Achieving higher growth and employment Policy options for South Africa

Using a dynamic computable general equilibrium model, the paper provides some direction on the areas of policy reform that could generate strong growth, employment and poverty reduction in South Africa. The core requirements for more rapid and sustained growth are greater saving, investment, more productive use of capital by better skilled workers, reduction in the skill constraint and moderation in unit labour costs. Higher labour productivity growth will in its own right increase the labour intensity of the economy as a whole. We estimate that the combined impact of reducing transport and communication costs, reducing the skill constraint, and increasing foreign direct and domestic investment can increase potential growth to close to 8 per cent and create an additional 1.7 million jobs beyond the number that would be created without policy adjustments. The policy adjustments contemplated in this paper seek to enable greater diversification of production techniques and types of businesses thereby helping to achieve a full utilisation of labour across skills competencies.