In 2015b). Major social, economic as well as political

In the assignment, a normative scenario analysis has
been used to identify how South Africa’s demographic window can be converted
into a demographic dividend. As the desired future outcome is clearly defined,
a normative approach has been chosen, looking backwards to see what needs to
happen in order to realize the desired future. Environmental Scanning has been
applied to identify driving forces in this process.

Scenarios depict simulations of a possible set of
futures, thereby revealing discontinuities from the present and outlaying
possible choices and potential consequences. The scenario must be plausible,
consistent and must be utile for decision-making. It can thus improve the
planning process and enrich strategic policy decisions to guide major
investments (European Foresight
Platform, 2010). Therefore, it is well suited to simulate a possible
future such as a conversion into a demographic dividend.

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1   
Introduction – South Africa´s Window of Opportunity

South Africa is currently experiencing a far reaching
demographic transition. The country’s working-age population increased
tremendously in the last years, as shown in Appendix B, and is forecasted to
further grow for another five decades (World Bank, 2015a, p.
31). The resulting demographic shift provides South Africa with a window of
opportunity, which can –if tapped properly- accelerate economic growth, reduce
poverty and raise living standards. (Drummond, Thakoor,
& Yu, 2014, p. 4). This effect is known as the first demographic
dividend, which the World Bank (2015) defines as the state when “the growth in
the working-age population exceeds the growth rate of the overall population
.. leading to a higher number of working-age people that can be employed
productively” (World Bank, 2015a, p.
31). Even though the demographic dividend does not materialize
automatically, it has the potential to achieve higher income levels as well as
a faster economic growth. As a consequence savings can increase to fund further
investments into infrastructure or human capital, boosting per capita income
and thereby creating the second demographic dividend (World Bank, 2015a, p.
31).

 According to
the World Bank, South Africa entered the demographic window of opportunity in
2015, which is projected to remain open for another 50 years (World Bank, 2015b). Major social, economic as well as political challenges
are however hampering the country’s ability to tap into this opportunity. South
Africa is for example already struggling with high unemployment at a current
rate of 27.7%, the expanded unemployment rate scores even 36.6% (Statistics South
Africa, 2017a, p. 7). Job creation in the past 15 years focused mainly on
the service sector, but missed out on important sectors such as mining, agriculture
or manufacturing. Thus, the growing labour supply could not be matched and only
one third of the new entrants to the working-age population found a job since
2000. Especially those with low education attainment (below secondary level)
amount for a huge stake in the unemployed population (World Bank, 2015a, p.
30f.). This includes particularly the youth as almost half of the population
is under 25, showing an unemployed rate of 50%, as they are ill equipped for
the demands of the existing labour market (World Bank, 2015a, p.
47). Savings decreased heavily as a result of the growing, but mostly
unemployed working-age population and increasing dependencies. There is further
high poverty and inequality remains extreme with a latest GINI coefficient of 0.65
(World Bank, 2017). Furthermore, GDP growth has continuously decelerated
leading to a stagnating GDP per capita, as shown in Appendix C (OECD, 2017, p. 14). These are only to name a few challenges South Africa
is currently facing. If the country is able to take advantage of the present
window of opportunity a growth rate of 5.4 percent would allow the per capita
income to double and extreme poverty could virtually be eliminated by 2030
according to the most recent South Africa Economic Update (World Bank, 2015a, p.
47).

2   
Shaping the Demographic Dividend – A normative Scenario
Analysis

2.1          
Driving Forces

Several socio-economic conditions can support and
drive the conversion towards a demographic dividend. The opportunity to boost
economic growth depends, amongst others, heavily on the labour market and South
Africa´s ability to put the working-age population in productive employment.
Education and training is thereby essential to address issues raised by the
labour market and to supply the market with appropriately skilled workers.
Also, good health care is critical in order to remain a healthy workforce and
education on family planning is important to create a sustainable demographic
dividend. Further, economic policies that promote long-term growth and
development need to be in place in order to make room for the growing
workforce. With a stable macroeconomic environment, a basis for savings and
investments is provided that can further drive economic growth. However, it
therefore also needs good governance across all levels of the public and
private sector (Statistics South
Africa, 2017b, p. 13ff.). The driving forces have been compiled in a causal
loop diagram (see Appendix D) and identified factors have been clustered based
on the aforementioned categories and are depicted in Table 1. 1

