How Industries Without Smokestacks (IWOSS) Can Tackle South Africa’s Unemployment Crisis

Unemployment in South Africa

Unemployment in South Africa, one of the biggest economies on the continent, has reached record levels, with young people and women being the hardest hit. The latest data from Statistics South Africa (StatsSA) reveals that approximately 7.9 million South Africans were unemployed in the second quarter of 2023. The unemployment rate now stands at a high of 32.9%, making it one of the highest levels in the world. The dire situation is particularly evident among Black African women, with an unemployment rate of over 50%. Additionally, there were about 10,2 million young people aged 15–24 years in the first quarter of 2023, of which 36,1% were unemployed.

Factors Contributing to High Unemployment Rates

Several factors have contributed to the sustained high unemployment rates in South Africa. The economic disruption caused by the COVID-19 pandemic, combined with austerity measures, persistent inequality, and poor government policies, has created a challenging environment for job creation. The inflows of foreign investment, which are crucial for employment prospects, have also declined to 0.5 billion rands in the first quarter of 2023 from 64 billion rands in the previous quarter. The power crisis also adds materiality to the lack of job creation prospects in small and medium-sized enterprises.

The stark inequalities in South Africa’s society also play a significant role in the high unemployment rates. A report by the World Inequality Lab highlights that the top 1% richest South Africans own more than 55% of the country’s wealth, while the poorest 90% only own 14%. This growing wealth gap has fueled frustration and discontent among the population.

The Impact on Youth Unemployment

Youth unemployment is a major concern in South Africa, with the rate trending upward since 2008. The percentage of young people aged 15–34 years without employment is at about 44,7% in the first quarter of 2023. The youth unemployment rate in South Africa is considerably higher than in other countries. This is alarming, as the youth population represents a significant portion of the workforce. The lack of job opportunities for young people not only perpetuates poverty and inequality but also increases the risk of social unrest.

Chiedza Madzima, head of operational risk research at Fitch Solutions, describes South Africa’s high youth unemployment as a disaster in the making. The combination of poverty, limited income prospects, and joblessness among the youth is likely to lead to recurrent bouts of social unrest and calls for social welfare support.

Sello Malinga, president of the Youth in Business South Africa, criticizes the lack of effective policy interventions by the government. Existing policies mainly focus on addressing structural causes of unemployment, neglecting the need for comprehensive solutions that address the specific challenges faced by young people and the general population.

The Urgent Need for Pro-Business Reforms

To address the worsening trend of unemployment and the bleak outlook for the South African economy, pro-business reforms are urgently needed. Johannesburg-based Chiedza Madzima emphasizes the importance of implementing reforms that promote economic growth and job creation. These reforms should address the barriers to investment, ease regulatory burdens, and create an enabling environment for businesses to thrive.

The Confederation of South Africa Trade Unions (COSATU), the country’s largest labour union, attributes the sharp rise in unemployment to economic stagnation resulting from government failures. President Cyril Ramaphosa’s administration has extended the 350 rand Covid-19 grant- basic income grant to provide relief to the unemployed till 2024. This grant benefits approximately 7.9 million unemployed citizens. However, it is important to note that social grants are already a significant source of income for a third of the country’s population, highlighting the extent of the unemployment crisis.

Industries Without Smokestacks: Potential Solutions for Job Creation

One potential solution for addressing unemployment in South Africa lies in the development of industries without smokestacks (IWOSS). These industries have the potential to absorb low- and medium-skilled labour, making them suitable for a country like South Africa, where a large number of unemployed individuals possess predominantly low skills. IWOSS sectors are tradable, exhibit the capacity for technological change and productivity growth, and have shown evidence of scale and agglomeration economies.

However, the manufacturing sector, which traditionally employed low-skilled workers, has experienced minimal growth in recent years. Economic activity has shifted towards sectors such as finance and community services, which are high-productivity sectors with a greater demand for high-skilled workers. This shift in the economic landscape has led to a mismatch between the skills available in the labour force and the skills required by the job market.

The Potential of IWOSS Sectors

A working paper by Christopher Rooney and Zaakhir Asmal explored the employment potential of four selected IWOSS sectors in South Africa: tourism, agriculture, agro-processing, and transit trade (logistics). These sectors have shown the capacity to create various types of jobs across the skills spectrum, making them promising avenues for addressing youth unemployment.

Under the current growth path, the employment potential of the low-skilled intensive IWOSS sectors, such as agriculture and agro-processing, is limited. These sectors are projected to account for only 11.1% of the increase in IWOSS employment between 2019 and 2028. However, in a higher-growth scenario, tourism and agriculture could contribute significantly to job creation, accounting for 20% and 6% of the employment change respectively.

While there is a surplus of low-skilled individuals in the labour force, particularly among those with pre-secondary and secondary education, there is a shortage of individuals with higher levels of educational attainment. This highlights the mismatch between skills supply and demand in South Africa. To enable young people to access high-skilled occupations in the IWOSS sectors, targeted support and training programs are necessary.

The proportion of the unemployed by education level, Q1: 2023 (Stats SA)

According to Stats SA, The figure above shows that of the 7,9 million unemployed people in the first quarter of 2023, as many as 48,3% did not have matric, and 40,7% had completed matric. Almost 8% of the unemployed had other tertiary qualifications, while only 2,7% of unemployed people were graduates. This builds the picture of a need for investments in IWOSS to tackle the unemployment of unskilled to semi-skilled labourers.

Overcoming Constraints for IWOSS Growth

Several constraints hinder the growth of IWOSS sectors in South Africa. These include an unstable electricity supply, fiscal pressures, limited technical skills in the public sector, and high levels of corruption. Sector-specific obstacles, such as crime, high input costs, climate change, lack of access to capital, and transportation inefficiencies, also pose challenges.

To overcome these constraints and maximize the employment potential of IWOSS sectors, a comprehensive set of policy recommendations is proposed. These recommendations aim to create an enabling environment for economic growth, address sector-specific challenges, develop relevant skills, and promote inclusive growth. A stable electricity supply, improved fiscal management, enhanced technical skills, and anti-corruption measures are some of the key areas that need to be prioritized.

The Importance of Skills Development

Skills development plays a crucial role in unlocking the employment potential of IWOSS sectors. A working paper by Christopher and Zaakhir also found that firm surveys conducted in the tourism, agriculture, agro-processing, and logistics industries highlight the importance of specific skills in each sector. While tourism and agriculture provide opportunities for low-skilled individuals, agro-processing and logistics industries require higher-skilled workers.

The surveys also reveal skills deficits in various areas, including basic skills, social skills, resource management, and digital literacy. The Fourth Industrial Revolution is expected to have a transformative impact on the labour market, making digital skills increasingly important. To ensure future employees possess the necessary skills, targeted support and training programs should be implemented, starting from primary and secondary education.

Conclusion: Addressing Unemployment in South Africa

The persistently high unemployment rates in South Africa, particularly among young people and women, require urgent attention and comprehensive solutions. The development of industries without smokestacks (IWOSS) holds promise for job creation and economic growth. However, overcoming constraints, addressing skills gaps, and implementing pro-business reforms are essential.

By creating an enabling environment, supporting the growth of IWOSS sectors, and investing in skills development, South Africa can work towards reducing unemployment, alleviating poverty, and fostering inclusive economic growth. It is crucial for policymakers, businesses, and stakeholders to collaborate and prioritize these efforts to create a brighter future for the country and its people.

Sources: Statssa Quartz Reuters Worldbank Brookings


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