Labour-intensive growth strategies key to reduce unemployment

It is generally accepted that unemployment at current levels of about 25% (using the narrow rate) is the most critical and pressing of our socio-economic challenges as it directly impacts how successfully we can reduce poverty and inequality. The problem assumes crisis proportions if we consider that the broader unemployment rate sits at about 43% if we include adults who are able to work but have given up looking for work. For them the miracle and hope of 1994 have become a distant and receding mirage. It is precisely for this reason that the National Development Plan and other economic growth strategies cite employment creation as their primary motive.

The National Development Plan (NDP) is frequently being punted by the government and some private sector business leaders as the magical instrument that will provide the “radical” economic transformation that is required to propel SA on an accelerated and “labour-intensive” growth trajectory. It liberally projects growth rates at about 4.5% and unemployment being reduced to about 14% by the year 2020.

The ambitious growth assumptions in the NDP are unrealistic and misleading for the following main reasons. First; while economic growth is essential for job creation, projecting growth to reach the target rate of about 4.5% by 2020 seems to be on the high side according to many research organisations and even the World Bank. Unreliable and limited electricity supply and a rigid labour-relations regime remain the biggest domestic constraints to investment and growth. Historical trends and slow global demand also point to a low growth trajectory in the next five years.

Second, a high economic growth rate in the formal sector does not necessarily translate into high employment opportunities especially for the low-skilled and poorly educated demographic. This is because growth in this sector is heavily driven by investment in capital equipment and technology, which require higher skills. It is therefore not labour intensive in the sense anticipated by the NDP and other growth strategies.

Third, it is correct that exports are a key driver for growth needed to reduce unemployment and poverty as stated by the NDP. But to be successful in growing exports, our economy must be competitive and our workers must reach levels of productivity that can put us on par with our competitor countries. Regrettably we trail our partners on these measures.

The following statement by the Centre for Development and Enterprise gives perspective: “Unless the employment intensity of growth increases, even very rapid growth will have to be sustained for many years if South Africa is to raise its employment rate to international levels. Even if the population of working age were to remain unchanged at 32.1 million, the economy would need to grow at 7% a year for almost 15 years to achieve this objective. If the population of working age continued to grow at its current rate of 1.9% a year, it would take more than 40 years. This is a huge challenge. South Africa must find ways of increasing economic growth, sustaining this over many years, and ensuring that it is much more employment intensive.”

The essence of the challenge is that the capacity of the economy to absorb more people of the lowest and less skilled demographic is very limited because our growth strategies are directed mainly at growing the formal economy. The labour absorption rate has been deteriorating for decades and we are currently at around 46%. Yet, our competitor Bric (Brazil, Russia, India and China) countries are at rates that average 70%. Furthermore, incentive strategies of the department of trade and industry are mainly directed at facilitating and encouraging capital expenditure by business.

The mining sector has been shedding jobs for a long while and more job shedding is planned in the short and medium term. The result is that we now sit with millions of unskilled workers without jobs. They are typically poorly educated and black, and mainly women. We need jobs that are suitable for this category of job seekers.

The NDP chapter on the economy and growth relies on growth in the small and medium enterprises to provide the needed jobs and yet places more emphasis on exports to drive growth. The role of the informal sector in this mix is not explored including how small survivalist family business activities can graduate into for-profit enterprises.

What then must be done?

In my recent piece in this column, I opined that we need to have a frank and honest national debate, by all the key stakeholders, to explore appropriate labour-intensive growth strategies that must be targeted at the low-skills sector in order to help deal with our structural unemployment problem. The emotive ideological obsession to a “decent job” must not be allowed to restrict our imagination and discussion in such an exercise.

South Africa’s economy has been characterised as having high levels of concentration and vertical integration and that it is capital intensive. The large number of very serious anti-competitor behaviour cases in the market place attest to this view. There is also a credible view that it marginalises and excludes the small and medium enterprise sector. A properly orchestrated national debate as proposed above is both urgent and critical given the worsening social impact of unemployment.