Upcoming Elections Spotlight South Africa’s Worsening Economic Crisis

South Africa’s upcoming municipal elections on August 3 have brought the country’s economic crisis to the forefront of public discussion. The ruling African National Congress (ANC) party will be striving to maintain its political foothold against the Democratic Alliance and the Economic Freedom Fighters (EFF) party as the country continues to deal with a protracted economic crisis and poor domestic service delivery. Over twenty years since the end of apartheid, South Africa is in deep economic and political trouble, according to Ann Bernstein, CEO of the Center for Development and Enterprise (CDE)—an independent research organization based in Johannesburg.

South Africa’s jobs data sets it apart as a global outlier: with just forty-two percent of the population employed, South Africa lags twenty percent below global national employment. The country’s staggering unemployment is coupled with a poverty rate between thirty-five and fifty-five percent—depending on differing methods of calculation. The fact that the richest ten percent of people in the country are fifty-five times more prosperous than the poorest ten percent illustrates the country’s inequality. In early July, the International Monetary Fund (IMF) cut its growth forecast for South Africa to 0.1 percent, the lowest since its 2009 recession.

Ahead of South Africa’s municipal elections, the Atlantic Council’s Africa Center hosted a roundtable discussion on July 26 in Washington to engage with Bernstein and her proposed policy solutions to mend the country’s economic crisis—captured in the CDE’s seven-part report series, “The Growth Agenda.” Bernstein asserted that South Africa needs “accelerated growth that is urban-led, private sector-driven, enabled by a smart state, and targeted at mass employment” in order to reverse its current trajectory. Bernstein unpacked five key policy priorities that she believes have the potential to transform South Africa’s economic path:

Rapid inclusive job growth

Rapid inclusive job growth should be at the center of policy solutions, according to Bernstein, who noted with concern the lack of prominence that job growth has received on the political agenda. The government needs to “focus on creating jobs for the work force we actually have” said Bernstein—observing that much of South African job growth has focused on establishing a high-wage high-skill job market, which does not yet exist in the country.

An effective growth and employment strategy must account for South Africa’s poor education system and vocational training deficit. Although low skilled labor-intensive growth may not be politically desirable, Bernstein argued that the majority of unemployed people would prefer to receive a low, but steady, wage rather than to remain out of the workforce indefinitely.

Simplified Regulatory Environment

Bernstein contended that current labor regulations in South Africa prevent the country from being internationally competitive. Trade unions in South Africa have considerable power and often demand unrealistically high wage rates for low-skill jobs. Although there is much to be said for the creation of “decent work,” a term defined by the International Labor Organization (ILO), even public sector jobs in South Africa often fail to meet these standards with their compensation schemes.

Bernstein suggested that the government and unions should acknowledge that a “low wage is better than no wage at all.”


Private sector-led growth

It is not possible for South Africa to concurrently espouse anti-business rhetoric and call for the private sector-led growth that is the key to job creation. Bernstein spoke of the government’s “deeply held suspicion that the pursuit of profit must always lead to adverse social and developmental consequences, and that firms [are often viewed] as stubborn obstacles to transformation.”

The government has routinely sent mixed messages to local businesses and international investors through an opaque regulatory system with transient goal posts. Black Economic Empowerment, the national affirmative action policy, has failed to deliver to majority of previously disadvantaged citizens in the country. Instead, the policy has led to furthering elites who are entrenched within the current government.

Education and vocational-training

To overcome inequality in South Africa, the government must adapt its education and skills training strategy to direct the country on a sustainable path out of poverty, said Bernstein.

Since its democratic transition, South Africa has seen a dramatic increase in access to education but this has not been mirrored by improved quality—perpetuating the large number of unskilled workers who are unemployed.

“Education reform takes time,” argued Bernstein. In the interim, it is vital that the country capitalize on the creation of jobs for low skilled workers, while simultaneously working to improve the education system, she added.

Urban refocusing

South Africa has experienced rapid urbanization, with approximately 62 percent of the population dwelling in urban areas in 2011. South Africa’s urban economies consistently outperform those in the rural areas, but policymakers have failed to capitalize on the opportunities presented by cities as centers of urban growth. Bernstein argued that “if the South African economy is to grow more quickly and if it is to do so in a way that creates mass employment, this can only happen in our cities.”

ANC faces strong opposition

The ANC’s continued lack of policy coherence for inclusive growth and job creation has led to disillusionment among some of the party’s most loyal supporters. The EFF—formed in 2014—will compete in municipal elections for the first time. The EFF’s rising popularity—combined with the increased traction of the ANC’s chief opposition party, the Democratic Alliance—poses a serious threat to the ANC’s former voter strongholds in major municipalities, including Tshwane and Nelson Mandela Bay.

Bernstein concluded by speculating on how major losses for the ANC in this election could precipitate substantial “reverberations” that have the potential to alter the policy direction of South Africa. However, with poor polling data, it is difficult to predict how significant this swing could be. 

Chloë McGrath is a visiting fellow at the Atlantic Council’s Africa Center. You can follow her on Twitter @malawicoffee.

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Image: Ann Bernstein, CEO of the Center for Development and Enterprise (CDE) an independent research organization based in Johannesburg, South Africa, gave remarks at the Atlantic Council on July 26 in Washington on the upcoming municipal elections in South Africa and the country’s worsening economic crisis. (Atlantic Council/Julian Wyss)