BUSISIWE MAVUSO: No quick fixes for SA’s economic woes

POSTED ON: August 9, 2022 IN by Admin
economic economic

By Busisiwe Mavuso

There is no magic elixir for the economy.

There are no quick fixes to our challenge of poverty, inequality and unemployment. The structure of our economy is in a state of transition as we attempt to transform critical sectors, particularly energy and transport, into efficient operating entities that stimulate growth rather than suck the blood out of the economy — as they do now in their dysfunctional state.

This transition has suffered many blows, particularly from the ravages of the Covid-19 lockdowns and increased load-shedding, while we’re still struggling to expunge corruption from our society, something proving difficult because it’s so entrenched.

Until we’ve completed the transition our economy will remain vulnerable and needs careful nurturing. At the same time, the plight of the poor is worsening month by month as inflation rises — food inflation in July was at a horrific 8.6%.

I’ve been highlighting in recent columns the dangers of committing to funding a basic income grant (BIG) that we cannot afford. To drive policies founded on evidence-based research, Business Leadership SA (BLSA) has commissioned two reports into a BIG. The first report, issued in September 2021, addressed the important question of how we tackle the immediate challenge of easing the plight of the poor.

Saying that this is a legitimate demand on the government, the report said that SA’s social safety net does not support able-bodied, working-age  need not necessarily imply that the best option is to provide unemployed adults with a grant.

There are alternatives through supply side measures. Though it is difficult to achieve the kind of scale needed in these kinds of programmes, there are many ways in which the state can invest in its people and the economy to provide short-term upliftment. These supply side measures will have their own demand effects, which can be complemented further with measured stimulus.

The two main mechanisms to create short-term job opportunities are through job incentive schemes and expanding public employment programmes. Both have been prioritised by various stakeholders, including those represented at Nedlac.

Government’s public employment programmes are able to create low-income jobs efficiently — averaging about 1-million work opportunities a year, each averaging about three months, which translates to about 14,000 full-time equivalent jobs per R1bn of expenditure. This could be substantially expanded while the three mechanisms in place for the private sector to create jobs in the short term, the Presidential Employment Stimulus (PES), the Employment Tax Incentive (ETI) and the Youth Employment Service (YES), should also be assessed to find ways to improve their effectiveness. Each has had positive results but overall take-up could be accelerated through targeted interventions.

The PES focuses on ensuring the jobs created provide work experience for participants that will assist them on their pathways into the wider labour market, making participants “work-ready”. What we’d like to see is an assessment of how effective it is against its objective to enhance participants’ potential to find future work, and to undertake ongoing tracer studies to assess the success rate of the PES-related employment programmes.

The ETI supports about 600,000 jobs in the formal sector, and it is likely that they offer supported workers greater possibilities for acquiring skills and know-how than most alternatives. It encourages employers to hire young and less experienced work seekers through a tax rebate — an incentive criticised by some because it “subsidises employers”, an argument that is absurd (even immoral) in the face of our employment crisis. This scheme should be beefed up to make it even more appealing to hire. It can be scrapped when the economy is in such a healthy state that it’s no longer needed.

YES is a business-driven initiative in partnership with the  government and labour that aims to create 1-million jobs for youth, and it’s designed to boost a firm’s black empowerment scores. Businesses have the option of sponsoring a salary for a one-year placement in small and medium enterprises, or help young people start and grow their own businesses through seed funding. According to the YES website it has created 82,000 work experiences and deployed R4.6bn into the economy.

As I highlighted in the opening sentence, there is no magic elixir for the economy, but expanding these incentives to create jobs in the short term comes at no cost to the fiscus and serves to expand the tax base and stimulate the economy while providing far wider benefits to recipients than a grant.

However, in the long term the surest way of creating jobs is through economic growth, which is likely to come only after the reforms being implemented start taking effect, including sufficient energy supply and an efficient rail and ports system. Those factors will enable heightened economic activity and reduce unemployment in a way.

• Mavuso is CEO of Business Leadership SA. This article first appeared in Business Day.

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