Churning out new strategies no guarantee for job creation

By Thabang Motsohi

The New Growth Path (NGP) announced by Economic Development Minister Ebrahim Patel has again refocused our attention on the structural challenges that inhibit our economy to grow and create jobs. This will be the fourth attempt, after the Accelerated and Shared Growth Initiative for South Africa, at developing an economic model that can finally make a significant dent on the pervasive structural challenges of unemployment, poverty and inequality that have been the defining feature of our economy pre and post 1994. The similarities between the two strategies on remedies to some of the key challenges are obvious to see. The elephant in the room has always been the inability of the state machinery to deliver at all spheres of government. This call calls for a level of political will that is currently sadly lacking.

South Africa is not alone in dealing with these problems. Every rapid-growth economy in Asia has had to deal with similar challenges in the past three decades.

A common feature of their transformation and success is that they adopted an economic model and paradigm that was premised on labour-intensive manufacturing that used cheap wages to make their low-income economies competitive. This is how they managed to make an impact on the standards of living of their people. This strategy made it easier for them to rise from a low-income economy to a middle-income economy. However, it is more difficult to step up from the middle-income economy to the next level of a higher income economy.

To move to the next level of high income, the economy needs more than low-cost manufacturing. For this transition the economy must move into the higher value-driven growth path driven by innovation, significant investment in research and development and a more productive use of labour and capital. This will require the use of highly skilled and trained workers who can turn these investments into products and profits.

This is a very hard shift to make and it is for this reason that many economies in Asia are considered to be stuck in the middle-income trap.

South Africa is also faced with such a challenge. Our biggest draw-back is the dysfunctional education system.

It is clear that it will take at least a decade before we see a significant growth in our own research capability and production of PhD graduates. This calls for a radical transformation of our higher education institutions to provide appropriate learning environment and student support systems. For this reason our immigration policy must urgently be made flexible and efficient to attract the right kind of skills necessary to transition into a high-income economy.

The NGP identifies a limited number of key sectors for creating jobs for the majority unskilled workers. The focus must be job creation. Decent jobs are desirable but they should not be a precondition. The shift in policy by the ANC on this question is encouraging. More and urgent work needs to be done to eliminate barriers to job creation and labour-market flexibility.

The role of the small and medium enterprises has not been given the prominence it deserves given the significant impact they have on labour absorption. The Global Entrepreneurship Monitor, in their report released in May 2010, states that South Africa has a very low level of economic activity driven by entrepreneurs. Only 5% of people between the ages of 18 and 64 are involved in entrepreneurship of or an owner-manager of their business. In Brazil and Chile the figure is 16.7%.

Growing small businesses for job creation and growing wealth is the way to go if we ultimately hope to secure social stability and peace on a sustainable basis. This cannot be the responsibility of government alone. Civil society has the capacity and means to support innovative strategies to support and grow commercially viable and sustainable small businesses.

We need to avoid the illusion that the so called “developmental state” will somehow magically transform the state bureaucracy into an efficient system for delivering services. This will not happen. The critical element of a developmental state is the existence of a well-organised state bureaucracy staffed by the best management talent available. Our sad experience with the dysfunctional local sphere of government for the past 10 years raises the serious question of whether we have the interests of the poor at heart! At the core of this failure is the lack of direct accountability to the residents for whom these structures have been created.

Thabang is a strategy consultant