Driving Force

Explanation

Labour market

Labour supply

Create jobs in order to absorb people productively and decrease
dependencies

Labour demand

Create skilled workforce to meet labour market demand

Eradicate market inefficiencies

E.g. by fostering labour mobility (occupational/geographical),
increasing incentives to take/find work, take action against discrimination
by or monopsony of employers

Promote equality

Different genders and races must have equal opportunities in the
workplace and society in general

Economic growth

Avoid excessive fiscal deficits

Avoid unsustainable debt financing, possibly leading to high interest
payments, government default and crowding-out of private investment

Avoid high inflation

Creating stability to promote confidence and security, encouraging
investment

Openness to international trade

Provide access to goods and services, efficiency in resource
allocation, promotion of exports, etc.

Investment in economic infrastructure

Create reliable and affordable transportation, communication, power,
water and ICT infrastructure

Governance

Build strong institutions

Create an enabling environment for growth through stable legal and
administrative organisations

Attract domestic & foreign investments

Source of technology, know-how, financing, etc. 

Strong legal systems & property rights

Create an enabling environment for people willing to invest

Reduce corruption & abuse of power

Enhance fiscal performance by lowering transaction costs and rent
seeking, and increasing efficiency

Education & Training

Provide affordable high quality education

Reduce unemployment by universal education to provide workforce with
skill profile necessary for the market

Provide affordable student loans

Encourage economically disadvantaged population to engage in (higher)
education

Apprenticeship and internship

Reduce especially youth unemployment

Health care & Family Planning

Affordable health care

Provide insurance coverage to maintain healthy workforce and increase
life expectancy

Health education & family planning

Provide information to strengthen declining
fertility in order to achieve sustainable demographic dividend by lower
dependencies and increased investment opportunities

Table 1: Driving forces to create a
demographic dividend

 

 

 

2.2          
Key certainties & Key
uncertainties

Key certainties:

–      
South Africa´s
demographic window of opportunity is currently opened

–      
Globalization is driving
competition and the knowledge based economy, leading to a higher demand of a
skilled workforce in order to remain competitive

Key uncertainties:

–      
Will the workforce be
appropriately skilled to match the demands of the labour market or have enough entrepreneurial
proficiency to be self-employed?

–      
Can South Africa´s economy
create enough jobs to absorb new entrants into the workforce cohort?

–      
Will South Africa be political
and socially stable enough to foster investments, economic growth and thus job creation?

–      
Will the country introduce
valuable economic policies?

–      
Will South Africa be able to
cope with its enormous inequalities?

–      
Will corruption be combated
successfully?

2.3          
Scenario quadrant and narratives

Based on the driving forces and key uncertainties, job creation and the
provision of quality education have been identified as absolutely crucial drivers
to promote a demographic dividend. This results in four possible future
scenarios, depicted in Figure 1.

 

Figure 1: Scenario Quadrant

 

If jobs will be created, but general education remains poor, South
Africa will end up with even higher inequality, as the unskilled workforce won´t
be able to find productive employment and only the privileged population will
be able to afford quality education. If there is poor education among the
workforce and jobs are cut, a demographic catastrophe awaits the country.
Characterized by extremely high unemployment and inequality, this scenario will
cause social instability and increase the crime rate. With job cuts but a well-educated
workforce, the scenario of demographic hope can foster entrepreneurship and
drive South Africa towards a knowledge economy with the potential to promote
economic growth. However, due to lacking job availabilities it can be expected
that many skilled workers will leave the country to find employment elsewhere.
The full potential of the demographic dividend can only be achieved with
quality education and job creation. Thus, jobs are available for the skilled and
growing workforce, absorbing it into productive employment. This ultimately
drives economic growth and can lead to the second demographic dividend. Savings
and thereby investments increase, the economic infrastructure will be
developed, South Africa´s is becoming a knowledge economy with improved
technology and skilled technology users. That way, the country is becoming
increasingly competitive on a global scale, being able to decrease domestic
poverty and inequality remarkably.

1 Please note that there can be categorical overlaps for certain factors
that are not depicted. The figure is therefore not intended to be exhaustive.

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