For the past week I have been working from my mother’s study in Mthatha. From the window I can see a large tree across the road which has become a meeting point for commerce, where a man who rents one of the flats inside my mother’s property fixes grass-cutting machines and generators. All through the week I watched from the window as cars rolled up to the gate and asked for him by name to fix the generators for their homes and businesses.

It was an instructive lesson in how a valuable trade skill and the potential self-employment that can arise from it, even in a de-industrialising economy like Mthatha, can help alleviate South Africa’s pressing unemployment problem.

Trade skills and self-employment

Marie Francoise-Nelly, the World Bank’s country director for South Africa, Botswana, Eswatini, Lesotho and Namibia, says that to generate employment, the country would have to address three chronic labour market challenges, including extremely high rates of inactivity, high rates of unemployment, and low levels of self-employment. She goes on to say that If South Africa were to match the self-employment levels of upper-middle income peers like Brazil, Turkey, and Mexico, it would halve the unemployment rate in South Africa.

All those unemployed youth in places like Mthatha and in many of our townships across the country would benefit from skills and training programmes in the trades that are placed within proximity to them, coupled with basic skills training in accounting and managing their finances. There is a need for skilled tradespeople who come from communities, are recognised within their communities, and who can build relationships with community members and offer them valuable services at reasonable prices.

Labour-intensive industries

W. Arthur Lewis, the only man of African descent to win a Nobel Prize in Economics and who might be considered the founding father of development economics in the 1940s and 1950s, has argued that labour can move out of the peasant farming sector — without affecting production there — and into low-productivity capitalist sectors, including industrial sectors such as clothing manufacturing, if wages in those sectors are low in line with productivity.

As capitalist economies grow, Lewis argued, they will reach a turning-point at which labour becomes scarce. They will then shift into higher-productivity sectors and wages will rise.

Lewis’s model was reflected in the economic history of East and South-east Asian countries. The economies of South Korea, Hong Kong and China developed through job creation in labour-intensive manufacturing sectors before these economies reached Lewis’s turning point and wages began to rise.

This is particularly pertinent to South Africa, as in the rest of the continent, to our north, there are  a billion-plus people. They need cheap clothing, kettles, blankets, and other such goods. The inner city of Johannesburg  itself has a large informal retail sector which attracts cross-border shoppers, but the manufacturing of the goods bought is done in countries like China and Bangladesh, rather than locally. Local industries would create a significant number of jobs.

But this is not how the South African economy has evolved over the past 27 years. Instead, South Africa’s industrial sectors have become more and more capital- and skill-intensive. The demand for less-skilled labour in these sectors has collapsed.

Economists refer to the effect of economic growth on employment as the employment elasticity of growth.

An employment elasticity of 1 means that, when the economy or sector grows by, say, 2 percent, employment grows at the same rate, i.e. by 2 percent. If the employment elasticity is more than 1, then economic growth results in a faster rate of job creation. If the employment elasticity is less than 1, then employment rises more slowly than output.

Data suggests that in the South African manufacturing industry employment elasticity has not only been less than 1, it has been negative.

In other words, this is the cost for South Africa of trying to skip steps in its economic development. It allows unions to pressure the government into prioritising higher wages over job creation in an economy that has a lot of surplus labour.

South African government policies result in a paradoxical situation: Even when industrial output grows, jobs are not created. Instead, firms invest in more capital- and skill-intensive technologies. Accelerating economic growth does not raise the demand for labour in industrial sectors.

Conclusion

The South African government needs to make difficult and unpopular decisions and prioritise labour-intensive, low-skill industries and self-employment while dealing with structural challenges around education and upskilling the population. For too long, the government has tried to skip steps so as to appease unions, and that has resulted in stubbornly high structural unemployment and a widening and racialised income gap. The recent results in local government elections should provide impetus for opposition parties to offer this alternative policy direction, which would create jobs and go some way to alleviating poverty.

The views of the writer are not necessarily the views of the Daily Friend or the IRR

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contributor

Sindile Vabaza is an avid writer and an aspiring economist.