Economic inclusion: Using work to uplift all South Africans

Economic inclusion: Using work to uplift all South Africans

Economic inclusion aims to empower marginalised communities by allowing them to take control of their economic life. It is vital in reversing the legacy of inequality still prevalent today, but it requires strategic interventions that uplift the poorest members of society.

Among South Africa’s tools to increase economic inclusion are ongoing efforts to increase employment and provide social support for those in need.

Safety nets for society

One of the challenges facing South Africa in building an economically inclusive society is economic inequality. South Africa has long been ranked as one of the most unequal societies in the world.

One of the impacts of this inequality is unemployment and exclusion from the formal sector. In the poorest 30% of households in South Africa, three out of five households reported no employed or self-employed people at all. Most of these households have an average income of less than R2500 a month.

In the next 30%, a fifth of households in this group had no employed people and social grants constituted the main source of income for 45% of adults.

Estimates from the World Bank say that around 14 million people out of South Africa’s 60 million strong population experience food poverty. There is a large reliance on social grants, with the government spending around 4% of the gross domestic product on welfare. Economic inclusion is becoming a focus for many governments, not just South Africa. One of the ways these governments are looking to increase economic inclusion is through social welfare programmes.

The South African social welfare system pays out more than 18 million social grants every month.

According to data from the Department of Social Development, almost half of all South Africans rely on financial support from the government, and around a third depend on social grants.

Over the next three years, R3.33 trillion will be allocated to the social wage to support vulnerable and low-income households - almost 60% of the country’s consolidated non-interest spending.

Another way to address inequality and improve economic inclusion is through job creation. Access to employment opportunities can help reduce poverty levels and has long been a priority for the South African government.

Inclusion through employment

South Africa’s high unemployment rate poses risk to social, economic and political stability and manifests in widespread poverty and a non-inclusive society.

The country’s unemployment rate now stands at just under 33%. This places above Namibia and Nigeria on a list of 82 countries and the Eurozone monitored by Bloomberg. Under the expanded definition (those who are available for work but are not looking for a job) stand at just over 43%.

Youth in South Africa continue to be disadvantaged in the labour market with an unemployment rate higher than the national average. The unemployment rate is around 64% for those aged 15-24 and 42% for those aged 25-34 years.

However, economic inclusion can be driven through a focus on job creation and transformation in the business sector. Economic inclusion relies on a labour market that allows and encourages all people of working age to participate in paid work.

The focus on employment is showing short-term results, despite the setbacks brought on by the global pandemic.

Between September 2021 and September 2022, total employment increased by 31 000 (0,3% year-on-year). This brought the total employment to 9 984 000 thanks to growth in the business services, trade, construction, mining, transport and manufacturing sectors.

Along with an increase in employment was also an increase in the gross earnings paid to employees. This increased year-on-year by R17.50-billion or 2.2% between September 2021 and September 2022.

Basic wages paid to employees also increase, by R17.8-billion or 2.5% between September 2021 and September 2022. These increases were largely due to increases in the mining, trade, business services, manufacturing and electricity sectors.

However, more will need to be done to create true economic inclusion. The government will have to embrace labour market reforms that will raise employment and incomes, through initiatives such as establishing a public employment service, increasing skills training programmes and policies, improving infrastructure and strengthening the business environment.

South Africa has made significant social progress in improving the livelihoods of millions and broadening access to essential services like water, electricity and sanitation. But it is critical that the country continues to find ways to facilitate economic inclusion, to ensure that millions of South Africans can be lifted out of poverty. Economic inclusion will benefit the most vulnerable parts of the population, while also driving growth for the entire economy.

Sources:Bloomberg|DBSA|ILO|NBI|News24|OECD|tips.org.za|WorldBank