Business has backed a plan to place 1m young people in paid one-year internships over the next three years in a move that is expected to raise private sector employment by around 3% and generate at least R2bn more in Vat for treasury.
The programme, which was signed off by President Jacob Zuma last week, has been developed by the CEO Initiative — a group of top businessmen who have rallied to finance minister Pravin Gordhan’s call to put the economy on a firmer footing.
Youth unemployment is among the biggest structural shortcomings of the economy, with almost 55% of people between 15 and 24 years old — roughly 1.5m people — in the labour force not working.
"This programme, which seeks to place 1m young people aged 18-29 in internships, will have a significant effect on employment," says Colin Coleman, MD and partner of Goldman Sachs.
Coleman and Investec CEO Stephen Koseff chair the joint business-government working group that has been developing the concept since May.
The initiative has been announced on the eve of a visit to SA by Moody’s Investors Service. The New-York based credit rating agency has said it is likely to downgrade SA in the absence of growth recovery and structural reforms, including to state-owned enterprises (SOEs). It regards youth unemployment as one of SA’s key credit challenges.
Coleman estimates that the internship plan will raise private sector employment by roughly 3%/year for three years. It should also generate R2bn-R2.5bn/year in Vat for the fiscus, assuming the 330,000 interns employed for each year of the three-year programme are paid the median minimum wage.
"It’s a huge and costly undertaking for business," says Coleman, "but we believe the target is credible and achievable."
The plan will cost roughly R16,5bn/year for three years, according to the Financial Mail’s estimates. The cost will be borne by the private sector, with 50:50 matching support from government in the form of a negotiated package of incentives.
Key among these incentives will likely be the continuation of national treasury’s youth employment subsidy — the employment tax incentive (ETI), as it is officially known. The ETI has been a success, having supported 821,325 jobs in the 2014/2015 tax year, but it expires at the end of 2016. Plans to extend it are the subject of debate in Nedlac and parliament.
"Obviously we need the ETI," says Coleman. "We won’t be able to do the scheme without it."
The full package of incentives will be negotiated with government over the remainder of the year with the aim of getting the scheme up and running by the middle of 2017.
The programme was warmly welcomed by the 65 CEOs who attended a meeting of the presidential CEO initiative last Friday for a report-back on work that has been done to rebuild confidence in the economy since the start of the year.
The other major achievement of the business-government partnership has been the creation of a fund to catalyse small business development, backed by R1.5bn from the private sector.
The lack of progress from government’s side in other areas has been marked, however. When the first three working groups with business were announced at the start of the year, one included the reform of SOEs. Since government has failed to move visibly on its promise to merge, rationalise and fix the ailing monopolies, there was unsurprisingly no mention of SOEs in the progress report released by the presidency last week.
Instead, the report lauded the fact that business was partnering government to create an agricultural growth fund, support SA’s tourism marketing work, increase the number of nurses trained, and revitalise declining industrial areas, especially in the Vaal Triangle.
Despite government’s failure to hold up its end of the bargain, several CEOs will travel with Gordhan on an international roadshow early next month to reassure international investors that the country remains committed to economic reform.
The youth employment plan was born out of a suggestion by Goldman Sachs that the SA National Defence Force (SANDF) be considered as a potential vehicle to get the youth off the street into skills training.
But after an intensive review, which drew on the expertise of a wide group of CEOs and youth employment experts, including from youth employer initiative Harambee, it was found that the SANDF lacked the capacity to go to scale and that business should rather leverage its own resources.
Additional institutional infrastructure will have to be put in place to allow government, business and labour to jointly manage, monitor and evaluate the scheme, according to Coleman.
"We’re not delivering permanent employment but are aiming to give 1m young people work experience, including on-the-job training, which will provide them with better prospects of getting full-time jobs," explains Coleman.
"The success of the programme will depend a lot on the detail and design," says labour expert Prof Neil Rankin of Stellenbosch University. "It is more likely to be successful if it builds on the types of labour market interventions that seem to be working, like the ETI and Harambee."