Unemployed men sit waiting for workThe present economic stagnation may partly be a result of a lack of diversification, which limits employment opportunities and overall workforce employability. (Delwyn Verasamy/M&G)
South Africa’s economy is facing significant problems, including rising unemployment, deepening economic inequality and energy security concerns. Despite these difficulties, the country still has considerable economic potential. Many view the current economic downturn as a low point, with hopes it will serve as a turning point toward building a more inclusive and resilient economy over the next few years. To achieve this, the focus should shift from short-term, large-scale projects to more strategic, long-term solutions that address immediate needs while remaining adaptable over the next 20 to 30 years.
A critical step in revitalising the economy is to address the root causes of rising unemployment. A significant issue is the mismatch between the skills being produced and job market needs. This disconnect suggests a lack of effective collaboration among key government departments. To rectify this, the departments of education (both basic and tertiary) must engage continuously with the department of trade, industry, and competition (for example). This collaboration should aim to align educational curricula with present and future job market requirements. Additionally, curricula should be designed to facilitate easy reskilling and adapting to changing employment environments. Ensuring that the talent pool is closely aligned with available job opportunities will foster a sustainable and dynamic workforce.
Attracting investment is crucial for long-term economic growth. Expanding economic infrastructure, supporting entrepreneurship, and boosting trade require substantial capital investments. But with a significant portion of the population facing financial pressures, raising this capital domestically is challenging. High-net-worth individuals and organisations are also discouraged from investing locally due to poor returns and higher risks, including a depreciating domestic currency.
To bridge this gap, South Africa must enhance its efforts to attract foreign investment. The government has made progress with policies and incentives that have successfully drawn foreign capital. For instance, the establishment of special economic zones has attracted significant investment through tax breaks, reduced tariffs and streamlined regulatory processes. Similarly, the Renewable Energy Independent Power Producer Procurement Programme has successfully secured billions in investment by providing guaranteed power purchase agreements and competitive tariff structures. Despite these successes, global competition for investment is intensifying. Therefore, South Africa must engage more deeply with current and potential investors to refine policies and incentives, thus increasing investment stock, driving growth in key economic sectors, and fostering sustainable development.
Entrepreneurship should be revisited with a focus on home-based income generation. Exploring how each South African household can create supplementary income streams beyond traditional employment is essential. This approach can develop monetisable skills among all household members, even if these skills are acquired informally. For example, community-driven initiatives such as backyard poultry farming, or horticulture could serve as a starting point. Households could produce goods on a small scale, which can then be aggregated and supplied to large distributors or retailers for final sale.
An example of a successful model is Kenya’s “Urban Agriculture Initiative”, where small-scale farmers grow vegetables and poultry in urban areas, collectively supplying local markets and improving household incomes. Encouraging similar practices across South Africa could create inclusive economic opportunities and mitigate the risks associated with increasing unemployment. This approach would provide a safety net for families in cases of job loss, supporting them while they seek new employment. In conclusion, community engagement programmes should be implemented to identify and nurture skills that can be developed at home, scaled at the community level, and eventually expanded provincially and nationally.
Supporting small business development is another critical aspect that needs to be prioritised. But it is essential that small businesses address economic needs and not limit their businesses to offering expertise such as outsourcing services to government departments and larger corporations that can be effectively insourced when economic pressures mount for these organisations.
One promising area is renewable energy enterprises. For instance, South Africa could support developing small- and medium-sized solar energy businesses that supply clean energy to energy-intensive industries or those targeting export markets like Europe and the US. By 2030, both Europe and the US are committed to sourcing products with low- to zero-carbon footprints, creating a pressing need for trading partners like South Africa to comply with these standards. As a result, supporting the growth of solar energy companies could provide solutions that could benefit clients at an individual, community, and municipal level. For example, a solar energy company could partner with local communities to install solar panels on residential rooftops. Participating households will rent out their roof space for the installation of anywhere between six to 10 solar panels. The households would then enter into rental agreements with the solar company, where they consume electricity generated by a portion of these panels, with the remainder being fed back into the national grid. The solar company would, therefore, be a part of the solution to South Africa’s energy crisis, supplying clean energy to the community and the municipality purchasing the surplus.
Finally, diversifying South Africa’s economy is essential. The present economic stagnation may partly be a result of a lack of diversification, which limits employment opportunities and overall workforce employability. To address this, periodic value chain analysis should be conducted to identify and develop downstream sectors. For example, investing in local agro-processing can create numerous downstream jobs in processing, packaging, and distribution. Additionally and based on some of its successes in the fintech and smart tech space, South Africa could focus on developing a more robust technology sector through further supporting startups and incubators within the artificial intelligence, fintech, and biotechnology industries.
James Maposa is the managing director of Birguid.