South Africa Economic Update: Seizing the window of demographic opportunity
A new economic analysis shows that putting South Africa’s high and growing working population to work could push growth above 5% per year and double income
South Africa could double its per capita income and eliminate extreme poverty by 2030 by generating jobs for its high and growing number of young workers, according to a recently released World Bank Group report.
The report, South Africa Economic Update: Focus on Jobs and South Africa’s Changing Demographics, analyzes the complex challenges posed by changing demographics and its implication for jobs and labor markets. It explores the conditions necessary for the country to capitalize on its demographic transition by putting more of its working-age population to work to reap greater benefits from its historically high and growing working-age population.
“Job creation is South Africa’s most pressing challenge and this study offers analysis and evidence on how South Africa could harness its high and growing work population age to tackle this issue,” said Guang Zhe Chen, World Bank Group Country Director for South Africa, Botswana, Lesotho, Namibia, Swaziland, Zambia and Zimbabwe. “We hope it will promote informed dialogue and policy debate about these developmental challenges.”
Since 1994, the working-age population aged 15 to 64, has grown by 11 million, and comprises 65% of the country’s total population of 54.9 million in 2015. More than half of the working-age population is under the age of 25, and the working age population is expected to grow by another nine million in the next 50 years.
This transition presents South Africa with a “window of demographic opportunity” to increase growth, according to the report. But the dual challenge of high joblessness and low levels of employment is hampering South Africa’s ability to harness this opportunity.
South Africa has a high unemployment rate of 25%, compared to an average of 11% for upper middle income countries. One third of South Africa’s labor force is either out of work or not looking for jobs, a challenge that has arisen because of the low rate of job creation, the report says. Since 2000, the total number of jobs created fell far short of the growing labor supply, with only 2.8 million new, mainly service sector, jobs created as the working age population grew, according to the report.
In the same period, the report says, employment opportunities shrank in agriculture, mining and manufacturing, traditionally labor intensive sectors that employ unskilled workers. Together, these three industries now account for 19% of total employment, down from about 30% in 2000, while the services sector now accounts for 72% of total employment.
“The marked shift of employment opportunities toward skilled workers and services indicates it is critical South Africa improves its level of educational attainment, in particular the quality of basic schooling and post school training,” said Catriona Purfield, World Bank program leader for South Africa. “This is essential to adequately equip the millions of new young school leavers expected to join the working age population in the coming decades with the appropriate skills demanded by the evolving labor market.”
If the status quo in the labor market persists, the report notes that South Africa will not realize its potential and real gross domestic product (GDP) will grow by about 3.7% per year and real per capita income growth would average 3.1% per year between 2015 and 2030.
By comparison, the report shows that if some 5.8 million jobs are created over the next 15 years to absorb the new working age entrants and lower the unemployment rate by three quarters, and if labor productivity and educational attainment improves, real GDP growth could reach 5.4% per year, enough to allow income per capita to double in real terms by 2030.
The report notes that this higher economic performance can be attained by creating a virtuous circle of job intensive growth, improved productivity, higher savings and better education attainment particularly for the youth who will drive the growth in the working age population in the coming decades. The report underscores the importance of using vocational training to retool the long-term unemployed and unskilled and it encourages the private sector to provide internships and other practical training opportunities to help new entrants’ overcome their lack of work experience.
To stimulate firms to hire, the report recommends policies that will deepen global and regional integration in trade in goods and services and encourage the development of small and medium firms. To facilitate the emergence of small firms as an engine of job creation, the report points to the need to reduce the burden of red tape on such firms, as well as the importance of improving access to low-cost finance and securing greater flexibility in labor-market regulations that apply to these smaller firms.
Recent Economic Developments
As with previous editions, the Economic Update also provides a review of recent economic developments and assesses South Africa’s near-term economic prospects. Growth is stuck in low gear due to a combination of external headwinds arising from the fall in commodity prices and slowdown in the Chinese economy and important domestic constrains.
The report’s forecast for real GDP is at 2.0 percent in 2015, and envisages a slow strengthening to 2.4 percent in 2017. But overall, growth in South Africa will remain largely below the average growth rate of 4.2 percent and 4.0 percent for Sub-Saharan Africa, in 2015 and 2016-2017, respectively.