Addressing SA's unemployment crisis requires a radical policy shift

South Africa is currently experiencing incidents of looting, violence against property, threats etc on a wide-spread basis. The trigger for these events was the arrest of former President Jacob Zuma, who was sentenced to 15 months imprisonment by the Constitutional Court, for contempt of that court. It is not yet clear if these incidents are centrally controlled, if they are coordinated or not, but there are reasons to be concerned that South Africa may experience an increase in the frequency of riots and social unrest more broadly.

There are two main sources of risk to be concerned about, starting with our high rates of youth unemployment, currently sitting at 74.7% for 15-24 year olds (using the expanded definition of unemployment). The labour force participation rate among this group has dropped from 37.1% in the first quarter of 2020, to 29.9% in the first quarter of 2021. This means a staggering 70.1% of young people are not employed and are also not seeking employment.

This is a major crisis on its own, and makes South Africa vulnerable to violent crime from a despondent youth. In fact, according to a 2013 paper by the African Development Bank studying youth unemployment and political instability in 24 developing countries, South Africa had the highest youth unemployment, as well as an above average risk of political instability. It was found that youth unemployment is an important factor in determining the risk of political instability; this alone has important consequences for South Africa given our extreme youth unemployment rates.

Since the lockdowns began more than a year ago, international commodity prices have increased substantially, on a generalised basis. These include fuel and food prices, one of the causes is the supply disruption caused by lockdowns, as entire industries were shut down across the world and deemed non-essential. Another cause is the unprecedented monetary and fiscal policies accompanying lockdown - governments across the world have spent trillions trying to pay everyone for not being productive.

As the lockdowns caused incomes to drop - and therefore tax receipts to also drop - central banks have responded with the loosest global monetary policies since the Second World War. Interest rates have in some cases gone negative, to accommodate government spending meant to compensate for lockdowns. In response, commodity prices have shot up and other signs of inflation have appeared throughout the global economy; the price of corn for example has increased by 37% between December 2019 and the first few days of July of this year.

Oil prices went from collapsing to negative territory to a furious rally that erased all lockdown losses in the price of oil. In January of 2020 oil peaked at around $63 per barrel - it crashed during the market crash of March-April 2020 into negative territory - and now sits around $74 per barrel. This is an additional inflationary pressure, and it is not just the two commodities mentioned here, commodities have generally gone up, suggesting increased costs for the secondary sectors of the economy (and increased profits for the primary sectors which produce commodities), and eventually for the consumer.

This global context adds further urgency to the reform agenda. The government has made important steps in some areas such as proposing to increase the cap for generating electricity without a license to 100 MW from the current 1 MW. This change must be gazetted as soon as possible, and the reform of Eskom itself must be prioritised.

The biggest area of reform must be the liberalisation of labour regulations. South Africans should understand that jobs that might pay lower salaries are still jobs, and individuals can always choose not to work (as more and more of them are doing because they are unable to find work, due to onerous government-imposed legislation and business-stifling regulations).

The choice is often between having some income, or no income. By restricting the type of employment contracts our young people may accept, we condemn them to a life of no income, other than the paltry amount they can get from the state (if they manage to jump through all the related bureaucratic hoops). By extending bargaining council agreements to non-parties, we are coercing the unemployed to only accept jobs under conditions negotiated between the employed and their employers.

Through imposing a minimum wage, we are setting a floor for who can earn an income. If your labour is worth less than the floor we have set, you do not deserve a job and you should stay poor. Further, most of what the government can 'give' you will be stolen by the friends and family members of politicians. Young people are right to be angry at this cruel system, but the use of violence won't solve any of the underlying structural problems. Indiscriminate violence will only hurt small and informal business owners who are trying to earn a living. Our constitution provides more effective and peaceful means of expressing discontent, and actually changing the government through your vote.

Through government policy that has consistently excluded the most vulnerable from business and job opportunities, South Africa is sitting on a powder keg that can produce millions of explosions. We must stand up for the rule of law, including the right of young people to work and start businesses. The consequences of not doing so will be the devastation of our beautiful country, in ways that we will not be able to reverse.

This article was first published on City Press on 15 July 2021.

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