In other parts of this Bulletin we have spelt out the high levels of poverty and unemployment in this country.
In 2003 at the Growth and Development Summit, government committed itself to halve poverty and unemployment by 2014.
The Millennium Development Goals which countries agreed on in 2000 also have this as one of their targets. But just how can this be done in South Africa?
There are many ideas coming forward. Just two of these studies are summarised in this article.
Mirriam Altman from the Human Sciences Research Council and Asghar Adelzadeh who did a study for Oxfam have both put forward different scenarios to achieve these targets.
What is needed?
Both studies agree that to halve unemployment the economy will need to create between 400 000 and 500 000 new jobs each year until 2014 – that's one and a half times the number of jobs that were created between 1995 and 2004!
Creating jobs does not automatically draw people out of poverty. We know that in this country we have what are called "the working poor" – people that work but who are still poor.
Both studies propose that social grants must go wider than they do currently and that there should be more subsidies for the poor for both essential goods and services (like water, electricity, transport).
"No silver bullet" says HSRC
"All our research shows that there will be no 'silver bullet'," says the HSRC study. "No one intervention will generate "a million jobs".
What will see employment rising is creating linkages, getting one part of the economy talking to another, "improving the general business environment".
The HSRC explores three different scenarios to try and see what combinations of policies are needed to achieve the target of halving the unemployment and poverty rates.
In all three scenarios it uses Expanded Public Works Programmes (EPWP) to mop up those that don’t have jobs.
It shows that the lower the GDP growth rate, the more jobs government would have to provide through the EPWP.
So with a 3% GDP growth rate, 2.8 million people would need EPWP jobs. This would leave "very little other budget for public spending" and threaten the long term sustainability of the growth of the economy.
Scenario 3 is the most desirable but it assumes the GDP growth rate would have to grow at 6% – maybe a tall order considering the economy's current slow-down! It also assumes that the public sector becomes one of the major employers.
Even with all these scenarios, the HSRC sees little prospect in reducing poverty by half unless government supplements low wage earners with social grants, improves service delivery, reduces prices for goods and services bought by the poor and/or gives them access to a garden.
Scenario 1 Scenario 2 Scenario 3
GDP growth 3% 4,5% 6%
Employment growth * 20% of the jobs are in informal sector, domestic work, subsistence agriculture
* 17 % of the jobs are in Expanded public works programmes (EPWP);
* 16,7% in retail, personal services
* 13,2% in public sector
* 9,5% in manufacturing * 21% of the jobs are in informal sector, domestic work, subsistence agriculture
* 18,2% of jobs in retail, personal services
* 14,5% in public sector
* 10% in manufacturing
* 8,9% of the jobs are in Expanded public works programmes; * 21,5% of the jobs are in informal sector, domestic work, subsistence agriculture
* 17,9% in retail, personal services
* 16% in the public service
* 11,4% in manufacturing
* 3,5% in EPWP
Number of jobs in EPWP 2.8 million 1.5 million 579 000
Oxfam – government in the driving seat
The Oxfam study also develops a number of different scenarios but only one of them succeeds in halving unemployment and poverty by 2014 (2015).
Its winning scenario for halving unemployment and poverty assumes the following:
* an annual real growth rate of 5% between 2007 and 2015
* the creation of 3,7 million new jobs during that period (ie about 411 000 per annum)
* that new jobs will benefit the poor more than the non-poor
* the extension of the child support grant to poor children aged 14-17
* the introduction of a new social grant for unemployed adults (initial grant of R500 per month)
* a real annual increase in the value of all grants by 2%
* more subsidies for transport and essential services (ie water etc), food aid for poor people. These transfers should be the equivalent of R20 billion in the first year and then increase annually by 2%.
All these measures assume that the state takes on a much more developmental role. With this changed role government should make bold moves in the following areas:
* its macro-economic policies
* its employment generation policies
* its trade and industrial policy
* its social security system
Changes it should make to macro-economic policy.
Adelzadeh argues that government should adopt a "pro-poor fiscal policy". However this will require extensive funds on the part of government.
He says that government can either finance this by increasing its revenue and/or use the fiscal deficit.
He favours government increasing its revenue through introducing a "strong progressive income and company tax, value added tax and wealth tax system" because it will reduce inequality at the same time.
Those high-income earners will benefit in other ways for example from the improved infrastructure and better education of their workforce and subsequent productivity increases.
