South Africa’s most devastating crisis is not the crippling collapse of state institutions or the relentless persistence of corruption. It is unemployment.

More than 12-million South Africans are jobless, making ours the deepest unemployment crisis in the world. Governments have focused on public employment programmes and youth initiatives that provide limited and temporary relief while being wholly inadequate in addressing the structural causes of mass joblessness.

This is a human tragedy affecting the future stability and prosperity of the nation. Unless bold reforms are implemented, South Africa will deepen the marginalisation of a vast underclass of permanently unemployed citizens.

The sheer size of the challenge is staggering. In 1994, about 3.7-million people were unemployed. Since then, that number has exploded to 12.6-million. Fewer than four in 10 working-age adults are employed. Upper middle-income countries like ours employ roughly 60% of their adult population.

Our informal sector is tiny and makes a limited contribution to employment. This is a consequence of apartheid-era policies, restrictive regulations and poorly designed laws. The result is that informal activities have been suffocated.

In an ideal world, the formal sector would make up the difference. But it has proved incapable of delivering enough jobs. Between 2008 and 2025, the labour force grew by 42%, while total employment rose by just 15%. That means nearly 1,000 South Africans joined the unemployment queue every single day for 17 years.

Some of the reasons for this are beyond government’s control. Most of the damage, however, has been self-inflicted.

The truth is that government policy holds back employment.

The collapse of Eskom and Transnet has crippled energy supply and logistics. Fiscal indiscipline has raised sovereign risk and reduced investment. Corruption has drained billions from growth-enhancing projects, while dysfunctional municipalities fail to deliver basic services. To compound matters, industrial and transformation policies have often deterred investment. These overlapping failures have reduced annual economic growth to less than 1%.

Faced with this bleak reality, the government has leaned heavily on public employment programmes such as the expanded public works programme (EPWP) and the presidential employment stimulus (PES). But these cannot substitute for real employment.

Most EPWP and PES jobs last less than three months, often paying below the national minimum wage. These projects are incapable of solving a crisis that affects more than 12-million people.

They have diverted attention from fundamental structural reform. The truth is that government policy holds back employment.

Labour market rules make employers reluctant to hire unskilled, inexperienced work-seekers, while minimum wages price tens of thousands out of jobs.

The skills pipeline is dysfunctional. Nearly three-quarters of South Africans without matric are unemployed. Technical and vocational education and training (TVET) colleges fail to prepare students for jobs, producing graduates employers often view as unemployable. Sector education and training authorities (Setas) are widely viewed as wasteful, corrupt and irrelevant.

Small businesses face an environment that is openly hostile. Over-regulation, high compliance costs and endless red tape squeeze entrepreneurs and reduce new business formation and growth. Informal trading is criminalised by licensing requirements and harassment by local authorities. Instead of enabling entrepreneurship and livelihood strategies, government agencies actively stifle it.

If South Africa is to confront unemployment, four urgent reforms are required:

• The first is to make the labour market more employment friendly. This means extending probation periods for new hires, halting the automatic extension of bargaining council agreements to non-signatories and rethinking restrictions on labour brokers.
• The second is to fix the skills system. TVET curricula must be aligned with the needs of business, with colleges incentivised to improve outcomes through performance-based funding. Setas should be scrapped.
• Third, South Africa needs a formal “SME test” for regulations to ensure regulatory compliance does not strangle smaller firms. Access to finance must be expanded by leveraging private sector funders and investors. Government’s billions of rands for small business funding should be channelled through existing private investment companies.
• The fourth reform would seek to enable the informal sector to thrive by eliminating costly licensing fees, reducing police harassment and investing in urban planning that makes it easier for traders to access markets. Densifying cities through streamlined building approvals and small-scale housing development would create vibrant local economies where informal enterprises could flourish. Experiments are needed. Why not try transport subsidies for traders? These might lower barriers to accessing customers.

What is needed is a new social contract that recognises growth and employment as the twin pillars of national stability.

• Ann Bernstein is director of the Centre for Development and Enterprise. This article is based on a new CDE report, ‘South Africa’s unemployment catastrophe: A call for urgent action’.