South Africa can boost hiring by temporarily extending tax incentives, suspending rules that increase labor costs and introducing measures to support entrepreneurship and self-employment, according to the World Bank.

While other reforms, including tackling electricity supply constraints, remain essential, time-bound emergency measures to support the poorest workers and create jobs are needed as the economy shrinks. is recovering from the devastation caused by the coronavirus pandemic, the Washington-based lender said in its South Africa Economic Update on Monday.

The economy contracted the most in a century last year and lost 1.4 million jobs as restrictions to curb the spread of Covid-19 weighed on production and forced some companies to cut back wages, reduce staff or close permanently. “To put this in perspective, it took six years for the country to add 1.4 million jobs to its pre-pandemic economy,” the World Bank said.

South Africa’s unemployment rate hit a record 32.6% in the first quarter of 2021, the third highest out of 82 countries. The rate remained above 20% for at least two decades, even though the economy grew by 5% or more per year in the early 2000s.

Analysts blame the problem on an education system that does not give students the right skills to find jobs and strict labor laws that make hiring and firing expensive. Racial disparities that date back to the days of white minority rule and which also left many black South Africans living in what are known as townships on the outskirts of cities and made it difficult for them to access and maintaining formal employment.

Labor regulations

The World Bank has suggested that the government strengthen employment tax incentives and temporary reliefs for industries affected by stop-start lockdowns until a significant number of companies become operational again. Both measures are expected to be time-bound and could support 2.3 million jobs at a cost of R18 billion / year, he said.

President Cyril Ramaphosa said on Sunday that the Unemployment Insurance Fund will give temporary help to workers who have lost their earnings due to the ongoing restrictions, without giving details. He extended the ban on the sale of alcohol and several other restrictions for two weeks as the government struggles to bring a third wave of coronavirus infections under control.

The government, unions and business groups could consider negotiating a temporary suspension of regulations that increase labor costs and hamper hiring, the World Bank said. The moratorium, which is expected to last 12 to 18 months and linked to the pandemic and its economic fallout, should benefit vulnerable people, who have borne the brunt of the layoffs, he said.

The World Bank has also suggested that South Africa relax rules that hamper entrepreneurship, self-employment, and micro and small businesses, step up training programs for entrepreneurs, and provide start-up grants. The country could potentially cut its unemployment rate in half if it increased self-employment, which currently accounts for 10% of total employment, to the average of 30% seen in upper-middle-income countries, he said. declared.

“There is a risk that the recovery will leave behind most of the potential economically active population, especially young job seekers, which would mean that the pandemic would permanently damage the country’s long-term development prospects.” , said the World Bank. “If South Africa did not use the crisis as an inflection point, it would risk suffering another lost decade.”

South Africa’s annual economic growth rate averaged 1.7% between 2010 and 2019, after increasing on average 4% per year from 1999 to 2008, the bank said. GDP per capita has contracted since 2015 and real income per capita has almost returned to levels last seen in 2005, he said.

The World Bank has raised its forecast for South Africa’s GDP growth for 2021 to 4% from 3.5%, with the country benefiting from a recovery in global production, particularly in China and the United States, two of its main trading partners, and favorable raw material prices.

Structural reforms aimed at boosting private sector investment and creating jobs are needed to unlock growth, boost competitiveness, support public finances and improve social and economic outcomes, he said. – Reported by Prinesha Naidoo, (c) 2021 Bloomberg LP