Suppose anyone would have doubted the importance of this week’s medium-term budget policy statement. In that case, we need only look north to our counterparts in the UK, where former chancellor Kwasi Kwarteng’s disastrous mini-budget crashed the pound and the markets — and ultimately led to the downfall of Liz Truss as prime minister.
South Africa had its own version of the market’s reaction to the sentiments coming out of the treasury when in 2017, the attempt at a reshuffling of finance ministers sent the rand and markets into a tailspin. We need not doubt that the markets will be closely watching this week’s medium-term budget policy statement and the strength of the message coming from Finance Minister Enoch Godongwana and his team at the treasury.
It is crucial to contextualise where South Africa’s economy and finances stand. Life has essentially returned to normal, and we are now firmly post-pandemic — but the scars that Covid-19 left on an economy already on its knees are there for all to see. GDP dropped more than 6% in 2020, and more than two million jobs were lost in the economy. The ratio of debt to GDP rose to 70%, up from 28% in 2008. The country introduced extraordinary measures, which included, for the first time in our democratic history, a grant to all unemployed South Africans through the Social Relief of Distress Grant and Employment Stimulus programmes worth close to R15-billion. Due to the drop in revenues because of measures imposed by lockdowns, much of the expenditure to support the economy had to be financed through debt, including loan financing from the International Monetary Fund and the World Bank at competitive interest rates to the country.
Debt forms a massive part of South Africa’s fiscal challenges. The increase in the debt taken on from 2008 to 2020 post the global financial crisis has meant that South Africa, due to its profile as a developing country, has had to pay interest at a premium on this debt. As debt increases, so do the interest payments on that debt, leaving us with a situation where what we now spend on interest payments in the budget is more than what we spend on basic education.
South Africa benefited greatly from the commodities boom post-lockdowns and the improvements at the South African Revenue Service led to revenue overruns that have allowed us to continue to finance the Social Relief of Distress Grant and the Employment Stimulus programmes, thereby preventing a complete economic collapse.
Therein lies the rub — to finance South Africa’s ambitious social programme, we need revenues, which are largely absent due to the lack of economic growth. We have run out of room to take on additional debt and therefore, we must make do with what is available in the budget. However, in addition, the treasury has entered a period of fiscal consolidation to try and reduce the budget deficit and the debt-to-GDP ratio. This means significant cuts to departmental budgets and harsh impositions on items such as the public sector wage bill.
If all the above was not enough, the treasury is expected to fund many overlapping crises. Eskom poses the most significant risk to the economy, with 2022 already expected to be the worst year of load-shedding in South Africa’s history. Transnet has recently emerged from a damaging strike, and its output levels are not allowing South Africa to take full advantage of the commodities boom.
The South African Post Office is so broke that it has stopped paying its employees’ pension fund and medical aid contributions. Denel faces a similar crisis. All need some bailout. The SAA funding strategy has not been finalised. The fuel price is 40% higher than last year and there is a societal expectation that the Social Relief of Distress Grant must continue in one form or another.
How do we draw the necessary positivity out of this budget and where are the reasons to be optimistic? What would a growing economy mean for the everyday lives of South African youth? Our analysis will only attempt to tackle some crises but prioritise the ones we believe have the most significant catalytic impact on young people in South Africa within the context of limited resources.
We must first accept that the Covid-19 pandemic was a once-in-a-lifetime event and that although we bear the scars, we must first look at recovery and growth. Under the circumstances, there is global recognition that South Africa did a better job than most in weathering the storm, balancing lives and livelihood support, providing support to the economy and propping up the healthcare system.
Second, energy security is the most fundamental challenge the economy is facing. Work has been done through Operation Vulindlela to raise the licensing threshold for the embedded generation to allow municipalities to procure from independent power producers. Eskom and the Presidency have publicly announced that load-shedding will continue for another 12 months until additional capacity is procured and the grid is stabilised. The country and the electorate should hold Eskom and the government to account for this mainly because it is estimated that load-shedding can cost South Africa more than R4-billion a day, with small businesses bearing the biggest brunt of load-shedding and young people being the most significant contributors in that space.
In higher education, the current funding model within the fiscal constraints remains unsustainable. We cannot continue to deny students who have the abilities but not the funds to participate in higher education. Instead of broad social compacts, we must agree on more specific sectoral social compacting. We know that our financial services institutions sit on a great deal of reserves.
