Promoting youth employment and working to resolve labour disputes

Stoking job creation in any country is a tricky thing, and South Africa is no exception, as the government faces an uphill battle in transforming what 20 years ago was a lopsided, closed and exclusionary system into an inclusive economy. The task is daunting. Unemployment ticked up to 25.5% at the end of the first half of 2014, and youth unemployment is estimated to be double that. Taking the broader measure including discouraged workers, overall unemployment is estimated to be 35.6% and 63% among youth. The majority of these 3.2m young South Africans face a combination of low education levels and a lack of network and social capital, according to a study by the Brookings Institution.

The government’s blueprint for development, the National Development Plan (NDP), calls for 11m new jobs by 2030, with a special focus on youth. The NDP’s labour-focused counterpart plan, the New Growth Path, sees 5m of these new jobs being created by 2020. Job creation is vital to economic growth, but the current growth trajectory itself may be insufficient.

Skills Mismatch

An inadequately educated workforce is the second most problematic factor for doing business in South Africa, according to the World Economic Forum’s “Global Competitiveness Report 2014-15”. Khulekani Mathe, the acting head of the National Planning Commission’s secretariat, told OBG, “Tackling the weakness in the education system is central to achieving the NDP’s medium-term goals.”

The national education system faces key structural issues that contribute to a high drop-out rate among students in secondary school, for instance, with an estimated 20% of students dropping out each year after grade 9. As a result, the government has been focusing on publicly funded technical and vocational education and training programmes, including institutions known as further education and training colleges. In the last few years, nominal unit labour costs have risen faster than productivity. “Fewer workers are producing more; however, the value of productivity gains are not keeping pace with the rising cost of the workforce,” according to Goldman Sachs. In addition, over the last 20 years many skilled workers have left South Africa.

Helping Youth

A total of R240.5bn ($22.77bn) was allocated to education in the budget for the fiscal year ending March 2014, with planned average annual growth of 6.8% through March 2017. Over the next three years, the National Treasury is planning to spend R78bn ($7.39bn) on university subsidies, R19.4bn ($186.56m) on the National Student Financial Aid Scheme and R34.3bn ($3.25bn) on school infrastructure. In addition, several vocational programmes are in place specifically for young people. The Community Work Programme was started in 2008 as a means to supplement incomes through work demanded by communities. According to the Extended Public Works Programme, 57% of participants are less than 35 years of age. The government has committed to spending R8.5bn ($804.95m) on this programme in the next three years through the fiscal year ending March 2017.

Additionally, public deployment programmes have been set up through the National Youth Development Agency, training young people in skills such as construction or enterprise development. The programmes have made modest gains, with 3000 job placements in the fiscal year ending March 2013. Another employment initiative targeting youth is the National Rural Youth Service Corps, a two-year skills incubation programme. However, results have been mixed because of inadequate pre-job training provided to youths.

Demand-Side Solutions

Besides supply-side solutions such as education and work programmes, the government has encouraged employers to hire youths. A youth wage subsidy was signed into law at the end of 2013, aimed at incentivising employers to hire unemployed people between the ages of 18 and 29. Known as the Employment Tax Incentive Bill, it followed a three-year protracted debate with labour representation, which argued that the subsidy would create a two-tiered labour market that would cause problems for older workers and still not address youth unemployment. S’dumo Dlamini, president of the Congress of South African Trade Unions, told OBG, “This bill is a non-starter that only has benefitted the labour broker and not solved the problem of youth unemployment.”

Employers who hire youth earning less than R6000 ($568) monthly receive a tax credit under the law. First-time workers earning less than R2000 ($189) per month allow the hiring company to claim back 50% in taxes, and those earning less than R4000 ($378) per month enable the firm to claim a R1000 ($95) tax rebate per worker. Not only does the law help to offset training costs, but it also brings more people into the formal sector and is supported by the National Treasury since it operates through the tax system. More recently, the Employment Services Act, passed in April 2014, will offer public employment services, such as facilitating job matching. Looking further back, a challenge fund launched in 2011 following the global financial crisis focuses its funding on enterprise development, infrastructure investment, support for job seekers and institutional capacity. To date, the fund has created around 100,000 jobs at a cost of R63,000 ($5966) per job.

Fraught Relations

Stimulating employment not only requires strong macro-economic growth, but also efforts by private business, the public sector and labour to create an environment that is conducive to hiring and in which employees are able to earn a living wage. Ensuring smooth dialogue between the parties can, unsurprisingly, prove tricky, as an increasingly inefficient National Economic Development and Labour Council has shown, and industrial action has become a regular occurrence in Africa’s second-largest economy, particularly during what is known locally as “strike season” – the second and third quarters of the year.

Additional Challenges

Labour strikes have also proven particularly problematic in 2014, as platinum workers staged a five-month strike that had a major impact on the industry, with 70,000 workers participating and losses estimated at around R24bn ($2.27bn). These strikes were largely held responsible for a 0.6% economic contraction in the first quarter of 2014. The Association of Mineworkers and Construction Union eventually won an annual 20% wage increase for its members, up to R12,500 ($1183) monthly.

The platinum strike ended on June 23, but was followed by another strike on July 1 by the largest union in South Africa, the National Union of Metalworkers of South Africa (NUMSA). A total of 220,000 of NUMSA’s members held a strike for four weeks, though it may be as high as 350,000 workers due to lockouts that compounded the strikes, representing roughly 6% of the formal sector workforce. The strike concluded with an agreement on 10% annual wage hikes over three years for the lowest-paid workers.

The NUMSA strike cost the economy around R300m ($28.41m) a day, according to the Steel and Engineering Industries Federation of Southern Africa, and around 12,000 companies were affected, including state power company Eskom and carmakers General Motors, Ford, Toyota and BMW. The auto industry had already taken a hit in 2013 when 30,000 NUMSA members at major automakers went on a four-week strike that cost the industry $2bn in sales. Konrad Reuss, managing director for South Africa and sub-Saharan Africa at Standard & Poor’s, said that in addition to the strike fatigue that is subduing economic growth and job creation potential, “the rigidities of the labour market are stifling”. According to the World Economic Forum’s “Global Competitiveness Report 2014-15”, South Africa ranks in the bottom 10 out of 144 countries in the categories of cooperation in labour-employer relations.