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SA needs more jobs, not social grant beneficiaries

SA needs more jobs, not social grant beneficiaries

written by Gerbrandt van Heerden
Published in The Daily Friendon 28 October 2020
Parts of the article have been highlighted by EmpoweringSA's Media Department

Rather than creating wealth, South Africa has been stuck for the past decade in redistributing existing wealth.

This much is evident in the inexorable growth of social grants, with job opportunities remaining a luxury for the lucky few who went to university.

With the devastating effects of the nationwide lockdown having been made clear in Stats SA’s Labour Force Survey for the second quarter, some activists have been calling for the temporary Social Relief in Distress grant to become a permanent grant. But should this be the focus of South Africa’s reforms?

The year 2010 was the point when South Africa transitioned from a country that was relatively effective in steadily lowering its unemployment rate to one that was simply adding growing numbers of people to its welfare tab. 

This followed the global financial crisis, and – tellingly – the elevation of Jacob Zuma to the presidency: the moment at which the government intensified the pursuit of policies hostile to business and investment. 

As a result, South Africa exited a period of relatively high economic growth and entered what some analysts would refer to as the country’s lost decade. 

In fact, 2010 was the first time the number of social grants being paid out exceeded the number of people with jobs.  In that year, there were 92 people with a job for every 100 social grants paid out. This was a big drop from 2008, when there were 112 people with a job for every 100 social grants paid out.  Today, around 90 people have jobs for every 100 social grants. 

Labour force absorption rate

South Africa’s labour force absorption rate (which measures the proportion of the working-age population that is employed) declined by 4% from a peak of 46% in 2008 to 42.4% in 2019.  Over the same period, the number of social grants as a proportion of the total population increased by 4% from 26.8% to 30.7%.

The effects of one of the world’s harshest and longest nationwide Covid-19 lockdowns are reflected in data showing that more than two million South Africans have lost their jobs – essentially wiping out a decade in jobs growth within just a few months. 

Introducing a temporary grant to help support people throughout these difficult times is both understandable and justifiable.

To mitigate the economic fallout from the lockdown, the government expanded the country’s system of social assistance by topping up the amounts of every grant as well as introducing a special Covid-19 Social Relief of Distress (SRD) grant of R350, both for six months. 

Recently the humanitarian organisation, Black Sash, saw the Social Relief of Distress grant as the first step to a universal basic income grant.  Black Sash strongly supports the introduction of such a grant.  However, notable economists such as Dawie Roodt and Professor Bonke Dumisa have warned that South Africa does not have the fiscal space to afford such a grant on a permanent basis.

Making the special R350 grant more permanent would be an expensive and unaffordable endeavour while South Africa finds itself in political and economic turmoil.  Already, more than 18 million grants are being paid out every month. The only way to reduce the number of people in need of a social grant is to significantly increase the number of people with a job. 

Obstacles to job creation

However, the unions and the African National Congress itself are the major obstacles to job creation. The consequence of the national minimum wage is that businesses are reluctant to hire because the minimum wage makes labour in South Africa too expensive.

By contrast, a study done by Afrobarometer this year showed that the majority of South Africans would prefer a low-paying job to no job at all. 

The study, comparing two hypothetical economic systems, showed that two thirds (66%) of South Africans would prefer an economy with low wages and low unemployment over one with high wages and high unemployment. The vast majority (79%) believe it is better to have a low-paying job than to have no job at all.

South Africans clearly attach a high value to having a job.  Government therefore needs to implement labour reforms that will price people into work. With more people in jobs, South Africa’s high social grant dependency ratio will decline, providing fiscal relief. It is time for South Africa to focus on wealth-creation again.