Poor governance, not bad luck, is behind SA’s jobs catastrophe

12 April 2024

SA’s deepest and most fundamental crisis is the abject failure of the economy to create jobs. The figures are truly astounding: from January 2008 to December 2023 the number of working age adults rose by almost 9.5-million, while the number of people in employment rose by only 2.3-million.

This resulted in an increase in the nonworking population of 7.2-million to 24-million. As a result, the share of working age adults in work fell from 46% to 41%. To contextualise this: the proportion of adults who are working is almost a third lower than the global norm of about 60%.

The trends are even worse for young people. Since 2008 the population of people between 15 and 34 increased by 2.6-million, but the number of young people in work actually fell by 600,000. Among this category of youth, the employment-to-population ratio fell from 35% to 28%.

It is hard to see this as anything other than a jobs catastrophe, and it is one that can be explained overwhelmingly by the economy’s abysmal growth performance. This in turn is driven by the governing party’s policy failures, the collapse of critical state-owned companies, and wider governance failure. Combined, these factors have destroyed confidence and remain the most important obstacles to reviving investment and growth.

When you say this to people in and around the ANC, they will acknowledge the existence of the employment crisis, but deny its connection to its governance and policy failures. Instead, they will propose a variety of alternative explanations. Maybe it’s the consequences of the global financial crisis. Maybe it’s Covid. Maybe it’s just bad luck.

However, there is a way to test these claims. If the factors explaining the failure to create jobs were all outside SA’s control, it’s reasonable to think that they ought to affect all of SA equally. But they don’t. This is amply demonstrated by a comparison between the performance of the labour market in the Western Cape and Gauteng.

Since 2008 the growth in the working age population, at an average annual rate of just more than 2%, has been about the same in Western Cape and Gauteng. Yet over that period employment in the Western Cape has grown at about 1.9% a year. In Gauteng the figure is a fifth of that — a mere 0.4% a year.

(For the record, in the other seven provinces population growth was slower — less than 1.5% a year — and employment growth was about 0.8% a year, which is twice as good as Gauteng but still less than half the rate of growth in the Western Cape).

The divergence between Gauteng’s performance and that of the Western Cape widens if we look at a shorter period. Since 2015 Gauteng’s population has grown at 1.9% a year, but the number of jobs has fallen by an average of 0.1% each year. In the Western Cape, by contrast, employment growth has matched population growth at an average of 1.9% a year.

Job creation

Overall, the Western Cape has created almost 700,000 jobs since 2008, more than double the 300,000 created in Gauteng, despite the Western Cape population being only half that of Gauteng. Since 2015 the Western Cape has created nearly 400,000 jobs, while employment in Gauteng has fallen by 55,000. That’s right: the region that is supposed to be the beating heart of Southern Africa’s economy is shedding jobs.

To be clear, the Western Cape’s performance is impressive only in comparison to Gauteng and the rest of SA. It too is held back by national issues: the failures of Eskom and Transnet, complex and costly labour laws, and slow economic growth. These constraints mean employment growth has only tracked population growth, a rate that is far too slow to address the ocean of unemployed people.

Even so, if employment growth in the country since the end of 2015 had matched the pace of job growth in the Western Cape there would be 1.8-million more people in jobs today than there are. If national job growth had matched the rate achieved in the Western Cape since 2008, there would be nearly 2.9-million more people in employment than there are.

That would still leave SA an enormous challenge — jobs for 6-million or 7-million people to reach the global norm of about 60% of the adult population. But the size of the challenge would be meaningfully smaller. Millions of households would be better off, and SA’s future would feel that much less precarious.

The story is not just about Covid: the Western Cape has about 10% more jobs now than it did before Covid, while Gauteng has 1% fewer jobs. Since the troughs in employment in 2021, employment in the Western Cape has risen by 24%. In Gauteng, the figure is 13%. Between the fourth quarter of 2018 and the fourth quarter of 2023, nearly 240,000 jobs were created in the Western Cape, while the rest of the country lost a combined total of more than 40,000 jobs.

So what explains the difference between the Western Cape’s performance and that of Gauteng? If one thinks about the divergent trajectories of the economies and labour markets of Gauteng and the Western Cape over the past 10-15 years, surely the most salient differentiators reside in the quality of governance and the performance of its public institutions?

There is simply no question that the health and traffic services, solid waste disposal, quality of roads maintenance and responsiveness of local government are superior in the Western Cape to those in Gauteng. And the same is almost certainly true of almost any metric relevant to public sector performance, whether provincial or local.

Is the performance of the Western Cape’s provincial and local governments without fault? By no means. Like other parts of the country, they have struggled to deliver services to poor communities, and there is a major housing crisis. Cape Town remains deeply segregated. Public transport is not working well. Schools are better than the national average, but most kids go to bad or mediocre schools.

What lessons?

And yet the Western Cape’s economy and labour market has dramatically outperformed Gauteng’s. What is to be learnt from this, besides the fundamental issue that the quality of governance really matters for growth and for job creation?

Perhaps that SA’s economy is more resilient than it might appear, and that if the yoke of national corruption and institutional failure were removed, green shoots might emerge? Perhaps, also, that economic and employment growth don’t require the election of either philosopher kings or rocket scientists.

What the country needs most is a competent government focused solidly on the imperative to grow the economy, a national government that understands jobs are created by private firms and actively attempts to create a better environment within which firms do business. It needs a government that works hard and doesn’t steal.

National and provincial governments of this kind won’t be able to solve every problem, but by getting the economy moving and getting more people into jobs, it would be making progress that a government of crooks and scoundrels never will.

Bernstein is executive director of the Centre for Development & Enterprise.

This article was published by the Business Day.