Education, Power Key To Job Creation

25 Apr 2013

Without creating an enabling environment at the macro level for job creation, South Africa will be hampered in curing its single biggest scourge: unemployment.

The expansion of the production side of the economy is a necessity, both to bolster the level of savings and to create sustainable jobs via a balanced growth path, that is one which is not heavily influenced by the international environment, but is evenly balanced with, or led somewhat by, the production [supply] side of the economy.

Essentially what is needed, and has long been recognised by the government and was reiterated again in the medium-term strategic plan, is an additional layer of manufacturers/producers to create internal demand for many of South Africa’s current exports of raw materials.

In addition, the country needs to export more high valued-added manufactured goods and services so that additional, good-quality jobs can be created and additional South Africans drawn into the economic net. Examples are increased beneficiation [value derived from exploitation of raw materials in the country and which benefit local communities] of metals, minerals, wood, wool and leather. But manufacturing is electricity intensive.

South Africa managed to create an estimated 1.1 million jobs between 2004 and 2008, with an average economic growth rate of 5 percent, in a demand-fuelled [household consumption] boom. However, this rapid expansion in the economy relied heavily on the electricity production capabilities of other countries, countries South Africa imports goods from.

Without essentially importing electricity, South Africa would not have been able to run such a high growth rate as it does not have the capacity to provide the electricity needed to both manufacture the goods, power the retail/wholesale outlets, associated and other industries, as well as households, at a continuous pace of economic expansion of 4 percent to 5 percent.

Load shedding in 2008, due to Eskom’s capacity constraints [including managerial], caused a temporary halt in mining production and contributed in pushing gross domestic product growth below 4 percent for the year, thereby constraining job creation. The 2008/09 recession provided some respite, but caused many of the jobs created in the boom to be lost [just under a million]; demand for electricity has since risen.

Eskom estimates that this winter, it will not have the capacity to provide electricity consistently in peak demand periods and load shedding will likely be reinstituted. Industrial users will also likely be required to cut usage [the power conservation programme, PCP, stipulated an average reduction of 10 percent].

Alternative sources of supply [such as cogeneration] are still being sought. Alternative sources of energy do not come on stream quickly though. Load shedding limits economic growth and industrial cuts in usage limit industry expansion, job creation and economic output.

Medupi was originally expected to begin coming online during 2012, then only toward the end of the year. Clearly this has not occurred. The delay in the completion of the first unit – originally expected to provide 800 megawatts – of Medupi has negatively affected economic growth, and the delay in the completion of the five remaining units, which initially had estimated intervals of nine months between each unit completion, totalling 4 800MW, will have the same impact.

Eskom estimated that demand side management, where consumers improve efficiency of usage and avoid waste, such as using energy-saver lamps instead of the traditional incandescent light bulbs should save 3 000MW during peak hours by 2012. However, Eskom also estimated a couple of years ago that electricity supply would be extremely tight in 2013 and 2014 until sufficient base load supply [from Medupi] came in, with economic growth severely constrained.

The bottom line is that Eskom’s current projections showed it would struggle to consistently meet demand for electricity if the economy ran at the previous Accelerated and Shared Growth Initiative for South Africa (Asgisa) target of sustained growth of 6 percent to 2014 [and beyond].

The National Development Plan (NDP) aims “to almost treble the size of the economy by 2030, so that 11 million more work opportunities are created”. A persistent economic growth rate of 6.25 percent is needed to achieve this, and so engender sustainable, significant net employment creation.

In other words, it is not enough just to create jobs, the rate of job creation needs to exceed both that of the labour force growth rate [the number of new work seekers entering the labour force] and the number of individuals’ losing their employment. In addition, the employment created needs to be high quality, permanent jobs in order to make inroads into the high level of unemployment.

The markets are concerned that insufficient electricity [to meet demand] will negatively impact the already beleaguered mining sector, and in the longer term result in South Africa missing the next commodity boom, after having missed the last two.

Eskom’s announcement of cuts in electricity supply come at the start of the strike season, with teachers planning an unprotected strike by SA Democratic Teachers Union, which will further set back education and skills improvement, which is also in direct contrast to the NDP.

Indeed, the central tenet of the government’s NDP is to eliminate poverty by 2030, as such the complete transformation of the education system to one of world-class quality is vital. The NDP aims to “reduce the proportion of households with a monthly income below R419 per person [in 2009 prices] from 39 percent to zero”.

The UCT Unilever Institute’s Majority Report 2012 shows that the number one aspiration of adults living in households earning less than R5 000 a month is to get a job.

With the report estimating that 21 million adults live on less than R5 000 a month, and account for 65 percent of all households, it is clear that South Africans want more employment, not more state welfare. Indeed, most South Africans want better education so they can get employed.

While 21 million impoverished adults may seem a very high number to some, given the total population is 50 million, South Africa only has 6 million taxpayers, and less than a million individuals who earn more than R600 000 a year. Consequently, South Africa has a very high degree of income inequality.

The only sustainable solution is to achieve rapid economic growth via a complete turnaround in the education system that is sustained long-term economic growth that reduces unemployment to the point where poverty is eliminated.

And persistent electricity supply to meet the demand of an economy experiencing accelerated growth [above 6 percent] is vital.

Source: http://www.iol.co.za/business/features/education-power-key-to-job-creation-1.1505329#.UXjFQKLqHSk