Monday, May 7, 2012

South Africa Needs Job Creation To Remain Stable

Poor, unemployed South Africans receive about 280-rand ($35) government grants each month per chold to pay for schooling. But Africa's largest economy isn't creating many jobs. The economy grew 3.1% last year and is projected to grow just 2.7% this year, according to the International Monetary Fund, far below the government's target of 7%. Government leaders have all but abandoned a target to create five million jobs by 2020, after just above 200,000 were added last year. Instead, for nearly a third of South Africans, government grants for needy parents, the disabled and the elderly are a crucial source of income.

The bill goes to the less-than-10% of South Africans who pay income taxes, which kick in at an annual salary of 120,000 rand, about $15,230.  For years, those few relatively affluent South Africans were willing to pay the price to reshape an economy distorted by decades of white-minority rule. But as growth sputters, both the legions without jobs and a middle class frustrated by new levies and fees are increasingly frustrated.

South Africa has to figure out how to increase job creation.  We would suggest more international trade with the United States. The biggest bang for the money will come when the things that South Africa does as a government will make it possible for more businesses to spring up and employ more people.

The ANC created the social-grant system after the end of apartheid to protect those unlikely to find a foothold in the new economy. Then, in 1994, some 12% of South Africans were living on less than $2 a day. That percentage has fallen to 5%, but a surge in births and life expectancy has led to a swelling in social grants—such awards have quadrupled over the past decade to $13.4 billion a year, more than 3% of South Africa's GDP.  South African Treasury officials are proud of the social-grant program, which was made possible by a post-apartheid boom in which the economy grew for 15 straight years, until the financial crisis in 2009. But they acknowledge that their development strategy needs an overhaul.

All three major rating companies have lowered their outlook for South Africa's debt to negative from stable in the past six months, citing concerns that the government won't curb the cost of social programs and public wages. (WSJ, 5/6/2012)

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