Southern African governments, the economy and the youth

A map of Africa
A map of Africa (Photo credit: Artem Beliaikin)

As one of Africa’s most industrialized countries, South Africa’s rising unemployment rate, to a record 34.4 percent, has become a cause for concern among economists, especially in relation to the future of the youth in this country. With Namibia trailing at 33.8 percent and Nigeria at 32.5 percent, these African economies are not posing promising investment prospects for the next quarter which will most likely result in existing investors pulling out to invest in other economies that will promise better returns.

South Africa has recorded a 20 percent unemployment rate in the past two decades, but has since, due to the lockdown imposed by the president at the beginning of the pandemic and the recent surges of violence in Kwa-Zulu Natal and parts of Gauteng, experienced a sharp rise in unemployment with youth aged 15-24 clocking 64.4 percent. With a diminishing EAP rate (economically active population), the recent unrest will have an immediate and direct impact on the GDP because of the loss of household consumption and industrial production in Kwa-Zulu Natal. Youth unemployment rates in Gauteng and Kwa-Zulu Natal, two of South Africa’s largest economic hubs, make up three parts of the youth unemployment rates. This amount will likely increase if businesses affected by the looting fail to keep their shops open.

Small businesses

According to IOL in South Africa, “Economists main concern is also the lack of focus on developing SMEs, this comes after a rapid decline in entrepreneurship. Many entrepreneurs have expressed disinterest in founding businesses or commercial initiatives funded by the government due to the tedious process in what is labeled as bureaucratic red tape, nepotism and bad credit records caused by the government’s failure to pay them on time.

Recent information released by the Organisation for Economic Cooperation and Development (OECD) shows that small-medium enterprises face the challenge of scaling up. Lack of access to markets, technology, business infrastructure, and information are the main constraints faced by small-medium enterprises when it comes to scaling up. One of the major issues faced by micro-enterprises for scaling up is low financing. Most of these enterprises are self-funded or funded by family or business partners. Research shows that 2.25 million small-medium enterprises formed in the period of 2015 to 2016 were informal, with only 1.2 million being formally registered with most of these unregistered informal enterprises being trade, wholesale and retail businesses.

In South Africa, small-medium enterprises are characterized as businesses with more than 15 million rands but less than 500 million rands in turnover. These businesses are described as enterprises with limited reserves, smaller client bases, and less capacity to manage commercial pressures than do larger companies.  Already struggling with the contracting economy, it is expected that 60 percent of existing small-medium enterprises will not make it through the Covid-19 Pandemic. Economists are also wary of the ability of these micro-enterprises to withstand the current economic climate.

The McKinsey Group highlighted the importance of SMEs thus: “Because of their critical role in job creation and growth, protecting and enabling SMEs during this period of economic turbulence is important not least because their survival and recovery are likely to be a bellwether for the economy as a whole.

Most of the revenue generated by the informal micro-enterprises sector is service-related, for instance, the taxi industry, which generates an estimated R10 billion per annum. Since the legalization of cannabis in South Africa, many business owners have created and launched businesses to supply the ever-growing demand for ethical cannabis consumption. They have created a more efficient and cost-effective consumer activity by selling online and having a range of products for consumers to choose from.

Austerity vs support

Many also blame the acute austerity on the failure of Southern African governments to implement sustainable economic and fiscal policies, some of which include structural reforms to keep the countries’ economies consistent with job creation and equitable distribution of income. For example, Namibia’s monetary policy framework underpinned by the fixed currency peg to the South African Rand, the fixed exchanges regime compels the monetary policy to be submissive to the fixed peg which, in turn, resulted in the regression of the Namibian economy as the South African economy lags.

With the labour force migration gaining momentum, and the southern region’s workforce weakening, it’s statistically inevitable that the region’s woes are only going to grow.

The Health Policy Project of Botswana cites that, “Botswana’s government has emphasized a prudent fiscal policy and fiscal buffers to protect against future economic shocks. Total government revenues amount to 34.2% of the GDP, well above the average of 28.5% in other sub-Saharan African UMICs.” With at least one Southern African government stepping up to the task and successfully implementing economic policies, it’s only right that we consider contributing to Botswana’s thriving economy. The gatekeeping of their mining industry, prudent economic management and a stable political environment are the main determinants of the growing economy.

Botswana’s success only begets questions, but the foremost one being what would it take for other Southern African countries to follow suit? 

Sabelo K. Mnuwka is a Youth Activist, Digital expert and Social Engineer.

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