The jobs challenge facing South Africa

Linda Yueh
Chief business correspondent

Image source, AFP

With most of the results from South Africa's general election in, the African National Congress (ANC), in power since 1994, looks set for a commanding victory with over 60% of the vote.

When parliament re-convenes, it looks like Jacob Zuma will be installed as president of South Africa for a second five-year term.

Under the ANC's tenure in the past two decades, South Africa's economy has grown at an average rate of 3.3% per year.

However, growth has generally lagged behind other emerging economies, which have averaged over 5%.

Crucially, growth has not been fast enough to alleviate high rates of unemployment.

Youth unemployment

The unemployment rate in South Africa is a staggering 24%. In fact, the unemployment rate has not been below 20% for the past 17 years.

Of particular concern is the high rate of youth unemployment.

According to the International Labour Organization (ILO), the unemployment rate of those aged 15-24 is around 50% - the third highest in the world after Greece and Spain, which were both stricken by the euro crisis.

A BBC poll carried out in the week before the election among young South Africans found jobs to be the biggest concern among half the respondents.

Education was the next largest worry - mentioned by a quarter of those interviewed.

Participation rates in the labour market are low.

Only 54% of South Africa's working age population is available to work compared with an average of 75% across the OECD.

Low participation and high unemployment mean that only 40% of South Africa's working age population is in employment compared with an average of 65% in the rest of the OECD.

National Development Plan

The National Development Plan (NDP) launched in August 2012 aims to dramatically improve South Africa's low employment rate - key to the twin aims of eliminating poverty and reducing income inequality.

It aims to increase labour force participation to 65% and reduce unemployment from 25% to 6% by 2030.

This will require the creation of an extra 11 million jobs on top of the current total employment of 13.5 million. To achieve this, the plan focuses on infrastructure investment, improving education, training and healthcare, and fighting corruption.

The International Monetary Fund (IMF) calculates that for the plan to work, economic growth must accelerate to more than 5% per year - the average rate of other emerging markets.

Last year, the IMF country report on South Africa concluded that such an acceleration in growth would not be possible unless structural reforms were put in place.

Two areas of reform that relate specifically to job creation are improving the flexibility of the labour market and increasing educational attainment.

Image source, AFP
Image caption,
Improving education standards and attainment is key to boosting employment

Big business and unions

Collective bargaining between large incumbent firms and powerful unions leads to high prices and wage settlements above the market clearing levels.

That means unemployment is high because wage bargaining doesn't respond well to economic conditions.

Plus, real wage rises outstrip productivity so firms hire less labour.

Mandatory acceptance of collective agreements across the entire industry makes it harder for smaller firms to compete on cost.

Ending this practice could expand the opportunities to small and medium-sized enterprises (SMEs) and reduce barriers to entry.

Academic studies estimate that industry-level bargaining reduces employment by 8-13%, mainly in smaller firms.

This is the other problem. According to the Global Entrepreneurship Monitor, creation and survival rates of SMEs in South Africa are among the lowest in the world.

In many emerging market economies, the informal sector is an important source of employment.

In South Africa, the informal economy accounts for less than 20% of the labour force, with its development hampered by access to credit, access to land, high crime and red tape.

The OECD suggests a grand social bargain could be an improvement to industry-level wage bargaining.

It would need to be orchestrated by the government, with the idea that workers would accept wage restraints in return for greater hiring commitments from firms.


Over the past two decades, school enrolment has improved considerably.

Since 1996, schooling has been compulsory to the age 15 and 98% of young adults in the 15-24 age bracket are literate.

Despite this, average education standards are poor. Last year, a World Economic Forum report ranked South Africa 146 out of 148 in educational standards.

Even though pass marks have been cut for many subjects, only four out of 10 who start school go on to graduate from high school.

Only one in 10 will get good enough grades to go to university.

The problems in South Africa's education system are fundamental. Schools, especially in rural areas, lack basic learning materials and have poor teaching standards as well as high absenteeism among staff.

The IMF argues that faster implementation of the NDP could improve investor confidence and boost growth, especially if it leads to more foreign direct investment flowing into the country.

With a large new mandate, there is little to stop the ANC from driving through its NDP.

Finding a solution to the country's chronic job problem would be a welcome legacy.