South Africa: where will the jobs come from?

South Africa has among the highest unemployment rates in the world. The official unemployment rate is 24%. But another statistic is even more depressing: approximately 42% of young people between the ages of 18 and 29 do not have a job.

So it was good news to hear the government is launching a big attack on unemployment. Finance minister Pravin Gordhan yesterday laid out plans to spend close to 150 billion rand (US$21 billion) over three years to create jobs for unemployed South Africans. 

About half the proposed funds will go to an expanded public works program, which is expected to create 900,000 part-time jobs in the next 12 months. Other funds would go into subsidies to employers who hire young school graduates or dropouts. 

South Africa can target an official goal of creating five million jobs in the coming decade, Gordhan said. “If not addressed urgently and effectively, this problem will lead to exceptionally negative consequences for South Africa,” Gordhan said, drawing parallels to the current people power movements in Tunisia, Egypt, and Libya. If the ANC (the governing party) does not produce jobs, it too may lose its popular mandate.

This announcement comes with good and bad news. The good news is that South Africa can afford the programs. The post-apartheid governments have done a commendable job managing public finances, protecting budget surpluses and limiting inflation. Years of fiscal responsiblity give the ANC the opportunity to increase social spending.

The bad news is that the program may not be enough to generate sustainably lower unemployment over the long-term. This is due to the spectacularly bad state of South Africa’s public education system. Only 10% of South African students qualify for university, and only 5% end up with a degree. South Africa does particularly badly in math and science, coming last (out of 48 countries) in 2003 study of 9th grade students.

Education consumes 20% of South Africa’s budget, yet two-thirds of schools have no library or computer. Half of students do not possess their own textbooks. A disproportionate amount of money is consumed by the country’s strong teachers’ unions. Vested interests against redistribution of funds are so great that education minister Angie Motshekga has said the problem may take 20 years to fix.

It doesn’t take a rocket scientist to realize South Africa’s government won’t be able to manage unemployment with public works programs and employer subsidies for 20 years. In a global economy, South Africa needs a much better educated workforce. President Jacob Zuma has said education reform is a priority for his government.

Hopefully, deeds will match words. South Africa’s competitiveness could improve dramatically with even modest improvements in education. South Africa already has strong physical infrastructure, a favorable business environment (ranked 34th globally by the World Bank), a sizeable low-wage workforce, a strategic position on global trade routes, shared time zones with Europe, and a large English-speaking population.

With better use of education budgets, it is not far-fetched to believe South Africa’s unemployment could be lowered significantly in the future. But that depends on reform. Otherwise, Gordhan’s comparisons to Egypt, Tunisia, and Libya look prescient.

Written by David Gates for Emerging Markets Blog

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