When Welfare Provision is Comprehensive but Misguided: South Africa

by Bojosi Morule

July 14, 2015

    South Africa is as an upper middle-income country that has one of the most comprehensive welfare programs in the world. Its welfare is distributed in the form of ‘social grants’: means-tested cash payments that include the Child Support Grant, Foster Child Grant, State Old Age Grant, Care Dependency Grant, and War Veterans’ Grant. The structural conditions necessitating these programs are well-known: Apartheid prevented the majority of South African citizens from acquiring skills and resources that would enable them to be economically active today and, the scourge of HIV/AIDS has resulted in many orphaned children being taken care of by relatives with little means. It is for this reason that South Africa has been rigorously attempting to ameliorate the socioeconomic conditions ailing the country, particularly through welfare grants.

    However, despite the tremendous action taken in the provision of grants—the reach of the social grant system has increased tremendously since the first democratic elections in 1994 and it now serves 14 million people, which constitutes 28% of the population—other indicators do not tell of greatly improving conditions (1). In 2014, the labor market participation rate—a measure of economically active individuals, which includes the employed and the unemployed who have actively been seeking work—was 57.3%. The official and unofficial unemployment rates, in the same year, were 25.5% and 35.6%, respectively (2). Though high, these numbers do not do much to reveal the sheer amount of growing impatience among the youth, and the degree to which the potential so desperately needed by the country has been wasted (3). Many of the relatively few who obtain a university degree complain of unemployment—the chicken-egg paradox that they need experience to get work, but cannot get work in order gain the experience required (4). Employers often respond with complaints of their own about new graduates simply not being adequately prepared for the job market (5). There are 600,00 unemployed university graduates and ‘829 800 unfilled positions for high-skilled workers across a wide range of occupations in South Africa’, the coexistence of these realities suggests a mismatch between even educated-unemployed and employers (6).

    This creates justified cause for concern: social grants are purported to be a temporary jolt in order to introduce a new equilibrium, akin to the manner in which foreign aid would provide the stimulus required to end the poverty cycle, according to Jeffrey Sachs, but given the status quo, there is no end in sight for South Africa’s social grants. The bare minimum criteria for effective welfare policy would be a reduction in poverty levels, and, at best, the ability of individuals to be self-reliant (illustrated through rising employment levels, for example). This criteria not being met suggests that prevailing socioeconomic conditions have not been addressed, and thus the need for welfare is likely to exist ad infinitum.

    A potential cause of this is the fact that South Africa’s welfare policy is misdirected: it provides for the elderly, the very young and the disabled, but ignores working age, unemployed youth of which the country has some of the highest rates in the world (7). This is why The Employment Tax Incentive Act, which came into effect in 2014, is very crucial. Commonly known as the ‘youth wage subsidy’, it provides employers with a tax cut for employing qualifying individuals, for up to two years. Incentivizing employers to hire individuals who would ordinarily be overlooked will result in a more equitable distribution of opportunity and increased self-sufficiency. This is refreshing for South African government policy—rather than a populist measure that alienates the private sector, The Employment Tax Incentive Act works to find a meeting point between the incentives of the employers and the country’s economic needs.

    The two main opposition parties in South Africa—The Democratic Alliance and the Economic Freedom Fighters—both realize the economic and political importance of prioritizing support for the most needy citizens of the country, including its unemployed youth. The DA has proposed an alternative Youth Wages Subsidy, as it views the Employment Tax Incentive Act, which it initially supported, as a ‘watered-down’ version of what it should have been (8). The socialist Economic Freedom Fighters has often been criticized for aiming its ‘populist’ agenda at ‘young unemployed voters’ (9). It is important to note that neither the African National Congress-led government, nor the opposition, suggests moving away from supporting the aged, disabled, or any other groups currently receiving welfare—they simply deviate on ways to address the youth unemployment problem.

    The discussion of welfare is complicated because there is often the fear that those who need it most might still never get back on their feet. Indeed, redirecting a bigger proportion of welfare grants towards the youth in South Africa is problematic because of the political hurdles that come with such a decision. Yet, one must evaluate welfare allocation keeping in mind the long run. In the case of South Africa, the answer to expanding the economy and reducing unemployment may very well lie in a welfare system that prioritizes the unemployed youth.

References

Hagen-Zanker, J., Morgan, J., & Meth, C. (2011). ‘South Africa’s cash social security grants: Progress in increasing coverage’. Overseas Development Institute. Retrieved from http://www.developmentprogress.org/sites/developmentprogress.org/files/southafrica-_master_0.pdf.
Dimant, Tamara. (2014). ‘2014/15 South Africa Survey’. South African Institute of Race Relations. Retrieved from http://irr.org.za/reports-and-publications/south-africa-survey/south-africa-survey-online-2014.
Adcorp Holdings. ‘SA’s economy desperately needs high-skilled workers’. Retrieved June 22, 2015 from http://www.adcorp.co.za/NEws/Pages/SA’seconomydesperatelyneedshigh-skilledworkers.aspx.
‘Young, jobless and desperate – Degrees with no guarantees’. (2012, 16 June). City Press. Retrieved from http://www.news24.com/Archives/City-Press/Young-jobless-and-desperate-Degrees-with-no-guarantees-20150429.
‘Education in South Africa: Still dysfunctional’. (2012, 21 January). The Economist. Retrieved from http://www.economist.com/node/21543214.
Adcorp Holdings. ‘SA’s economy desperately needs high-skilled workers’. Retrieved June 22, 2015 from http://www.adcorp.co.za/NEws/Pages/SA’seconomydesperatelyneedshigh-skilledworkers.aspx.
Setiloane, Thero. ‘Beyond advocacy – business needs to get its head in the game’. McKinsey on Society. Retrieved June 22, 2015 from http://voices.mckinseyonsociety.com/south-africa-unemployment-in-youth/#sthash.O6VjZC8T.dpuf.