Local economic development and youth Dr Ray Ngcobo “the sda” THE ENVELOP WITHIN WHCH WE HAVE TO RESPOND Prospects for global growth are being seriously compromised by the sovereign, banking and liquidity crises affecting the Eurozone. THE GLOBAL CRISIS • Investors have been moving to assets perceived to be safer, especially US treasuries and German bonds, despite the miniscule returns. • If effective steps towards a lasting solution are not taken swiftly, a catastrophic chain of events could be set off by one or more of the states in crisis, possibly Greece, in the not too distant future. • The consequential economic costs could be enormous and widespread. The global challenge • Serious structural adjustments are absolutely necessary, so as to enhance the competitiveness of these economies and restore their financial stability. • However, protracted economic contraction, followed by stagnation, is likely to result in escalating social unrest. • Growth stimulation is thus essential to take the weaker states out of crisis mode. • The vulnerability of the global economy to external shocks is being increasingly exposed and global growth rate is becoming rather anaemic. • China, in turn, is again implementing growth stimulating measures in order to counter the possibility of a worse than anticipated slowdown. • Weak international demand as well as insufficient local consumption, are compromising country’s ability to continue posting the growth rates required to maintain socio-political stability. • Countries are using monetary policy to ease global economic challenges and infrastructure spending again accelerated. • However, the long-term recipe lies in a better balance between investment activity and household spending, as well as between external and domestic demand. South Africa’s very open economy makes it particularly vulnerable to external shocks. • The sluggish recovery in parts of the advanced world and stagnation or recessionary conditions in others, are among the strongest inhibitors of economic activity at home. • Europe accounted for approximately 26% of South Africa’s merchandise exports in 2011 and weakening demand in this regional market does not bode well for export-oriented sectors, particularly manufacturing. Critical as it is to reduce unemployment levels, particularly amongst South Africa’s youth, it has proven extremely difficult to reverse the large job losses incurred since the onset of the crisis. • Comparing the opening quarter of 2012 with the closing quarter of 2008, – the government and – community services sector, – financial services, have been the only significant net gainers of jobs, – whilst manufacturing, which has shed the largest number of jobs at the broad sector level, is still facing difficult trading conditions and excess production capacity in several of its sub-sectors. IMPLICATIONS FOR THE RSA • The very difficult situation in the Eurozone, if prolonged in an unresolved manner, will continue posing a drag on South Africa’s economic growth beyond the near-term, with the adverse impact magnified if the crisis intensifies or, in a worst case scenario, spirals out of control. In South Africa • South Africa has largely failed to provide equal opportunities to all citizens since the advent of democracy in 1994. STRUCTURAL UNEMPLOYMENT • South Africa has an acute problem of youth unemployment that requires a multi-pronged strategy to raise employment and support inclusion and social cohesion. • High youth unemployment means young people are not acquiring the skills or experience needed to drive the economy forward. • This inhibits the country’s economic development and imposes a larger burden on the state to provide social assistance Why are young people unemployed? • There are a number of explanations why young people are unemployed, these include • Employers look for skills and experience; they regard unskilled, inexperienced jobseekers as a risky investment. • Education is not a substitute for skills. Schooling is not a reliable signal of capabilities, and low school quality feeds into poor workplace learning capacity. • Given the uncertainty about the potential of school leavers, employers consider entry-level wages to be too high relative to the risk of hiring these inexperienced workers. A multi-pronged strategy to reduce youth unemployment • The New Growth Path calls on the state to provide bold, imaginative and effective strategies to create the millions of new jobs that South Africans need. • This requires a combination of initiatives that require direct state involvement, private sector partnerships, as well as the mobilisation of civil society to take a proactive interest in addressing the problems presented by unemployment. national strategy to tackle youth unemployment • Reviewing the legislative environment. • Identifying the desirable scope and budgetary requirements, of youth brigades and other forms of public employment. • Conducting a trial of the youth employment subsidy. • Improving education performance and skills development in the schooling and further education system. • Improving the public employment services available to the youth to aid matching of skills, job search, career guidance and counselling, skills development and job placement. • Establishing a monitoring system with regular reports on progress. • Strengthening relationships with the NYDA and other youth services agencies. National approach to youth employment • Addressing youth unemployment requires both short- and long-term measures that encompass: – increasing demand for labour, – improving education and skills, and – labour market interventions that improve the employability of young people.