A shock new 'deal-breaker' may kill government’s youth jobs plan

Business Insider SA
President Cyril Ramaphosa at the launch of the Youth Employment Service.
  • A surprise new payroll cost to derail SA’s most ambitious work experience project
  • There is a sixty day consultation process
  • Companies are concerned it will be a deal breaker

The government’s youth work experience initiative runs the risk of being still-born.

The Department of Trade and Industry (DTI) has added an unexpected new financial requirement to companies that participate in the Youth Employment Service (YES). It threatens to undermine its ambitious goal of getting one million young people to gain workplace experience within three years.

The DTI will require companies wanting BEE recognition for their participation to contribute 2.5% of their company’s payroll to bursaries before they can qualify for benefits under its codes.

The new measure appeared in the Government Gazette on 29 March. It is subject to a sixty day consultation process.

About 100 companies have signed up for the initiative but YES CEO Tashmia Ismael says some are concerned that the new financial requirement places an unreasonable burden on firms.

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“We were surprised. We had done our forecasts on uptake and adoption based on 1.5% net profit after tax investment and the other qualification criteria,” Ismael said. The gazette requires companies to put 2.5% of payroll into bursary funds and it all has to be spent to access the BEE recognition for the investment in jobs.

“The word deal-breaker was used by some companies,” Ismael said, “They are telling us this will influence the decisions they make.”

The YES campaign had anticipated the funds it raised in the early stages of the project would provide it with a kickstart to encourage smaller and medium enterprises also to open their doors to interns on short term work experience contracts. The 60 day DTI consultation process means a delay for the implementation of the project until June.

“It’s not going to fly,” one CEO told me on condition of anonymity. Large companies are expected to engage actively with the DTI over the changes.

YES is a partnership between government, business, labour and civil society and aims to tackle South Africa’s youth employment crisis. It was the first in a series of bold economic initiatives unveiled by President Cyril Ramaphosa since his inauguration.

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He is currently in the UK delivering a blueprint to turn around South Africa’s battered economy. It’s his first international trip since earlier this week announcing a top-flight investment team tasked with attracting $100 billion in foreign direct investment to the country over the next five years.

Foreign investors are concerned about the country’s inequality crisis which threatens to undermine political stability. They are also worried about low levels of growth which require the cash-strapped state to spend increasing amounts on welfare rather than on growth projects.

South Africa’s official unemployment rate runs at around 27%.  In reality the number is higher than 40% when you consider the number of people who have given up looking for employment either through despondency or the fact that they can no longer afford to apply for positions. According to Anne Bernstein at the Centre for Development and Enterprise, there are 7.5-million people between the ages of 15 and 34 who are not in employment, education or training.

The DTI’s new financial requirement on companies threatens to derail South Africa’s first cohesive attempt at tackling the issue head on.

According to a 2016 IMF study it is work experience, and not education, that is a primary factor in young people remaining employed. Getting a first job provides a foothold for young people in a workplace. Statistics show that a 25-year old with one year of work experience is 50% more likely to land a job than a person with no work experience at all.

The IMF says countries need to introduce measures that create jobs and incentivize work. They propose measures such as reducing taxes for low-wage workers, investing in education and training. The IMF head Christine Lagarde said recently:  “Building an economy that works for young people creates a stronger foundation for everyone.”

That is true too for South Africa.

Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.

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