He sees no problem with increasing the fiscal deficit since the money will be used to benefit the poor.
Detailed fiscal strategies that he says government should adopt include:
* continuing with government's current strategy of strong public investment in infrastructure.
* ensuring that this development is employment-creating
* public works projects that hire the poor,
* infrastructure "that gives the poor access to markets and lowers their production costs"
* the provision of schools and health clinics "that increase the productiveness of the poor";
* using government procurement to boost job creation
* promoting private sector investment by rewarding businesses who reduce the unemployment rate and who improve income distribution;
* ensuring that government increases its spending during economic downturns so as to "cushion the impact of adverse shocks".
It could do this by creating a fiscal stabilisation fund made up of excess revenues, fiscal surpluses and excess income generated during commodity price booms.
On the monetary side, inflation targeting should be avoided. Instead government should:
* keep interest rate hikes in check by ensuring that the long-term interest rate is not "greater than the maximum sustainable rate of growth of per capita income".
* consider depreciating the currency to encourage further exports
* consider discouraging "short-term capital mobility" so that the country is not exposed to a financial crisis.
Ways it can generate employment
The Oxfam study proposes that government introduce incentives that encourage "employment-intensive" investments in the private sector and promote the farming of crops and encourage setting up of cooperatives that are labour intensive.
It should also speed up land reform and target "poor labour tenants, farm workers, women and emerging farmers" as the beneficiaries.
Access to credit should be made simpler with a lower interest rate applicable.
Employers should be given subsidies to "encourage the private sector to increase its employment of first time job seekers, and the retraining and/or rehiring of retrenched employees."
Government should stop paying subsidies to large-scale and capital intensive enterprises and should rather support activities that are job-creating regardless of size.
Like the HSRC study it also sees a role for public works programmes to mop up those that cannot be employed elsewhere.
How should trade and industrial policy look?
The country should not completely open its doors. It should protect and support strategic sectors that create jobs and generate exports with the use of tariffs, quotas and subsidies.
It should also support sectors to make goods that are currently imported. This will expand the goods that are traded locally.
The increase in people employed and the rise in these incomes will not stop imports.
On the contrary, it will encourage more imports of goods that the country cannot make but are necessary to advance its own growth.
Some of the areas that a trade and industry policy must prioritise are:
* meeting basic needs
* creating jobs
* providing infrastructure
* monitoring and controlling of foreign investment flows by South African conglomerates like Sasol
* narrowing wage differentials and setting minimum labour standards
* improving measures to boost the development of small, medium and micro enterprises (SMMEs)
* setting clear mandates for state owned enterprises and "holding their management accountable to these mandates"
* using foreign direct investment (FDI) to "promote technology and knowledge transfers"
* reduce reliance on foreign bank loans.
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"Government should stop paying subsidies to large-scale and capital intensive enterprises" says Oxfam report
Could the report be referring to the MIDP?
Currently the Department of Trade and Industry’s (DTI) intention to extend the Motor Industries Development Programme (MIDP) after 2012 has come in for some strong criticism from a Canadian researcher (Flatters) and more recently the Organisation for Economic Cooperation and Development (OECD).
The MIDP supports capital intensive industries in the automotive sector and has been described as a wasteful use of taxpayers and consumers money.
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BOX
More jobs need better education to produce higher skills!
In a research paper (Beneficiation and Skills in South Africa’s Metal Sector) presented at the annual South African Sociological Association (SASA) Congress in July 2008, Maree, Lundall and Godfrey argue that “currently a very small proportion of most metals is beneficiated to the Finished Manufacture Stage in South Africa” and that “the challenge for the metal and engineering industry is to scale up the provision of skills for the high beneficiation end of the production chain”.
Clearly there needs to be a massive skills boost in the country to make beneficiation (adding value to raw materials) a reality, and unless adequate resources are channeled to upgrade and improve the quality of education in the country, our capacity to produce value added goods will remain limited, while raw materials continue to leave our shores.
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EMPLOYMENT/UNEMPLOYMENT IN NUMBERS
500 000 to 700 000 – Number of new entrants to the job market each year
560 000 to 720 000 – Number of jobs the economy needs to create each year to halve unemployment by 2014
2% to 3% – the percentage by which job creation must grow each year to keep the unemployment rate steady
3% to 4% – the percentage by which job creation must grow each year to try and give jobs to those already unemployed
Source
Numsa News No 20