Employment Creation Potential, Labor Skills Requirements, and Skill Gaps for Young People: A South African Case Study

South Africa has been in a long-run, low-growth trap since the onset of democratic rule in 1994, resulting in persistently high rates of unemployment and relatedly rising income inequality levels. In the absence of manufacturing sector growth, “industries without smokestacks,” (IWOSS) which share a number of characteristics with manufacturing, may have the potential to produce both the number and type of jobs required in the country. IWOSS sectors are tradable, have relatively high value added per worker, exhibit the capacity for technological change and productivity growth, and show some evidence of scale and/or agglomeration economies. These sectors also have the potential to absorb low- and medium-skilled labor—an important facet for countries like South Africa with a large number of unemployed who are predominantly low-skilled. The paper proceeds as follows. Section 2 provides an overview of the South African economy. Section 3 considers patterns of growth and structural transformation in South Africa. Section 4 considers the employment composition of IWOSS sectors in comparison to non-IWOSS sectors in South Africa. Section 5 provides a closer look at four specific IWOSS sectors, noting their potential for growth and employment through an understanding of the value chains of these sectors, as well as the constraints to growth in these sectors. Section 6 provides a high-level analysis of the employment potential of IWOSS sectors. Section 7 supplements the employment potential and skill gap analysis of Section 6 with the findings of interviews conducted with 18 firms across the four chosen IWOSS sectors. Section 8 discusses policy recommendations for enabling growth in IWOSS sectors. Section 9 concludes.