CDE GROWTH AGENDA SERIES
INSIGHTS AND KEY RECOMMENDATIONS
More than 20 years after apartheid, far too many South Africans live in poverty. The reason for this, and for our enormous inequalities, is that far too few South Africans are employed. This has serious implications for our politics and stability, ultimately putting at risk the political, social and economic achievements of our democracy.
Without faster, more labour-intensive growth, we will fail to employ the millions of people who need work, condemning them – and their children – to lives of grinding poverty. Slow growth will also mean that state revenue will not keep pace with legitimate demands for access to all levels of education and training, essential infrastructure and improved social welfare. South Africa’s poor will be left behind, society will stagnate, race relations will worsen and instability will increase.
These priorities comprise a basis for encouraging a nationwide conversation. They offer a clear diagnosis of what is going wrong and a focused set of catalytic recommendations for getting the country back on track.
At 35 per cent, South Africa’s unemployment rate is among the highest in the world. A much more useful indicator of the degree to which an economy is providing its citizens with productive work is the proportion of the working-age population that is in employment.
The global norm is for three out of five adults to be in work. In South Africa, the figure is two out of five – a third lower than the global average. The implications are far-reaching: if South Africa had the same number of jobs per adult as the rest of the world, nearly 6 million more people would be working.
South Africa’s missing 6 million jobs lie behind the country’s most pressing problems: our stubbornly high levels of poverty and inequality, our many social crises, and our increasingly tense and dysfunctional politics. Ultimately, though, the 6 million missing jobs represent tragedies of unfulfilled human potential. On current trajectories, things will only get worse: as the National development Plan (NDP) calculated in 2012, population growth means that to get to 60 per cent employment by 2030, South Africa would need to create 11 million new jobs.
ACCELERATING INCLUSIVE GROWTH
South Africa’s developmental goals are clear: the reduction of unemployment, poverty and inequality; the transformation of the economy to better reflect the country’s demographics; the creation of a just and inclusive society; and the consolidation of our democracy. However, debate about them often fails to acknowledge that they cannot be achieved without robust economic growth sustained for a significant period.
According to the National Development Plan (NDP), the economy needs to grow at more than 5 per cent a year until 2030 if we are to achieve the goals of eliminating poverty, ensuring that 60 per cent of adults would be in work (up from about 44 per cent at present) and reducing inequality as measured by the Gini coefficient from 0.69 to 0.60. In this regard, the NDP is exactly right; if South Africa is to end mass poverty and unemployment, its economy needs to grow far more rapidly. This makes its performance in recent years nothing less than disastrous.
Over the past five years, the economy has grown at just over 2 per cent a year and, following a rapid further drop, is now expected to grow at about 1 per cent a year for the next few years. This is lower than the rate of population growth, which means that however the fruits of economic activity are shared, the average South African will be getting poorer in the years to come.
Cities produce more than 80 per cent of global economic output. No country has grown to middle-income status without urbanising, and none has grown to high income status without vibrant cities. Cities, therefore, are key platforms for national, regional and global growth.
The centrality of cities is not, however, evident in South African policy documents and economic analyses. Even the National Development Plan devotes only a few pages to cities in its chapter on transforming human settlements. However, if the South African economy is to grow more rapidly, and if it is to do so in a way that creates mass employment, this can only happen in our cities.
This study makes the case for resetting South Africa’s national priorities to focus on its cities, embracing urbanisation, and harnessing the productivity gains that could be achieved in larger, better-run cities. This would put more people in work, create more wealth, and improve social, economic and political inclusion.
The only way out of the cycle of unemployment, poverty and inequality which is undermining South Africa’s future is to achieve higher and more labour- intensive levels of economic growth. Among other things, this requires dramatically expanding the pool of skills available to the South African economy. There are two main ways of achieving this. The first, and most important, is to equip South Africans with a solid foundation of knowledge and skills, and the ability to use them productively. This will enable them to reach their full human potential, and contribute to national development. The second is to compensate for South Africa’s existing skills shortage by recruiting skilled people from abroad.
Some countries – notably Australia – are good at harmonising these two approaches. South Africa has been bad at both. Indeed, the strategies for developing our own skills base and encouraging skilled immigration are often perceived as contradictory, falsely portraying skilled immigration as damaging to the development of South African skills. This has contributed to an enormous skills deficit which the government has recognised for more than a decade, but failed to reduce.
BUSINESS AND GOVERNMENT
The dysfunctional relationship between business and government is a key reason why the South African economy is in trouble.
This document offers an analysis of this failing relationship. Its principal messages are:
• A solid business-government relationship is essential for faster growth and mass employment.
• South Africa cannot hope to achieve growth and mass employment with a government that is anti-business.
• Companies and business organisations need to reassess their role in South Africa and their own contribution to the flawed relationship with government.
• The silence of business leaders and their organisations is not a good strategy for a country in trouble, with a racially discriminatory history.
This report will first deal with business and then government in our analysis of what is going wrong. It will conclude with recommendations for both parties on how best to start building the better working relationship that is so vital to growth and employment.
AN EXPORT PROCESSING ZONE FOR THE NELSON MANDELA BAY METRO
Over the last few decades China has become the centre of global manufacturing, particularly of labour-intensive exports. However, rising wages in China mean that many firms are looking for other locations to base either existing operations or new factories. The number of jobs being relocated is potentially very large; one estimate, by the former chief economist of the World Bank, is that the number will eventually be 85 million.
At present, most of these relocated jobs are destined for Asian countries including Vietnam, Bangladesh and India, although some African countries, notably Ethiopia, are starting to attract some manufacturing firms.
Even a tiny share of these jobs would be enormously beneficial to South Africa. The first major benefit would be the new jobs created. These are labour- intensive (unskilled and semi-skilled) activities that South Africa desperately needs, and which its present growth path fails to deliver. The second benefit would be the increase in exports, which would enhance economic growth and hence indirectly have a further positive impact on employment. (See the CDE Growth Agenda series Report 2, Jobs.)