Pursuing inclusive growth with misplaced beliefs

Shawn Hagedorn says a country can only reach our level of youth unemployment if its governance is grossly deficient

In late September the Financial Mail featured suggestions from “SA’s top CEOs on how to fix SA now.” Many solid ideas were shared, yet all reflected a belief that South Africans can unilaterally fix the country’s economy. Rather, we desperately need overseas customers.

One idea stood out as it addressed youth unemployment, was simple, well-reasoned, and cost-free: waive the minimum wage for those under age 25.

Such thinking departs from the popular presumption that we can only meaningfully reduce our ultra-elevated youth unemployment through rapid economic growth. We must rather acknowledge that sharply reducing youth unemployment has become our highest priority and that separate initiatives are required for growing the economy and surging youth employment.

Seven out of ten of our 15 to 24 year olds jobseekers continually fail or have given up. This suggests that we have the world’s most severe youth unemployment crisis. A better gauge, the portion of school leavers destined to become “permanently unemployable,” will almost certainly remain stuck for many years at about half. This is very rare - particularly without first becoming a “failed state”.


Governments go to great lengths to avoid anything resembling our level of entrenched youth unemployment as this makes it easy for bad actors to render a country ungovernable. The lack of instigators being prosecuted for the July 2021 riots reveals a broad disregard for the ‘rule of law’ alongside anaemic demand for good governance.

The global economy is currently going through a soft patch but it is generally very robust and the workforces in many of the largest economies are contracting. Thus, a country can only reach our obscene level of youth unemployment if its governance is grossly deficient. So it is unsurprising that business leaders can provide many valuable suggestions. Developing a workable plan is a different exercise.

There should have been a call-to-arms to tackle youth unemployment. Instead, our national conversation about jobs was degraded to debating whether sub-subsistence grants are fiscally sustainable. The long-standing joint business-government effort to induce investment-led growth would have been fully sensible; but only if there had been an equally intense, yet separate, initiative to spur employment.

Rather, over prioritising investment-led growth meant that job creation would be subordinate to the government and big businesses achieving their funding targets. Our extreme unemployment evidences how ill-suited this aggressive version of trickle-down economics is for SA’s patronage dominated political economy. In effect, we insist on overfishing in the depleted lake which our domestic economy has become.

Investment-led growth appeals to our governing party as it somewhat validates, while helping to fund, the party’s patronage-heavy approach to shaping our political economy. On the positive side, it incentivised the party to be more empathetic to commercial realities.

Yet SA’s growth prospects remain hobbled while overseas investors have a world of options. The focus on investment-led growth has also helped to distract big business and the ANC, along with its alignment partners, from acknowledging that jobs are created everyday in SA without any capital being mobilised within our borders.

Economic integration

That some still want to debate whether the public or the private sector should be driving job creation reflects a woefully out-of-date national conversation on jobs. If SA had achieved a more normal level of global economic integration, there would be broad recognition that: jobs are increasingly created, and innovations diffused, within global supply chains; and services completely dominate net job creation.

Given our current level of governance, and the resulting policies and practices, our economic growth lags population growth. Per capita income peaked about fifteen years ago. While it is possible to remove enough of SA’s growth impediments to sustain something like a 5% growth rate, envisaging impediment-purging scenarios, and then assigning probabilities to the key milestones, points to such hopes being decidedly unrealistic.

Our current level of employment is in balance with SA’s spending capacity. Pursuing some semblance of full employment through creating a much larger and much more productive middle class would take many decades. The ANC has created many jobs not to enhance the economy's productiveness but rather to solidify its electoral support. It is necessary to reduce this drag on the economy and that will eliminate many jobs.

If it can continue to accommodate its massive patronage network, the ANC is quite unlikely to be ousted in next year's national election. Alternatively, a coalition government would need to be exceptionally competent at restructuring the economy while maintaining law and order. Undoing thirty years of entrenched patronage is a tall order.

We should strive for far more effective governance at all levels while appreciating what is possible - with or without - a high level of electoral accountability. As youth unemployment is our most perilous challenge, and waiving minimum wage requirements is cost free, we should build on such thinking.


All of our many anti-competitive regulations, such as BEE requirements, should be waived for new export-focused initiatives. Importantly, this would not threaten the ANC’s patronage politics nor would it contribute to our fiscal deficit. What it would do is remove the most menacing impediments to our only path toward sharply reducing unemployment: increasing value-added exports.

The ANC should appreciate that it is in their interest to have a different regulatory mindset toward businesses that serve domestic versus foreign customers. They and their alignment partners should recognise how our unemployment crisis can trigger fiscal calamities alongside rampant social upheaval.

Leveraging SA’s surplus labour can lead to attractive returns for investors but not if the target market is South African consumers. Our lack of per capita income growth has too often been countered by overreliance on expensive consumer debt.

Our political elites talk of inclusive growth while still blaming hardships on apartheid. Yet SA’s peril-inducing unemployment levels trace to their policies blocking integration into global supply chains through adding value to exports. These “anti-inclusion” impediments have been amplified by out-of-date perceptions which ignore how global integration has become integral to job creation.

21st century inclusive growth

Providing special dispensations from anti-competitive regulations for all new export initiatives is the path with the greatest employment potential. And the costs would be negligible. This path is even consistent with the ANC’s penchant for Special Economic Zones. Yet the zone should be all of SA and the benefits should be available to all sizes of operations. That is SA’s path to 21st century inclusive growth.

It seems reasonable to believe that because we have such an over abundance of low-skilled would-be workers that we can’t employ that therefore they are not employable within global supply chains. This ignores how as the pace of change accelerates, the appeal of young hires compounds while many traditional ideas about employment lose relevance.

SA’s leading NGOs, such as the Centre for Development and Enterprise, the Institute for Race Relations and the Brenthurst Foundation have published articles advocating for much greater global integration through value-added exporting. This reflects the insights of, among others, Nobel laureate Michael Spence who headed a panel that investigated SA’s growth options just prior to the great financial crisis of 2008.

Those who see opportunities which our public and private sector leaders miss also include young South Africans, and others, who work online from here for overseas companies, many of which don’t employ capital in SA.