The austerity centered fiscal framework is the source of our devastating unemployment rate

24 August 2021

The Congress of South African Trade Unions has noted the latest Statistics South Africa Quarterly Labour Force Survey for the second quarter that shows that unemployment has reached a record high of 34,4% . This is the highest rate on record. 

This is very alarming considering that more than 50% of people in the working-age population are officially unemployed. It is also calamitous for the country because it means millions of workers will be dependent on the state for their well-being and that of their families. These unemployment numbers are an outcome of the policy choices by the policymakers, and in this regard the influence of the National Treasury.

These unemployment numbers reflect not just the devastating impact of COVID-19 but also of the government’s misguided austerity strategy that is geared towards containing public-debt and reducing budget deficit, instead of achieving structural economic transformation through diversifying and building the productive capacity of the economy. It is deeply troubling that in the face of such devastating unemployment statistics, the newly appointed Minister of Finance Enoch Godongwana has been quoted as saying that there is no plan to change the country’s macroeconomic framework.

These depressing figures provide proof that there is no real commitment to accelerating shared economic growth and in transforming the structures of production and ownership by government. The over generous and unconditional tax breaks and employment subsidies like Employment Tax Incentive (ETI) and Youth Employment Scheme (YES)Programme handed to the private sector are not working.

The Federation continues to argue that for the country to make a dent in unemployment and close the growing inequality, we need an activist government and a democratic developmental state that can intervene effectively to transform economic relations. This is impossible in an environment where State Owned Entities and Development Finance Institutions are weak and ineffectual.

In our view, government needs to ensure that the parameters of fiscal policy are consistent with employment creation and retention strategies; and avoid imposing rigid and rapid deficit reduction targets which limit public expenditure and infrastructure development. The source of the macroeconomic quagmire is stagnation and not debt, therefore, rather than choking the economy with austerity measures, government need to implement policies that support economic growth. 

Central to all of this is the need to push for the reorientation of our education system to focus more on improving system outcomes. For a long time, our focus has been on opening the doors of learning and improving literacy levels. There is a need to move away from purely academic focus on education, to promote multi pathways, based on individual talents and interests.

Our education system has pockets of excellence, but these need to be expanded and become comprehensive. We still have many young people, from historically disadvantaged communities falling through the cracks. About 73% of the unemployed young people have no matric certificate and no modern economy can thrive if some of its young people lack literacy and mathematical skills.

The 4th Industrial Revolution is here, and our education system does need to be responsive and equip young people with the necessary skills to be competitive. Without an urgent and targeted action to manage the near-term transition and build a workforce with futureproof skills, we are likely to continue to struggle to cope with ever-growing unemployment and inequality.

But we also need to ensure that technological ‘solutions’ in and of themselves, are not imposed recklessly with no regard for local economies. Economies are about the people, and it does not make sense for these technological advances to be imposed without accommodating those who are pushed aside by such developments.

The creation of skills alone will not fix unemployment, we need many young people to become job creators and get involved in entrepreneurship. Programmes or interventions to improve labour-force skills can be effective in urban regions or in intermediate regions but have little impact in rural areas where take-up rates are low. This is where entrepreneurship can come in to fix the unemployment problems. This means that government needs programmes to support individual businesses and cooperatives.

One of the key challenges facing small businesses is the lack of funding. Young people are rarely targeted with subsidised credit, and they are not well served by the formal sector financial institutions. By becoming so profit seeking, micro lending institutions have also contributed to the marginalisation of young people as they resorted to charging high interest rates and demanding collateral security for informal financing.

Government must fix the National Youth Development Agency (NYDA) and ensure that its funds go to young people seeking to set up their own businesses. Banks need to be engaged to provide affordable and accessible credit to young people wanting to set up their own businesses. There is also a need for the development of a state bank and not for profit financial institutions which can reduce lending costs to young people.

Some of the government programmes like the Presidential Employment Programme and internship programmes which have managed to give relief to some unemployed young people needs to be expanded, pay young people a living wage, and be provided across all layers of the state.

It also disappointing that government and the private sector are not doing enough to fulfil some of their commitments made under the Economic Recovery and Reconstruction Plan.  The economy needs reliable and affordable energy supply.  It needs functioning State Owned Enterprises.  The fight against corruption and wasteful expenditure must be intensified.  Local procurement by consumers, government and business must become a national campaign.  

Issued by Sizwe Pamla, National Spokesperson, COSATU, 25 August 2021