SA has the workers but not the jobs to prosper

ACCORDING to a report by the World Bank last week, South Africa has 50 years left of what it calls the “demographic dividend” – a period of time where the working-age population grows faster than the entire population.

This means people who theoretically cannot work – those under the age of 15 and over the age of 64 – are forming a smaller percentage of society. Retired citizens need health services and pensions and children need health, education and social assistance. The working age population supports these non-working citizens.

This year, the dependency ratio in South Africa – the amount of people outside of the working age population divided by the amount of people of working age – is 53.9 percent. This means there are 1.8 working age individuals per retired or underage dependent. Theoretically when the working age population grows faster than the total population, there are proportionately less dependents and the drain on the productive economy is lower. With South Africa’s growing demographic dividend, it is forecast to have 2.1 working age individuals per dependent by 2045.

Less dependents per worker means higher levels of saving, increased investment and a more productive economy. This is why, according to the World Bank, South Africa faces a window of opportunity now that could allow it to accelerate its economic growth to 5.4 percent.

The problem with this theory is that it assumes that an increase in working-age population means an increase in working people. Unfortunately, this is still a massive challenge In South Africa.

Instead of having 1.8 workers per dependent, there are now 0.4 workers per dependent when non-working people of working age are included as dependents. Every person with a job supports 2.5 other people, whether directly in their household or indirectly through taxes.

Between 2000 and last year, the working age population grew by 8.5 million people but in the same period the number of jobs only grew by 2.8 million. Only 57.1 percent of the working age population was economically active last year. Two-thirds of people currently unemployed have been searching for a job for more than a year. New entrants to the labour force with no work experience make up 40 percent of the unemployed. One-third of the 10.2 million people in South Africa between 15 and 25 years old do not go to work or school.

Can South Africa implement the reforms needed to turn the demographic dividend into a real opportunity?

To do so big changes are needed in education and labour-intensive industries. The good news is that South Africa has already achieved nearly universal school attendance. The quality of this attendance leaves a lot wanting but getting bums on seats is no small feat and credit must be given where it is due. The focus now needs to change and the quality of education must be thoroughly interrogated. School leavers need to be prepared for the job market and if they cannot find a job, they need to be equipped with the creativity and leadership necessary to create jobs.

In terms of industry-driven job creation, South Africa needs to go back to basics. Last year, finance, real estate and business services contributed more to gross domestic product than manufacturing, agriculture, and construction. South Africa’s growth is coming from high value, low job intensive sectors while industries that drive job creation are being neglected. Pierre Heistein is the convener of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter @PierreHeistein