Reforms must encourage self-employment

Johannesburg – In this time of crisis, we are often reminded of a famous quote, attributed to Winston Churchill during World War 2: “If you’re going through hell, keep going.”

While South Africa is not in the middle of a physical war, it is battling the Covid-19 pandemic in full force.

Like most other countries, South Africa could not escape the pandemic.

It suffered the loss of lives and livelihoods.

At the time of writing, in early July, more than 64 000 South Africans have lost their lives. The third wave is hitting the country very hard and infections are rising every day. But there is also light at the end of a very long tunnel.

The government responded swiftly and strongly to the crisis while also spearheading an international alliance for the distribution of vaccines in Africa.

This resolve to level the international playing field demonstrates that Covid-19 can serve as a turning point in re-energising South Africa’s economy and labour market.

While South Africa is set to emerge from the crisis weaker than it was going into it, the World Bank’s most recent South Africa Economic Update argues that the reasons for low growth and high unemployment do not lie in government’s crisis response.

Instead, the pandemic has exposed long-standing structural weaknesses that have progressively worsened since the global financial crisis of 2008–09.

For 2021, the World Bank projects a gross domestic product (GDP) growth of 4%, followed by 2.1% in 2022 and 1.5% in 2023. South Africa’s weak recovery is putting pressure on public finance.

For the first time ever, public debt is now almost 80% of GDP and under the current trajectory debt levels will not stabilise before 2026. However, the current global recovery is helping South Africa, especially the strong rebound in China and the US, two of its key trading partners.

As other emerging markets are recovering faster, South Africa’s economy could have benefitted more in 2021 if integration with the rest of the world was stronger The crisis has exposed South Africa’s biggest challenge – its job market. Even in the best of times, the labour market has been marked by high levels of unemployment and inactivity.

Out of a working-age population of almost 40-million people, only 15-million South Africans are employed, which includes 3-million jobs in the public sector. The Covid-19 crisis has made a difficult situation worse because low-wage workers suffered almost four times more job losses than high-wage workers.

Against the odds, there are also positive developments in the labor market and young entrepreneurs are one of South Africa’s best hope to solve the jobs crisis.

There are an increasing number of start-ups. Cape Town alone, the “tech capital of Africa”, has over 450 tech firms and employs more than 40 000 people.

In 2020, a total of $88-million (R1.2-billion) disclosed investments went into its tech start-ups. A focus on young entrepreneurs would also help South Africa close its large gap in self-employment (own account workers with own businesses, freelancers) which only represents 10% of all jobs – compared to about 30% in most upper-middle-income economies such as Turkey, Mexico, or Brazil.

If South Africa were to match the self-employment rate of its peers, it could potentially halve its unemployment rates.

To generate employment, South Africa would have to address three chronic problems in its labour market: extremely high rates of inactivity, high rates of unemployment, and low levels of self-employment.

Along with enacting carefully chosen regulations to improve the business climate and investing in the workforce through better education, the government can implement reforms to encourage self-employment.

• The authors work for the World Bank.

By Wolfgang Fenglermarie, Francoise Marie-Nelly, Indermit Gill, Benedicte Baduel and P Facundo Cuevas

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