30 May 2008

South Africa: MPs Urged to Consider Wage Subsidies for Unemployed Youth

Cape Town — Finance Minister Trevor Manuel has appealed to Members of Parliament to give due consideration to the matter of a wage subsidy for young people, who comprise the bulk of the country's unemployed.

Delivering his Budget Vote on Thursday, the minister suggested that, in the light of recent sharp increases of food prices, the oil price hitting record highs, and high unemployment levels domestically, the time had perhaps come to give serious consideration to a proposal he described as "critical".

The minister was speaking from the basis of two recent studies: one, a series of papers from the International Growth and Advisory Panel (IGAP), members of whom have been advising government on economic policy, and the other, from the Commission on Growth and Development.

The IGAP, chaired by Professor Ricardo Hausmann of Harvard University in the United States, recommended the introduction of a wage subsidy for South Africa's youth, as much as 45 percent of whom are unemployed and few of whom have tertiary education.

"The fundamental problem that these papers [the 20 academic studies performed by the IGAP] deal with is that we have just over 13 million people working and should have about 19 million people in employment," the minister said.

Suggesting a tighter safety net for the country's vulnerable, the minister added: "When young people are marginalised and have no hope then their lives lose meaning, we all lose dignity and the basic fabric of social cohesion is at risk of being torn apart."

The minister also pointed to food prices, which are rising fast globally, and warned of the severe impact of these on the poor, who are spending more of their incomes on food. The minister's remarks came as the United Nations' Food and Agriculture Organistion, based in Rome, warned that food prices were unlikely to drop in the near future, if ever. This warning comes at a time when international media reports have shown that more than 30 countries have seen social disturbances linked to rising food prices.

In the meantime, the World Bank has also urged a rapid response to help developing countries deal urgently with the food crisis, using school-feeding programmes and even work-for-food schemes.

Citing another economic study, the Finance Minister said "The Growth Report - Strategies for Sustained Growth and Development" by the Commission for Growth and Development, asserted that poverty reduction is impossible without economic growth.

At the same time, the CGD study - chaired by Michael Spence, a renowned economist and Nobel laureate - asserted that in order for growth to take place, especially in developing countries, it needed to become more inclusive for it to be sustainable over the longer term. The report, which was launched in Cape Town, London, Cairo, New York and St Kitts and Nevis just over a week ago, referred to a recommended "emergency situation" around food prices and made a number of recommendations.

Included among these were "more effective safety nets and redistribution mechanisms" to protect the poorest. In the meantime, the Finance Minister said that economic growth in South Africa will continue, boosted by the government's massive investments in infrastructure, especially transport and electricity provision. While economic growth slowed to 2.1 percent in the first quarter of this year, largely due to a drop in mining output as result of electricity shortages, the slowdown will be short term, the minister said.

South Africa's economy has grown by about 5 percent a year since 2003 and this expansion would continue over the coming years, Mr Manuel said. The country's export performance is improving, private investment is also strong, and the rapid growth seen in India and China is supporting the country's economy.

On domestic inflation, the minister said that this is expected to fall sometime next year to within South Africa's target range, which is between 3 and 6 percent.

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