By Adam Reilly
As Youth Month ends, shopping baskets reveal young South Africans’ financial struggles. What is the solution?
The official theme assigned by the government to this year’s Youth Month was, “Accelerating youth economic emancipation for a sustainable future.”
In a statement about the Youth Month Programme, the Cabinet urged society to intensify efforts to ensure young people “access opportunities which allow them to enter active participation in the economy.” Announcements on measures to ensure the government’s urging is supported by practical action are yet to be forthcoming.
This is not the first time we have heard the government pay lip service to the economic struggles of South African youth. For example, President Cyril Ramaphosa’s 2023 State of the Nation Address promised tax incentives to encourage hiring young people to solve the issue of youth unemployment. Similar announcements have been made in years gone by.
The unemployment rate of South Africans aged 15-35 currently stands at 46.5%, not including those in active education or training. This is the most cited statistic illustrating the need for “youth economic emancipation”.
However, data released by consumer rewards app Maholla this week illustrates the point in more tangible terms.
Basket sizes
Maholla tracks the purchasing habits of thousands of users with a broad demographic profile, yielding insights into what people are purchasing as well as how much and at which stores. Users are rewarded for sharing their purchasing data with the app.
The data reveals a concerning trend relating to overall basket sizes (the spend on a single shopping transaction) when broken down according to age.
The overall basket size of consumers aged 18–35 yields an average rand value of just R212.68 per basket across 45 800 shoppers. This is followed by consumers aged 50+, with an average basket size of R218.49. The average basket size for groups in the 35-49 category remains the highest, at R221.30.
This shows a worrying trend: young people, and the households that depend on them, are spending less on groceries and other household essentials than most pensioners. This is highly unusual by global standards.
The trend is also becoming noticeably more pronounced, especially in certain provinces. Maholla’s data shows large year-on-year drops in basket sizes in Limpopo (-15.78%), the Free State (-14.35%) and KwaZulu-Natal (-13.23%).
South Africa’s youth are earning, and spending, less than they should be. This is a huge problem for our country’s economic future.
Youth should be SA’s economic powerhouse
In countries with thriving economies, the cohort aged 18–35 is an “economic powerhouse” that drives demand and productivity growth. The age group, ideally, has significant purchasing power, especially as its members begin to establish careers and earn disposable income.
The cohort should also make up a substantial part of the workforce, where their youth is considered an asset because of how it encourages innovation. Entrepreneurs often arise from this group, for example; with their fresh perspectives and ability to quickly adapt to new technologies, they can start businesses that may disrupt traditional industries or create entirely new ones.
Young people can — and should — be the drivers of productivity growth. This is the process by which we get more from fewer resources over time, meaning that the economy can produce more wealth and growth more efficiently. A more productive economy will yield a number of benefits, including an increased standard of living with a more innovative job market that is representative of the development of new skills and technology.
Currently, this economic analysis doesn’t hold in South Africa. What would it take for us to build a more productive economy?
What can be done?
The economic disenfranchisement of young South Africans is a complex issue that involves the failure of our basic education system, factors driving overall unemployment (the energy crisis, anti-business policy), an anti-productivity labour environment, and our being on the wrong side of the digital divide.
It’s difficult to pick a solution to focus on when the entire system seems to be set up to encourage the failure of our young people.
However, there is something the government can do to help turn around the fortunes of our youth immediately, and the blueprint has already been drawn up.
Start-ups are the drivers of innovation in any economy, especially in tough economic conditions. They are inherently incentivised to create value from a lean base by finding new ways of doing things. They are also most likely to employ young people, and to contribute to young people’s on-the-job training and development.
However, start-ups are facing huge structural challenges in South Africa as venture capital pulls back because of the risks that abound in our market (and, in the case of foreign investors, because they are forced to focus on getting their businesses to become more sustainable in their core markets as turbulence persists globally).
Quite simply, start-ups do not have access to the capital they need to open and grow.
The answer is to incentivise investment in start-ups using a mechanism like section 12J of the Income Tax Act — a provision that allowed tax deductions for investments in high-risk ventures, which Treasury prematurely brought to an end in the Youth Month of 2021. If allowed to continue, the capital unlocked by the legislation could have created another 45 000 jobs (on top of the 9 000 it already created) by 2026. It could do this again if revived.
Decisive action, rather than more talk, would be the best Youth Month celebration that young people could ask for this year. There are just a few days left in June 2023 — let’s hope some meaningful steps are put on the legislative table soon.
Adam Reilly is the CEO at Maholla
BUSINESS REPORT