Governments do not create many jobs. Globally they employ about 10% — and in South Africa only 6%-8% — of the workforce. Instead, the role of governments is to create an environment where the private sector can drive employment.
However, it is fair to say that South Africa has struggled to create such an environment over the past 15 years, with limited economic growth and job opportunities for its expanding labour force. With unemployment at more than 30% (excluding discouraged work seekers) and two-thirds of young workers jobless, improving conditions for private sector growth is more urgent than ever. These challenges have kept poverty and inequality entrenched, with nearly 39-million people surviving on less than R127 a day, equivalent to the $6.85 poverty line for upper-middle income countries.
The situation has been worsening over the years. It is time for South Africa’s leaders to shake up the status quo and consider new approaches to unlock job creation. The message from global experts (including Nobel laureate Michael Spence) and a variety of local stakeholders consulted by the World Bank to advise South Africa was clear: “Don’t attempt to fix everything at once but rather focus on a few priorities that can build a momentum for reforms.”
The recent World Bank report, “Driving Inclusive Growth in South Africa”, highlights four priorities, backed by a series of feasible, implementable, and timely (FIT) actions, that can make a difference in the short term to kick off the reform process that is desperately needed to achieve inclusive growth. The priorities are:
Mend the fractured energy, transport and water infrastructure networks
Years of neglect, poor maintenance and weak governance have crippled South Africa’s infrastructure, causing power outages of up to 10 hours, a 30% drop in merchandise transit, and frequent water disruptions. Restoring reliable, sustainable and affordable services is crucial.
Opening the power sector to private investment has already spurred a six-fold increase in renewables within 18 months, and targeted FIT actions can further strengthen transmission and distribution. A similar approach is needed for transport and water. The new Transport Economic Regulator Act also creates an opportunity to introduce competition in rail and ports, which are currently monopolised by Transnet, improving efficiency and management.
Inject dynamism in the private sector
South Africa lacks ‘creative destruction’ — its largest firms in 2025 are largely unchanged from 2000, and SME growth is just one-third that of other middle-income countries
Beyond infrastructure, South Africa needs technology and innovation to drive competitiveness, but this relies on private sector dynamism, which thrives with competition. South Africa lacks “creative destruction” — its largest firms in 2025 are largely unchanged from 2000, and SME growth is just one-third that of other middle-income countries.
To break this stagnation, two FIT actions are key. First, simplify or eliminate complex regulations and fiscal incentives that deter investment, following models such as Malaysia and Mauritius. Second, improve SME access to finance by consolidating scattered support programmes and expanding financial tools such as e-money and open finance, as seen in Kenya and Ivory Coast.
Make public administration spend smarter, not more
The government must spend smarter, not more, as fiscal space shrinks — public debt jumped from 24% of GDP in 2008 to 75% in 2024. Ensuring every rand delivers maximum impact isn’t just good policy — it’s a necessity.
Three FIT actions can help. First, streamline programmes by merging or eliminating redundancies, such as the 100+ labour market programmes spread across 20 departments, and focus on outcomes. Second, leverage private investment to fill funding gaps and boost efficiency of public spending, as seen in the Western Cape’s collaboration schools model, while strengthening the state’s capacity to monitor and regulate private investments. Third, strengthen public administration through better tracking, faster digital adoption and performance-based incentives for subnational governments to improve service delivery.
Transform cities, where two-thirds of citizens reside, into engines of inclusive growth
For low-income workers, commuting can take 2-3 hours and eat up nearly half their wages — four times the rate in many East Asian cities. The fourth priority is tackling the vast distance between home and work, a legacy of apartheid. While this can’t change overnight, three FIT actions can help.
First, transform the Passenger Rail Agency of South Africa into a performance-based entity, linking Treasury funding to efficiency and accountability. Second, make minibus taxis more affordable by subsidising trips for the poorest through reallocated sector spending. Third, promote vertical urban growth by loosening zoning laws and incentivising affordable housing in strategic areas such as affordable housing near transit hubs or business centres. This will promote densification, improving city accessibility and livability.
The policy actions presented are pragmatic, tailored for South Africa’s unique context and can provide short-term results, while creating momentum for reforms, invigorating economic growth and improving the lives of South Africa’s people, especially the most disadvantaged.
• Kahkonen is division director for South Africa, Morisset is programme leader and lead economist, and Baez is lead economist at the World Bank.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.