Any poverty reduction strategy must include measures that ensure people are employed. Spending on public goods and focusing on rendering basic life-sustaining services such as healthcare and sufficient nutrition are absolutely essential. Beyond the basics, however, long-term development strategies must target employment to drive economic growth and contribute to a prosperous environment.

South Africa represents an interesting case study of the labor market in the developing world. It has the potential for a large amount of growth, yet is plagued by persistent unemployment. It is neither among the poorest developing nations, nor has it experienced robust growth. Across the spectrum of development, it is somewhere in the middle, and therefore the challenges it faces are broadly representative of much of the developing world’s challenges.

A 2015 World Bank report on the state of the labor market in developing countries provides an enlightening description of South Africa’s predicament. The report describes a “youth bulge,” where a young population saturates the labor market, dampening wage growth. The antidote to this economic affliction is investment in skills development and policy reforms which enhance market entry and private sector expansion.

South Africa, after the end of apartheid in 1994, managed to reduce absolute poverty via a social grant system. However, the grant system simply doesn’t measure up to the average salaries of even low-skill labor. Unemployment and inequality are still quite high in the country, so innovative economic solutions are necessary to create the kind of long-term growth which will help those remaining at the bottom of the economic ladder.

In South Africa, and sub-Saharan Africa in general, as many as 11 million young people will join the labor force every year, and will continue to do so for at least the next decade. With sufficient opportunities, this increase in labor supply could translate to a lot of economic growth. However, unemployment is rampant in South Africa, and long-term strategies for growth and poverty reduction must focus on harnessing the burgeoning young workforce to be effective.

One way of doing so is by investing in worker education and training. Presently, the availability of skilled labor is quite low. Unemployment remains high even among a growing college-educated workforce. A combination of private-sector worker training and public-sector skills development and educational subsidies could drive the expansion of a diverse, skilled workforce. This would encourage multinational firms to hire locally, as well as promote home-grown business growth.

Some private firms already recognize the need for greater investment in a skilled workforce. The Rockefeller Foundation’s Digital Jobs Africa initiative aims to create tech-based employment opportunities for African labor markets. The MasterCard Foundation also has an education and skills training program for disadvantaged African youth.

One South African company that provides a sustainable growth model that suits South Africa’s labor market conditions is Sibanye Gold. Sibanye Gold is a mining company which provides significant worker training and educational resources to its employees. The company also engages in profit sharing. The mining industry is naturally supportive of a localized labor force, for much of their workers come from areas surrounding mines. Unfortunately, socially sustainable companies like Sibanye are hamstrung by a hostile policy environment that does not support them, or worse, buries them in bureaucracy. Sibanye CEO Neal Froneman said, “[Industries such as mining] should be nurtured by the government. But it is not. It is despised.”

Clearly, private interventions alone will never create the kind of opportunities for which a growing, skilled labor force can take advantage. Real change needs to happen at a governmental level, specifically by creating public policies that diversify economic opportunity and create the kind of conditions where companies like Sibanye Gold can thrive. Doing so will harness the economic energies of a massive young workforce, providing a pathway to grow out of poverty.

– Derek Marion

Sources: World Bank, Devex, The Conversation, Daily Maverick
Photo: Brookings