South Africa's unemployment crisis will not be solved by new grants, increased state dependence, and more redistributionist thinking. Instead, an environment must be created which encourages capital formation and investment, where entrepreneurship and wealth creation are incentivised, not punished, and where what you earn and build will be secure for your children and grandchildren. To adequately tackle the crisis, South Africa must protect property rights, relax labour regulations, and embrace the African Continental Free Trade Area.
South Africa's unemployment rate is now the highest in the world. StatsSA announced on 24 August that the official unemployment rate had risen to 34,4%, up from 32,6% earlier this year. On the expanded definition, which includes people who are available for work but not looking for a job, the rate is 44.4%, up from 43.2% in the first quarter. Most worryingly, the youth unemployment rate for those aged 15-24 is over 74%, and at 42,9% for those aged 25-34. Without meaningful, pro-economic freedom reforms, what hope should the country's youth have?
Along with the spate of looting and violence in KwaZulu-Natal and Gauteng that no doubt exacerbated the problem, the country's relatively low vaccination progress and lack of tourism activity should also be considered. But South Africa's economic problems – and the unemployment crisis specifically – are the result of years of misguided policy choices and fiscal recklessness that have steadily sucked the oxygen out of the private sector, from the largest corporate to the smallest vendor.
Without a serious increase in the amount of capital (especially foreign) investment into the country, all of the social compacts and plans by the government will come to nought. Capital is necessary for new businesses to form – and for new job opportunities to be created. Capital can take the form of a new shop, a mineshaft, a road connecting two towns, better e-commerce capabilities, etc. None of this will happen – and much has been discouraged – by a policy environment where the very concept of property rights in the Constitution is subject to a probable, prosperity-destroying amendment.
Very few people will want to risk investing for the long term when what they earn and build will be subject to arbitrary confiscation or even nationalisation by any future government. And when investment declines, yet more jobs dry up. If the government is truly concerned about the unemployment crisis and wants to bring more people into the economy, it must abandon expropriation without compensation and commit itself instead to protecting all citizens’ property rights.
Given South Africa's colonial and Apartheid past, advocates of affirmative action-based labour policies argue that these are necessary to bring everyone onto a level playing field. It would be irrational and deeply insensitive to dismiss the harm that was caused to generations of black South Africans.
Unfortunately, much of the intentions behind policies such as BEE has been diverted into political rent-seeking and corrupt relationships that only benefit the few who have the necessary connections. We will not see widespread job creation and poverty alleviation if the opportunities for growth and work become ever more concentrated in the hands of the few politically powerful politicians, bureaucrats, and businesspeople.
Further, the powers of collective bargaining councils – and the reach of their agreements – need to be severely amended or scrapped. In the public sector especially, the power and pressure of union leaders has placed an incredible burden on the taxpayer. Ultimately, more resources are allocated to public sector wages than to actually improving service delivery for citizens in need of basics like running water. The more the state promises to pay unproductive civil servants, the more it has to collect in tax revenue, and the more pressure it places on the private sector. Again, private sector activity and jobs decline.
Finally, the potential benefits of the African Continental Free Trade Area (AfCFTA) have been well-documented. Once it is fully implemented and operational by 2030, the AfCFTA could be the world's biggest fully-realised free-trade zone by area, with a potential market of 1.3 billion people and a combined gross domestic product of some R37 trillion. What matters most now is implementation and wider reforms that facilitate the easier flow of goods and services across the continent.
In South Africa, our ports generally perform poorly. The 2021 Container Port Performance Index ranked Cape Town at 347th; Port Elizabeth at 348th; Durban at 349th; and Ngqura at 351st, out of 351 facilities. Improving port performance is crucial if we are to benefit from the increased trade liberalisation brought about by the AfCFTA. There are good noises coming out of Transnet and possible private sector investment and expertise – but will such investment and operations be allowed to operate free from political interference? Further, tackling non-tariff trade barriers such as increased security risks and costs, cross-border corruption and delays, and permit problems must be of highest priority.
South Africa does not need to reinvent the wheel, as it were, to make progress in tackling unemployment. Structural reforms that limit the size and role of the state, and open up avenues for small-to-medium business and informal sector growth, are the answer – not complicated, overthought central plans. If South Africa continues down the path of more state intervention, punitive regulations and taxes, and general redistributionism, the 44% unemployment rate will only increase. The reforms mentioned are not expensive, but require bravery and trust on the part of government, that South Africans have what it takes to uplift themselves, their families and communities.
This article was first published on City Press on 31 August 2021.