A stagnant economy: The driving force behind South Africa’s unemployment crisis

We cannot keep placing our economic hopes in the hands of a state that has repeatedly failed to deliver.

Photo by John Moeses Bauan on Unsplash

There’s no denying that a misalignment between our education system and the demands of the economy is a driver of our unemployment crisis; it’s been said often, and it holds up. We produce far too many graduates with qualifications that don’t match what the market is looking for. Humanities graduates, in particular, tend to be cited as an example – and there’s truth to this.

However, to suggest that merely closing the skills gap will resolve unemployment is to oversimplify a much deeper crisis. This line of thinking implies that jobs are readily available, and that the only thing standing in the way is a lack of relevant skills. As appealing – and partly valid – as it may be, it doesn't capture the full picture.

To be clear, aligning the education system more closely with the economy is undoubtedly important. It will improve the prospects of many graduates and create pockets of new employment. Nevertheless, the positive outcomes of such reform (in the broader picture) will likely be modest, and they won’t come close to addressing the massive scale of unemployment that we’re facing.

Reframing the underlying issue

The bigger problem – which we skirt around sometimes – is that our country just doesn’t have enough jobs. Regardless of the skills they bring to the table, we have an economy that isn’t creating nearly enough employment to absorb millions of people.

As it stands, the most affected are those with little or no education, and those with qualifications that are oversupplied and out of sync with demand. But we would be making a mistake to assume that this crisis is limited to them.

We’re beginning to see signs that even those with in-demand skills are not as secure as many might think. The growing number of unemployed medical doctors, for instance, is not just an anomaly, but a warning. While this trend hasn’t reached crisis proportions, it clearly indicates that no one is fully insulated from an economy that isn’t growing at the level it should.

All this points us to key questions that we should keep asking. These are: why is our economy failing to produce the jobs we so desperately need? What are the structural issues holding us back? And more importantly, how do we build an economy that can create employment for millions of South Africans and not just those with the “right” skills?

The answer to the first question is widely understood and requires no overstating. The ANC-led Government of National Unity (GNU) remains committed to an archaic and globally discredited economic orthodoxy that simply does not confront the structural roots of our unemployment crisis.

To begin addressing this, we need to look at a few key areas that aren't silver bullets, but necessary foundations for any serious structural reform.

Educational policy

Political analyst Prince Mashele has consistently and correctly argued that fixing our education system must be a top priority. The dysfunction in basic education is well documented, but the deeper issue is that our entire system, from primary school through to college or university, is still poorly aligned with the practical and technical demands of our modern economy. We need to move away from an overly abstract approach to learning and focus more on what equips people to participate meaningfully in the economy. This shift needs to begin at the foundational level and not when learners are preparing to exit the system.

Rethinking our growth formula

The idea that the state must be central to any meaningful development or job creation strategy is taken as gospel in many circles. But ironically, it is this very gospel that has failed and lies at the heart of many of our economic problems. As Senior Associate of the Free Market Foundation (FMF) Nicholas Woode-Smith has often argued, it is the market, and not the state, that has the capacity to drive growth, innovation, and employment, provided the environment allows it. This environment must obviously be created by the state, but it must understand that its role is to facilitate growth and not dominate the economy.

A bloated and inefficient public sector cannot absorb labour at scale through unsustainable programs or endless grants. It also cannot micromanage growth into existence. What we need is a more open market that isn't shackled by red tape and labour laws that protect incumbency at the cost of flexibility. The notion of "exploitation" that is often used to undermine this credible argument isn't only a subjective judgment, but also a distraction from the fact that real job creation demands dynamism. Even the People's Republic of China (PRC), which is often misrepresented as a successful model of state-led growth, actually built its economic miracle on the back of aggressive liberalisation and global market integration. We would do well to take note of this.

Attracting foreign investment

If investment is the oxygen of a growing economy, then ours has been gasping for breath for years. As political economist Phumlani Majozi has long warned, our country is not an attractive destination for substantial investment. Some of the reasons for this are not obscure. They include rampant crime, a financially repressive policy framework in Broad-Based Black Economic Empowerment (B-BBEE), infrastructure deficits, and ongoing energy insecurity. Taken together, these factors largely explain why foreign investment has not been flowing in.

Naturally, the aforementioned challenges are only part of a much larger picture. There are other vital pillars of structural reform that receive far less attention than they should. Through its Liberty First policy initiative, the FMF, in line with core research findings of the annual Economic Freedom of the World (EFW) report, has identified five of them. Three of them – sound money, free trade, and secure private property rights – are especially worth highlighting here.

Liberty first

A stable currency is crucial for long-term investment and planning. Without it, both individuals and businesses struggle to make meaningful decisions about saving and investing. Free trade creates access to new markets, lowers costs, and increases consumer choice. Yet unfortunately, our country continues to lean more towards projectionist measures that do more harm than good.

The third pillar, and arguably the most urgent, is the protection of private property rights. The recent signing of the Expropriation Act into law is deeply concerning and constitutes a direct attack on the very property rights of all South Africans. As FMF Head of Policy Martin Van Staden has recently posited, "nil compensation" is nothing but a formal and euphemistic way of saying zero. Worse still, the Act opens the door to abuse by allowing expropriation under the vague and sweeping label of "public interest". This creates legal ambiguity and deters much-needed investment. Without secure private property rights, our economy will remain stagnant and start to regress as productive activity slows and whatever little capital we have left flees.

Concluding remarks

We cannot keep placing our economic hopes in the hands of a state that has repeatedly failed to deliver. The results of this approach are all around us: stagnation, mass unemployment, and rising uncertainty. If we are serious about turning things around, we must return to the basics that have been unpacked in this piece. These basics are not abstract ideals; rather, they are the foundations of any economy that hopes to grow and create opportunity.

Until we shift decisively toward economic freedom, we will remain stuck and risk sliding further backwards.

Ayanda Sakhile Zulu holds a BSocSci in Political Studies from the University of Pretoria and is an intern at the Free Market Foundation.