According to Stats SA, at the end of the second quarter almost three out of 10 South Africans of working age actively looking for employment were not able to secure jobs. This is the highest level of unemployment recorded since the quarterly labour force survey started in 2008. If we include those who have become discouraged and given up searching for jobs, almost four in 10 remain jobless.
SA’s unemployment reality is a crisis, a ticking time bomb that could derail the country from being a truly inclusive democratic state. Let me elaborate. The 29% narrowly defined unemployment rate for the country masks the glaring crisis among the youth. The rate in the 15-24 age group is a whopping 56.4%, while among those of 25-34 it is 36%. These are people in the prime of their lives, those who are supposed to deliver the so-called demographic dividend countries such as Japan and most of Europe wish they had.
In effect, what should be one of the country’s most valued resources is a headache for policymakers as they try to find ways to put the youth to work. Yet even in this crisis, some commentators, in an effort to be optimistic, see a silver lining in the employment statistics, pointing out that the number of employed people actually increased by 21,000 in the second quarter. While I see their point on the technicality of the 29% unemployment rate, which can bury the nuance that the economy actually has been a net creator of jobs, the bottom line is that the majority of people entering the job market are not finding work.
On July 24 President Cyril Ramaphosa warned that many more people were going to lose jobs because of technology, globalisation, climate change and a other challenges, including low economic growth. A lot of these factors appear to be exogenous at face value, but they are not. The challenge of low growth is directly related to the unemployment crisis. The problem is that our economic policy setting does not make it conducive for new businesses to be established or older ones to thrive. The skills shortage has long been identified as a problem, but there seems to be no urgency to address it. And, as professor Ricardo Hausmann notes, skills are just one of the inputs of production, which by themselves cannot produce anything without the other complementary inputs in place.
How do we solve the unemployment crisis? Businesses employ people, so it makes sense to have a policy stance that strives to establish as many businesses as possible. There are elements of the policies of Asian countries – such as China, South Korea and Malaysia – that can be followed, with modifications to suit local conditions. To a large extent these countries’ policies are export-led and do not rely on import substitution, the latter being a goal I keep hearing mentioned in government circles.
Import substitution is an inward-looking policy that may offer a boost to growth for a short period but is not sustainable because the domestic market is not big enough. The bigger and more sustainable market is the world market. Our economic policy framework must, therefore, focus on enabling the creation of high-value goods, including technologies and services that are in demand in the world markets. The creation of these goods and services will require skilled labour, an essential inputs to the production process.
Our labour market has high minimum wages, inflexibility in hiring and firing workers and a shortage of skilled workers, so the solution to the job crisis requires a holistic and view of the different aspects of the economy to make sure they all work to create new businesses and allow them thrive. Our trade policy must play a crucial role in not protecting a few inward-looking companies that protect dominant positions while failing to innovate enough to be competitive in world markets.
If the Competition Commission, International Trade Administration Commission of SA, department of trade & industry and all regulatory bodies co-ordinated their efforts to boost growth by enabling new businesses to be established and thrive, the unemployment crisis would be half solved.
• Mhlanga is chief economist of Alexander Forbes.
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