JOHANNESBURG – Business and government need to make the country more employment ready through a dramatic expansion of vocational training, according to a new report from McKinsey & Company released on Tuesday, which finds that a focus on five areas of the economy could add R1 trillion to annual GDP by 2030 and create 3.4 million jobs.
A collaboration between the McKinsey Global Institute and McKinsey South Africa, the country-level report – South Africa’s Big Five: Bold priorities for inclusive growth – is based on detailed microeconomic analysis of the growth potential of different sectors, as well as interviews with government, business and academia.
Rather than focusing on South Africa’s challenges and how to tackle them, the report zones in on the country’s opportunities and how to capitalise on them, according to Christine Wu, a partner at McKinsey South Africa.
“By taking an opportunities-driven view, you come across nuggets in the South African economy,” Wu told journalists at McKinsey’s Johannesburg office on the eve of the report’s release.
These “nuggets” are five areas where the country already has strong capability but could be doing even better, namely, advanced manufacturing; infrastructure productivity; natural gas; service exports; and agricultural production.
In each of these five areas the report explores both the vast potential for job creation and GDP growth, persistently emphasising the need for a “true development partnership between government and business” and expanded vocational training as critical enablers.
Minding the energy gap with gas
When it comes to infrastructure productivity, McKinsey estimates that R1.4 trillion could be saved through more optimised infrastructure spend, while productivity gains could create up to 660 000 new jobs by 2030.
To meet South Africa’s next energy gap – which will manifest as soon as 2025, according to the report – the country could, with regulatory certainty, install up to 20GW of gas-fired power plants by 2030 through both imports and local shale gas resources (if proven).
The report lists financial services, the construction sector and business services as representing the three largest opportunities for service exports to the region. Angola, Nigeria, Mozambique and Ghana are the largest markets identified by McKinsey for imported services.
McKinsey estimates that South Africa has only a 2% share of sub-Saharan Africa’s service imports, significantly lower than Brazil’s 26% share and the UK and Japan’s respective 19% and 8% stakes.
“This represents a major opportunity for growth, given that the market for imported services in sub-Saharan Africa (excluding South Africa) was worth R439 billion in 2012 and has been growing by 6% a year since 2009,” McKinsey notes, referring to data from the UN Service Trade database.
While a focus on these five areas may yield significant economic benefit and create 3.4 million jobs, McKinsey estimates that entry-level matriculants will fill only 22% of the jobs created.
Nearly 50% will require vocational training.
“Only agriculture will create substantial levels of jobs for the elementary occupations. Construction, manufacturing, energy and natural gas, and services will require significant numbers of skilled artisans and employees competent in a vocation,” notes McKinsey.
Alongside boosting the quality of the traditional educational system and improving the soft skills of South Africa’s youth to make them more employable, McKinsey calls on business to create more apprenticeships for youth and participate in designing curricula.
In Germany, which has one of the lowest rates of youth unemployment in Europe, learners complete compulsory education at the age of 15 and then have the option to enter vocational training – one that close to 60% of young people choose. About a quarter of German companies (around 20 000) provide vocational training, something that is sorely missing in a country with a youth unemployment rate of 52%.
“Economic growth and employment growth must go hand in hand. Unless South Africa can create the workforce to fill the jobs it creates, manufacturing and services companies will struggle to grow their businesses and may leave new opportunities on the table as a result…. Growth and skills development will need to move in tandem to break this cycle,” says McKinsey.