government spending on key areas such as infrastructure development as a percentage of GDP has significantly reduced, thus affecting sectors such as construction, which have been heavily reliant on government projects. It thus comes as no surprise that most jobs were shed there during the first quarter.

To partially address the unemployment question, we ought to approach it in three key ways:

  • At the outset, the latest unemployment figures demonstrate that a large number of unemployed people do not have “marketable” skills. The figures indicate that the majority of unemployed are young people, but in particular young people with only a matric certificate have an unemployment rate of 55%, and those with less than a matric stand at 58.4%. Most of these young people fall in a category named Neet: “Neither employed, in education or training”. In addition to these numbers, the survey indicates that most of the sectors that shed jobs were sectors that have traditionally absorbed the lower-skilled employee, with construction losing 142,000, community and social services 51,000, mining 51,000 and agriculture 12,000.
  • The second element is the challenge of over-regulation in most sectors for potential new businesses. In South Africa, we talk about entrepreneurship as the panacea to the unemployment crisis, but do not accompany that rhetoric with an enabling environment for entrepreneurship to thrive. Part of solving the unemployment crisis starts with an enabling environment for people to start businesses. Small, medium and micro-sized businesses (SMMEs) in South Africa account for just above 60% of employment. However, countries of a similar scale and size to South Africa have SMMEs which account for more than 80% of employed people. An enabling environment translates to minimising barriers to entry, such as high start-up costs which include things such as licencing fees, suppliers and other ancillary costs. The challenge of over-regulation is that small and medium businesses need to be agile and adaptable and can’t have the regulation that applies to corporates.Moreover, patient capital is needed to support those businesses over the long term: Most small businesses that fail within the first three years do so largely due to cash-flow problems. A culture of innovation is paramount to solving the unemployment crisis, but must not be impeded by over-regulation.
  • Third, political will from the sixth administration will be of paramount importance in unlocking commercial value that translates into job creation. In its 8 January 2019 manifesto the ANC pledged a number of things to stimulate economic growth, in particular, that the ruling party wants to attract R1.4-trillion in investment over a four-year period, which will in part play a significant role in the 275,000 jobs that it wants to create annually. This investment drive, I believe, ought to be targeted at high-growth, labour-intensive sectors in order to create those jobs.

Economies that have made significant strides on their unemployment numbers while witnessing commendable economic growth figures have to some extent prioritised key sectors for investment in terms of business, capital and skills development.

The government will also have to prioritise policies aimed at breaking down the monopolies. The South African economy has an oligopolistic structure, in that a few companies have control over large parts of different sectors. In the banking sector as an example, we have five major banks, relative to other developing countries such as Kenya that has more than 40 banks and is the leading African nation in attracting FinTech venture capital for small to medium businesses.

Monopolies often have more of a negative than a positive contribution to the economy. Their control means that small-scale businesses struggle and thus employment growth also stagnates.

The South African economy needs to support industries for both low- and high-skilled labour while integrating essential technological advances in the industry. The reality is that in some sectors, government, business and other stakeholders will have to withhold certain technological advances for a period in order to enable significant job creation and upskilling of employees while adapting to technological changes.

It is in the state’s best interest to act with speed and mitigate this challenge, as the status quo, where population growth is outstripping economic growth and poverty and inequality continue to plague the nation, will only lead to higher levels of social unrest and instability. DM

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