On the 23rd of February 2021, StatsSA released the Q4 2020 estimates of the unemployment rate. The statistics are announced in the headlines, but the real impact is felt on the ground. This article is a summary of the experiences and solutions offered by some of South Africa’s bright young minds during the Discover Thought Roundtable.
According to StatsSA, the estimated narrow unemployment rate for Q4 2020 is 32.5%, while the expanded definition is sitting at 42.6%. That is, taking into account discouraged individuals, about 4 in every 10 South Africans are unemployed nor do they take part in any form of economic activity even any form of informal trading. While it is important to recognise that these statistics exist in a Covid-19 setting, they continue to paint a bleak picture for the future of our economy given that the pandemic found the country’s economy already on its knees.
In Q4 of 2019, the unemployment rate according to the narrow definition was 29.1%, which is significantly higher than in the country’s peer-BRICS countries, which mostly had single-digit unemployment rates. At the end of 2020, a net of 14.1 Million individuals was not economically active, although about 333 000 more people were employed between Q3 and Q4. The sectors that experienced job losses were Finance and Mining. It can also be argued that although the Covid-19 has accelerated the use of technology and has created new opportunities in the South African economy, the pandemic has also highlighted redundancies that have long existed in the job market that posed employers with a difficult choice between efficiency and the creation of employment opportunities. This is notwithstanding the fact that in the Covid-19 setting, most businesses were left with no choice but to choose the former instead of the latter. Therefore, to reduce unemployment, there needs to be a mass re-skilling and upskilling of the labour force to enable it to adapt to the ever-changing needs of the technology-driven global economy.
Could it also be that we are asking the wrong questions?
When compared to its sibling countries in Africa, South Africa is one of the most developed economies and yet performs poorly when compared with the most developed countries of the world. Thus, South Africa dealing is a country with both 1st and 3rd world problems, boasting one of the most developed Financial Services sectors in the world and yet it is one of the most unequal societies in the world. The problem of unemployment in South Africa is multifaceted and multi-layered. It is a problem that has its roots stemming not only from the inability of the private and public sectors to increase the size of the pie to create enough employment opportunities, but the roots also originate from a myriad of other factors such as the quality of education, government’s spending towards education and economic development, the efficient expenditure of the government’s funds, the economy’s inability to attract both domestic and foreign direct investment and the socio-economic issues that prevail in the society.
The Quality of Education
According to the IMF South Africa suffers from poor quality education, despite the country spending a higher proportion of its income on education relative to its Sub-Saharan counterparts. In the past, the education system has also been criticized for its inability to equip learners with the skills that are required in the economy nor does it adequately prepare them for pursuing tertiary education. It can be argued that this failure by the basic education system plays a significant role in the skills mismatch that exists in South Africa’s job market.
The Tertiary education system is also not without faults. Although some of the country’s institutions are ranked amongst the best in the world, the high graduate unemployment rate informs us that there is a mismatch between the qualifications obtained and the skills required in the economy. This is a crucial issue that the Minister of Higher Education, Science and Technology Blade Nzimande has been recently advocating for, advising students to conduct thorough research on the skills required in the economy before enrolling at institutions of higher learning.
Efficient Allocation & Expenditure of Government Funds
For every fiscal year, the government allocates funds for economic development, which aims to assist with the creation of employment opportunities. However, political interferences in the top-bottom approach of the spending of government funds create inefficiencies that disconnect the top echelon of government from the lived experiences of the people on the ground. When reporting on the results of the 2018/19 municipal audits, the late Auditor-General Kimi Makwetu titled his presentation “not much to go around, yet not the right hands at the till”. His presentation painted an undesirable picture of government funds allocated to municipalities being managed “in ways that expose/ highlight the administrative and governance lapses that lead to the abuse of the public purse.”
If the South African government is intentional about solving the conundrum of unemployment, then it also has to take decisive action in removing the administrative gaps that exist between national, provincial and municipal government.
South Africa is one of the most unequal societies in the world. Using per capita spending as a measure of inequality, the country’s Gini Coefficient was 0.63 in 2015. In addition, about 49% of the adult population lived below the upper-bund poverty line, which was R 1 227.00 per month in 2019. The sharp increase in child-headed families due to the earlier HIV/AIDS pandemic could has effects that still prevail.
Why were these issues highlighted at the roundtable?
The socio-economic challenges such as the above create a young population that is vulnerable. Children living in poverty or child-headed households are often forced to leave school to seek some form of employment to generate or supplement their household income. The inability of these children or young adults to finish school or pursue tertiary education hampers with their ability to acquire the knowledge and skills they need to enter formal employment. This is a reality lived by the young South Africans behind the 63.2% and 41.2% youth unemployment estimates for the age groups 15-24 years and 25-34 years respectively in Q4 of 2020.
So, where to from here?
Here is a summary of some of the solutions proposed at the roundtable.
1. In this current Covid-19 setting it is important that all businesses sustain jobs or at least survive this economic shock and not close-down, which will result in further job losses. The government can assist through tax reductions, subsidies, and other forms of assistance.
1. There needs to be a thorough sector scan to identify and leverage the opportunities that exist in each sector of the South African economy, excluding Financial Services as it is a highly skilled sector. For instance, the country’s agricultural sector is one of the world’s leading producers of Citrus. Given that this sector is labour intensive, it has the potential to play a significant role in reducing unemployment. Thus, a thorough sector scan will enable the public and private sectors to leverage the niches that exist in the various sectors of the economy, thereby creating sustainable employment opportunities.
2. In an era of rapid globalization, embracing the digital economy is one of the most effective ways to engage the South African labour force in the global labour market. Through the digital economy, South African citizens will be able to explore freelance opportunities that exist even beyond our shores thus the possibilities of employment are not limited to the domestic economy.
3. Globalization and the digital economy also play a significant role in a country’s ability to attract foreign direct investment. Thus, it will be those countries that are able to embrace the digital economy that will gain competitiveness in the global markets when it comes to attracting investment, which plays a significant role in creating employment opportunities in any economy. This requires an effective partnership between the private and public sectors to identify the niches that South Africa has a comparative advantage in, compared to other countries in the global economy.
1. South Africa has to re-evaluate its market structures as they affect competitiveness. The country’s markets are largely oligopolistic, consisting of many large firms that have significant market power which hinders competition and raises the barriers to entry for new companies. This market structure also negatively affects innovation that new firms are known to introduce in the economy. In the digital economy that the world is embracing, it is innovation that will attract investment and enable economies to grow.
2. The quality and standard of infrastructure play a significant role in attracting efficiency-seeking Foreign Direct Investment. This is the kind of investment that seeks to grow the economy, thereby creating jobs, as opposed to exploiting a country’s market and resources. To attract this kind of investment, the South African government needs to improve the quality of the country’s main infrastructure aspects such as Energy and Water supply as well as the Transport System whose state has been deteriorating for the past 10 years.
So, where can we as citizens go from here to actively move towards solving South Africa’s unemployment conundrum?
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Yours in Thoughtful learning,