Are the government’s plans to curb youth unemployment bearing fruit?

All eyes were on the Minister of Finance on the 22nd of February 2023, as he presented the Budget statement for 2023/24. Given the developments of the past 12 months where loadshedding has been more persistent than ever before, it was no surprise that Eskom was top of mind. The energy crisis has worsened with constant loadshedding as Eskom continues to experience breakdowns on its plants and new capacity is yet to be unleashed at a scale that covers for the gaps created by the persistent breakdowns in the current Eskom fleet. Addressing the Eskom crisis was critical to Minister Godongwana’s agenda of fostering economic growth in the aftermath of the pandemic. Eskom’s problems have been cited as the biggest economic constraint that undermines all recovery efforts. The government announced measures to act decisively in bringing additional capacity to the grid, one of which is providing tax incentives for businesses and individuals to add alternative sources of energy to the grid. The energy incentives have been extensively covered by the media, but one cannot help but notice the silence on any pronouncements of youth employment.?

One cannot deny that growing the economy is key to resolving South Africa’s three-pronged problems of poverty, inequality and unemployment. Having said that it also makes one wonder how effective the country has been in translating economic growth into better living standards for the poor or reducing youth unemployment. According to Statistics SA, at the end of the fourth quarter of 2022, the unemployment rate is 61% for those between 15-24 years and 39.9% for those between 25-34 years using the narrow definition of unemployment. Though this has slightly declined, youth unemployment has averaged 55.4% since 2013. During the same period, the South African economy only grew by an average of 1% per annum, which represents a suboptimal economic performance even before one accounts for the impact of Eskom’s persistent load shedding.

There is no denying that the government has introduced specific initiatives over the past decade to tackle the youth unemployment crisis in South Africa. In 2014, the government introduced the Employment Tax Incentive (ETI), an incentive aimed at encouraging employers to hire young job seekers,?reducing the employer’s cost of hiring young people through a cost-sharing mechanism with the government. However, the escalating youth unemployment rate is indicative of the fact even this initiative has had a marginal effect on the youth unemployment crisis. A 2020 Study by the Development Policy Research Unit of The University of Cape Town found that “the impact of the ETI is found to be statistically significant but small in magnitude”[1]. This essentially means that even though the scheme has been in place for nine years we still find ourselves with a growing youth unemployment rate. This is just one of many of the government's initiatives that are designed to get the most vibrant population group of the country involved in the economy. Given the nature of the youth unemployment crisis, one cannot help but wonder if there is something we are missing in the quest for substantive solutions to the current problem. Finding an answer to this question should not only be a policy priority for policymakers but a binding imperative for all of us as citizens.

by Zintle Twala, CFA

[1] Bhorat, H., Hill, R., Khan S, Lilenstein, K and Stanwix, B (2020). The Employment Tax Incentive Scheme in South Africa: An Impact Assessment. Development Policy Research Unit Working Paper 202007. Available at: https://www.dpru.uct.ac.za/sites/default/files/image_tool/images/36/Publications/Working_Papers/DPRU%20WP202007.pdf?.