10 October 2014
The South African government is offering incentives to the private sector as a way of encouraging businesses to employ young people and reduce high levels of unemployment amongst the population group.
Speaking at the International Monetary Fund-World Bank discussion sessions prior to the annual meetings taking place in Washington, D.C. in the US from 10 to 12 October, South African Finance Minister Nhlanhla Nene said South Africa faces the triple challenges of unemployment, inequality and poverty and any structural reforms within the country have to take this into account.
Nene was part of a panel of policy makers discussing “Challengers of Job-Rich and Inclusive Growth: Growth and Reform Challenges”. The panel included Nigerian Finance Minister Ngozi Okonjo-Iweala, Australian Treasurer Joe Hockey, Indonesian Finance Minister Muhammad Chatib Basr and International Labour Organization’s Deputy Director-General for Policy Sandra Polaski.
“But in the process you have to go through is a painful process. Some of the decisions you have to take are tough decisions that might actually have an impact. Without the pain you are unlikely to address these problems,’ said Nene.
However, in making these structural reforms or transformations, Nene said South Africa is making sure the process does not have drastic effects on citizens. He said government is bringing on board the youth who are the actual victims of unemployment in the country.
“Businesses will get credit for employing young people and at the same time we are creating an environment that is conducive for the business to employ young people. Our plan is simple: reduce the cost of doing business whilst reducing the cost of living of the poor.’
The South African government implemented the employment tax incentive scheme in January 2014 aimed at encouraging businesses to employ young people. The incentive reduces employers’ cost of hiring as the government pays half the costs that the employer incurs in employing a young person.
Nene said such schemes had to be implemented even though some quarters resisted them; they were part of the “painful decisions” the government had to make. Some unions were against the implementation of the employment tax incentive, fearing companies would fire older workers in favour of younger ones.
There was consensus among the panelists that structural reforms such as improving education and having labour laws that were not too stringent, as well as developing infrastructure, were among the best ways to grow an economy. But they agreed that the one size fits all approach is not feasible.
Okonjo-Iweala said structural reforms were country-specific and that implementing them took time — something citizens did not take kindly to. “We all need structural reform but the point is, you have to look at the country, and the sequence of the reform is very important.”
Nigeria began by dealing with nonperforming state-owned enterprises that were costing the country money, according to Okonjo-Iweala. “At the time we looked at it, the state-owned enterprises were a big fiscal drag and therefore it was very clear that we had to act,” she said.