It is time for the country to consider income-contingent student loans that allow students to study without the burden of debt and to have government-guaranteed funds that are paid on future income contingencies. These income-contingent loans must be aligned with the critical skills list of the country. Furthermore, a similar model must be applied to historical debt. The government should guarantee students’ debt with higher education institutions, allowing them to complete their studies and repay the funds once they graduate.
In basic education, we need to derive sufficient return on investment for the amounts of funds that we invest in our system. While matric pass rates consistently improve yearly, retaining young people in basic education is the most significant challenge. We must consider the opportunity for young people who have not attained matric to re-enter the learning environment through community colleges, high-impact short-term and non-accredited training courses. We must strive not to repeat our mistakes of the past.
School principals, school governing bodies and teachers must have performance targets to retain young people in basic education. The Grade 9 exit certificate must be prioritised to create multiple exit pathways for the youth.
The Presidential Youth Employment Intervention announced by President Cyril Ramaphosa in the 2020 State of the Nation Address, working in collaboration with the Presidential Employment Stimulus, has already shown considerable ability to establish the necessary public-private partnerships to develop the necessary support systems for sustainable pathways for youth. The recent announcement of one million opportunities in just two and a half years gives plausible views on achieving scale at pace.
The pay-for-performance model, for example, represents a new and agile approach to skills development. The model maps actual and growing demand in the economy, providing training in a flexible manner for that demand and making transfer payments dependent not on training but placement in actual jobs. Once again, we return to that point of collaboration and social compacting at the sectoral level by coordinating and convening relevant stakeholders in priority sectors to collectively determine what needs to be done and support demand-led skilling.
The template for this already exists — South Africa rose to number one in the world for global business services in 2021, with the opportunity for another 500 000 jobs on the horizon with the right collaborations between government, labour and the private sector. The sectors primed for growth are automotive, digital and tech, agriculture, early childhood development and installation, repair and maintenance.
In the revitalised National Youth Service Programme, high-impact and innovative NGOs are working with young people to amplify community programmes funded through the government. Youth are, among other activities, engaged in after-school learning, sports and recreation, supporting the early childhood development centres and assisting small-scale agricultural farmers.
Young people are not only earning an income, growing their skills and employability but also catalysing change in communities — think of the young mother who can now go to work because there is a safe day care centre to host her child or learners benefitting from after-school reading programmes. Civil society organisations are benefitting by being able to crowd in philanthropic funding for their programmes.
Finally, we must acknowledge that the idea that only fancy formal sector jobs are a solution to the crises cannot be true. While we look to big and established businesses as the plane in the sky, we must work with the informal economy and the day-to-day hustle of ordinary South Africans. We submit that through the Social Relief of Distress Grant, which in all likelihood will be extended for another year, we have an opportunity to add a stimulus to both the high costs of work-seeking and to the informal economy.
Our relentless focus must not be on formalising informal enterprises but on adding a layer of skills that makes young people feel ready to hustle and create positive spaces that encourage the hustle. Our partners at the Harambee Youth Employment Accelerator have developed an innovative podcast called “The Hustle Content”, freely available on Spotify and Iono.fm, that teaches young people the basics of starting a business.
This op-ed is not presented as a wish list of activities that the government must carry out — that would be avoiding the harsh realities we face. Instead, it focuses on what is possible when we work within our existing context and leverage the strengths that we each have. The journeys of young people have been displays of resilience — a word that we must place under scrutiny. We cannot solely rely on resilience.
It must be matched with intentional and contextual investment to address South Africa’s overlapping crises, which demand “resilience” in the first place. Now, more than ever, we need to focus on resilience — not just celebrating the endurance of crises alone. But instead, concentrating on those aspects of the market will enable us to bounce back to the road to recovery collectively.
With bated breath, young people will eagerly anticipate the mid-term budget policy statement and government plans on the adjustments in departmental budgets. If we are to purport to take the challenges young people face with the seriousness they deserve, then it ought to follow that the necessary budgets should be allocated towards realising supporting institutions with the sole mandate of driving youth development.
In borrowing from the words of Cosatu president Zingiswa Losi: “The National Youth Development Agency should be adequately funded so that it can play its developmental role of ensuring that young people seeking to set up their businesses receive the necessary support.”
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