The Budget Speech with Trade and Business Bias

Friday, 28 February, 2020 - 15:36

During the Budget Speech 2020, the finance minister pointed out the growth in employment due to the Job Fund projects. Action on youth unemployment on the minister of finance’s budget speech was welcomed by many as one of some fair steps by governments, though not enough when we consider the current economic situation. It will take a lot of work to mitigate the unemployment situation. The government has a central role to play in turning SA into a competitive economy. We hope that this speech indicates the government’s willingness to do so.

Analysts feel that this was also a budget for business and a budget for trade.  Signaling the corporate tax cut in the future made our tax system more competitive. It means business will be better positioned to grow whilst the economy picks up. The message is that South Africa is open for business, and that enhances prospects for economic recovery and long-term growth. “The widespread view coming into this year’s Budget Speech, was that it needed to credibly steer us towards growth, while also addressing the growing fiscal deficit and lowering the debt trajectory. This is no easy task, but is precisely what South Africa desperately needs,” said Reza Hendrickse, portfolio manager at PPS Investments.

Expectations ahead of the budget predicted some combination of tax hikes in the major areas (personal, corporate and VAT), expenditure cuts and economic reforms to boost the growth.  However, no major tax increases were announced. Only a few minor tweaks such as inflationary adjustments to excise duties, fuel levies and a higher plastic bag levy.  What may infuriate the trade unions is the announcement of a R160 billion adjustment to the wage bill over the next 3 years. This may mean job cut in the public sector, and it remain to be seen as to which sectors are going to be affected and how this will be implemented.
The biggest news for the property industry is that the threshold for transfer duties has been adjusted. Property costing R1 million or less will no longer be subject to transfer duty.

South Africa’s Economic Growth or lack thereof.

Last week we heard some debates, on radio, about the economy of South Africa and its impact on the labour force; unemployment; and job-creation. Two organizations have had opposing opinions on the subject of economic growth. The Centre for Development and Enterprise (CDE) and the Centre for Economic Development and Transformation (CEDT). We shall, therefore, look into the two opinions during the next few weeks starting this week.
This being the follow-up article on last week’s look at the unemployment situation in South Africa; we wish to bring civil society’s attention to a publication by the Centre for Development and Enterprise – published on January 29th, 2020 – entitled “Ten Million and Rising: What it would take to address South Africa’s jobs bloodbath”.  The report analyses South Africa’s unemployment crisis as the deepest and most persistent in the world, owing to 40 years of slow economic growth, a skills shortage, and poor policy choices. The report sums up the primary reason for high unemployment as being slow economic growth.
 
We shall study a number of different perspectives from opposing views regarding the unemployment situation; causes and effects; and what direction the country should take.  In the process, we wish to invite comments from civil society leaders and practitioners to cite their opinion regarding what should be done, and how could civil society intervene in this crisis.

Key Facts as extracted from the report:

  • Only 42% of South African adults are in employment, down from 46% in 2008. This level of employment across the working age population compares poorly with the global average – especially developing countries. Across all upper middle-income countries (including South Africa), an average of 61% of adults are working.
  • 38.5% of our labour force are unemployed, one of the highest figures in the world. 10.3 million people are currently unemployed. This is up from 8.4 million in 2014 and 7.1 million in 2009.
  • Since 2008, South Africa’s working age population has increased by 7 million people, but fewer than 2 million of those found work. During the same period, 3.8 million people have joined the unemployment queue.
  • This means that every day some 1700 adults join the labour market and fewer than 500 of them find work.
  • Over 70% of the narrowly unemployed (4.8 million of 6.7 million) have not had any kind of job in the past 12 months, up from 60% 10 years ago.
  • The data for young people (aged 15 to 34) are even worse. Between 2008 and 2019, the population of young people increased by 2.2 million to 20.4 million, while the number of young people in employment fell by more than 500 000 to 5.9 million. 
  • This means that, despite more than 500 additional young people in South Africa joining the workforce every day since 2008, more than 100 young people lost jobs daily.
  • South Africa has extremely low agricultural employment figures. Although our non-agricultural employment rates compare favourably with middle income countries (38% against 40%), our agricultural employment rates are way down: 17% of the world’s middle-income country populations work in agriculture, while in South Africa this figure is only 2%.
  • Employment rates are therefore higher in urban areas than rural areas. The average employment rate for South Africa’s eight largest metros (Johannesburg, Pretoria, Ekurhuleni, Cape Town, Durban, Bloemfontein, Port Elizabeth, and East London) is 50%, while in the rest of the country only 40% of adults are working.
  • Our cities generate employment at a faster pace than in the countryside, despite the fact that two-thirds of our population live in urban areas. Since 2015, employment in South Africa’s metros rose by 9%, compared with an increase of only 3% outside those metros, despite similar rates of population growth (8% for urban areas; 7% for rural areas).
  • Unemployment rates vary according to levels of education. This can be seen most starkly in the comparison between the employment prospects of adults with matric versus without matric: 55% of the former have work, while just 33% of the latter are working. However, both figures have dropped over the past decade. At the beginning of 2008, 63% of adults with matric had work while 37% of adults without matric were working.
  • South Africa’s economic growth has been too slow to absorb new entrants into the labour market. Annual GDP growth has not been more than 4% since 2007, and has been less than 2% every year after 2013. GDP growth was 1.8% in 2014, 1.2% in 2015, 0.4% in 2016, 1.4% in 2017, and 0.8% in 2018.
  • The South African Reserve Bank has had to review its economic forecasts downwards for each of these years. In January 2020, the SARB cuts its 2019 growth expectations to 0.4%, its 2020 growth expectations to 1.4%, and its 2021 growth expectations to 1.6%.
  • No major financial institution predicts economic growth of 2% for 2019 or 2020. The World Bank expects economic growth to be 0.4% for 2019 and to rise to 0.9% in 2020 and then to 1.4% in 2021, but only on the assumption that the “structural reform agenda gathers pace”.
  • South Africa’s economic growth is not very labour intensive. Between 2000 and 2017, South Africa’s GDP growth averaged 2.8% per year. Total employment, however, only rose by 1.6% per year.

 For the full report, search https://www.cde.org.za/ten-million-and-rising-what-it-would-take-to-address-south-africas-jobs-bloodbath/
 
The civil society players – NPOs; NGOs; NPCs; CBOs and CSOs – are supposed to be addressing the unemployment and poverty challenges through programs and projects they are operating on a daily basis, at grassroots levels. It is because of that reason we expect comments and suggestions from the sector. Kindly send opinion comments to dan@sangonet.org.za so as to be published alongside our editorial. Your comments should focus on:

  • What is the reality on the ground?
  • How is poverty and unemployment affecting societies?
  • What is the cause of unemployment in South Africa?
  • What should be done to intervene?
  • Who should take part in the intervention?
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