Does South Africa Have the Potential and Capacity to Grow at 7 Per Cent?: A Labour Market Perspective



and has consequently become relatively inflexible in adjusting to internal and external shocks to
the economy. South Africa is not alone in this situation, many nations have and still do
experience the same problems. Learning from this assortment of international experience, the
main factors influencing the capacity of an economy to adjust to the dynamic global environment
are interventionist actions by governments, aggressive trade union behaviour, minimum wage
arrangements, excessive social security provision, inefficient production and poor management
practices, inadequate labour skills and training of workers, inappropriate production technologies,
as well as poor productivity growth. In what follows, we propose a three-pronged, labour-
focussed approach to addressing each of these factors within the context of achieving growth,
employment and poverty reduction in South Africa.

Policies focusing on labour supply

The following areas need to become, or if already, should remain the focus of action for all
policy-makers:

1) Market-based land reform and rural development (including agriculture), given that a
large portion of the total population still lives in the rural areas and are largely dependent
on agriculture for survival.

2) A revision of immigration policy, addressing both the influx of illegal immigrants across
South Africa’s borders and the loss of high-level manpower due to the political and
economic instability. In addition, measures should be sought to encourage domestic
employment of overseas skilled labour.

3) Most importantly, the promotion and activation of investment in human capital to
develop skills and upgrade the quality of the labour force.

Policies focusing on labour demand

Due to well known limitations of domestic demand-driven growth in a small open economy such
as ours, the obvious alternative is a higher economic growth level spurred on by domestic
exports.



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