The NDP sets out a goal of full employment by 2030. This would mean official unemployment falls to 6.5% and labour force participation rises from 54% to 65%, requiring an average annual GDP growth rate of 5% and 11 million net new jobs created over a 20-year period. Economic growth must accelerate and become more labour absorbing. There are a few methods that can be employed to achieve this:
1. Increase the supply of skilled labour
The annual supply of high skilled labour needs to double by 2018. Currently, the number of people who receive tertiary education and training increases by 1% per annum, or about 175,000 people. The availability of highly skilled workers enables firms to hire a complement of skilled and unskilled labour. This is currently a binding constraint. Either tertiary education institutions should dramatically expand their capacity, or – additionally – skilled labour must be actively attracted to SA from other countries. Our research showed that doubling the availability of high skill labour would double the employment impact of any other intervention.
2. Address macro-economic constraints
The rate of investment to GDP needs to rise from 17 percent to 30 percent by 2030 fuelled by a gradually expanding pool of domestic savings as well as foreign capital. Public sector capital investment should rise to 7% of GDP, consistent with ratios during high growth phases of other countries.
The macroeconomic platform needs to be enabling and offer stability, with efforts to buffer producers from a volatile currency, and improvements in the quality of public spending.
Creating this enabling foundation is necessary, but not sufficient to guarantee growth and employment. The right incentives and support are also needed to take advantage of global, regional and domestic opportunities.
3. Strengthen labour market institutions
The labour regime needs to be more conducive to employment growth. This requires significant commitment by the state, private sector and organised labour to improve human resource management, and and strengthen institutions aimed at dispute resolution and collective bargaining. The Department of Labour needs to strengthen its capability to enforce health and safety regulations, and ensure adherence to sector minimum wages and standards for unorganised labour.
4. Expanding South Africa’s share of global goods and services markets
By diversifying trade, we can reduce the strong link to commodity cycles and associated volatility in the exchange rate and earnings. This will cushion the economy from economic shocks, with sufficient reserves and fiscal space. In turn, a more stable environment for domestic-oriented firms, which create the majority of employment, will emerge. Moreover, stability in exports reduces the risk of a foreign debt trap, protecting critical public spending programmes. We would secure larger foreign exchange earnings, enabling us to purchase inputs for further industrialisation and infrastructure investments. It would improve productivity and economic growth throughout the economy. Significantly, we could create up to 15 per cent of new jobs directly as well as indirect employment by promoting linkages in domestic industries. In this we need to give more attention to areas of competitive advantage in inputs industries and in key service sectors. This also requires stronger economic and diplomatic support to exporters and South African investors. We need to build great South African companies.
5. A greater role in regional development
As the most developed economy, South Africa can stimulate growth in the region. Our own growth in part depends on this, but currently we do not play this leadership role. South African companies will be encouraged to participate in regional infrastructure projects but also in integrating regional supply chains to promote industrialisation. As a result, we can expect exports to rise, with a growing portion of non-mineral manufactures and services. A greater proportion of exports will be directed to emerging markets.
Opportunities for increased trade and bilateral investment in Africa will develop. Offshore business services will be attracted from the UK, USA and India, fuelling site developments and employment.
6. Promoting employment in labour-absorbing industries
National resource allocation must support productive sectors with competitive advantage. To promote employment, these activities should have the following characteristics: a competitive advantage, global growth potential, and either direct or indirect job potential on a significant scale through linkages in the domestic economy. Promoting backward linkage industries into mining, back office IT-enabled services, or tourism would be consistent with this policy. The promotion of smelting in the 1990s, however, contradicts these principles.
Several high growth economies have benefited from growing trade in services – such as Korea, Malaysia, India, the Philippines. SA’s rate of growth in services trade is about half what they have achieved. Examples of competitive niches for SA include construction, tourism, retail, and IT-enabled services. Specifically, the plan proposes a target of 700,000 jobs created in IT-enabled services. While services are thought of as ‘non-tradable’, in fact there is evidence and potential to trade almost any service activity. It is a policy choice. To succeed, we need stronger economic diplomatic relations into key markets, development finance support, significant and targeted human resource development, supportive trade arrangements, targeted innovation funds, and competitive telecommunications services. More than 70% of the jobs will be created in domestic-oriented activities and in the services sector.
7. Promoting small business
Some 90% of jobs will be created in small and expanding firms. The economy needs to be more enabling of business entry and expansion, with an eye to credit and market access. By 2030 the share of small and medium sized firms in output must grow substantially.
Public and private sector procurement programmes can improve access to opportunities for SMMEs. A simple commitment to timeous payment – in 15 or 30 days – would make a significant contribution to small business survival and growth.
8. Promoting innovation
While more resources have been directed towards innovation and R&D, programmes are still too small and unfocused to properly diversify South Africa’s economy. Much innovation comes from small business, but this sector has not received the support it needs. We need to ask whether investments in R&D and innovation are seen as complementary to or competing with poverty alleviation initiatives. The principles of the NDP are that innovation can drive job creation and reduce poverty. We will have to compete globally on the basis of our leading products and processes.
While agriculture usually shrinks as economies develop, in SA there is still potential for jobs growth. Economic participation in rural areas is low, and the percentage of rural employment in agriculture is very low by global standards. Rural employment could grow with reformed land tenure, support to farmers, expanded social services, higher agricultural output, mining social investment and tourism.
10. Public employment
Government can be an important employer, especially in peri-urban and rural areas. But the current grading structure pushes departments to focus their resources on professionals and front line staff, who often don’t have sufficient support from porters, clerks and similar roles. So they are less able to perform their core function, and there are fewer opportunities for semi-skilled and unskilled workers to access work, benefits, and labour representation. This is a highly contentious issue that needs to be addressed.
Public employment programmes, like Community Works, are an essential element of any employment strategy. Up to two million opportunities should be created annually, mostly through community based services. These opportunities will be needed over the entire period.
The NDP argues that public employment schemes should absorb two million workers in any one year. When economic growth is slow, the scale of these programmes needs to be larger: but in these times, the available fiscal resources are less.
11. Stronger institutions, better accountability
South Africa has to be capable of implementing programmes and policies effectively and consistently, at least in the most critical priority areas. Accountability, combating corruption and professionalising the public service are critical. Stronger oversight of public entities is essential.
South Africa will move beyond promises and targets and into implementation and real change. There must be a change in mind-set across all sectors of society – public, private and civil society.
This is an excerpt of an article written by Miriam Altman, which originally appeared in the 1st edition of Vision 2030 under the headline ‘The NDP’s Vision for Growth and Unemployment’.