Skilled Workers shortage hinders economic growth and investor confidence in South Africa

In South Africa, a crippling scarcity of skilled workers is throttling economic growth, driving potential foreign investors away. The nation’s critical skills visa system, hindered by lengthy processing times and high rejection rates, is exacerbating the problem. With key sectors such as engineering and IT bearing the brunt, companies face delays and uncertainties in their expansion plans. Amid political infighting and bureaucratic inefficiencies, the economy staggers, grappling with power outages and a lack of foreign investment.

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South Africa Risks Losing Business Investment Over Visa ‘Chaos’

By Antony Sguazzin

In one of the world’s most unequal nations an acute shortage of skilled workers is restraining already tepid growth, limiting job creation and pushing some foreign investors to think about moving their money elsewhere. This skills shortage has been identified by the South African presidency as the second biggest impediment to economic growth, after crippling power outages. Yet the government department that could resolve the problem, home affairs, has been accused of exacerbating it by failing to deal with a visa system that appears to be causing self-inflicted damage on the economy.

Skilled worker shortages are most acute in areas such as engineering, science, information technology and management-level personnel, according to a government report that called for urgent reform to the visa system. One business organization, which includes car companies Volkswagen AG and BMW AG has warned that delays in the process — it can take 48 weeks to have a visa application accepted — threaten expansion plans, investment and jobs in South Africa where unemployment is running at 33%.

Schools, universities and small enterprises also complain that the Department of Home Affairs appears unable to efficiently process work and residence permits and that it is hampering their operations. Some have been left short of staff, others have delayed or reconsidered investment plans with several African countries now considered as alternative sites for regional headquarters.

“We are experiencing these kind of issues,” said Klaus Eckstein, senior representative for Bayer AG, the German multinational pharmaceuticals group, in the region. It runs manufacturing plants and research and development facilities in South Africa. “We are looking to expand. This is not helping anyone. It’s not helping South Africa. It’s not helping the business,” he added.

South Africa’s economy is already being held back by inadequate power supply, a dysfunctional rail and port network that’s limiting exports and a dearth of foreign investment, partially caused by the inability of companies to source the skills they need to expand. Those factors are expected to limit growth this year to just 0.9%, according to the International Monetary Fund.

Worker shortages have been a global problem since the coronavirus pandemic, but the issue has dogged South Africa for more than a decade. A team set up by Cyril Ramaphosa, South Africa’s president, found that between 2014 and 2021 a total of just 25,298 work permit visas — an average of 3,162 per year — were approved in a nation of 60 million people. The shortages have been exacerbated by high levels of emigration by skilled South African workers.

BMW’s Rosslyn plant in Midrand, South Africa. A business organization that represents the auto company has warned that delays in the visa process threaten expansion plans in the country. Photographer: Waldo Swiegers/Bloomberg

More than half of all visa applications between 2014 and 2021 were rejected, some due to errors made by applicants and officials in the home affairs department. Annual applications for critical skills visas have more than halved from almost 7,000 in 2017 to 3,077 in 2021. The number of applications for business and general work visas have also slumped.

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The Ramaphosa group recommended a raft of changes including a points system and a trusted employer program so that bigger companies would face less scrutiny. Its report estimated that for every skilled employee brought into the country more than one other job is created and even a 1% increase in imported skilled workers would boost gross domestic product by 1.2%.

In October the Department of Home Affairs took a step toward implementing the recommendations by asking companies that want to secure work permits for senior executives and technicians to take part in a pilot of a trusted employer program, that would prioritize their applications. If implemented fully, the changes could streamline the process. But progress has been slowed by political infighting in the Ramaphosa government and a crumbling civil service. Family residence permits are often not approved at the same time as work permits, the department is understaffed and its computers download documents at one sixtieth the speed of those used in most banks. Many documents are lost, invalidating applications.

Anglo American Plc — owner of South Africa’s biggest platinum, diamond and iron ore companies — has called on the government to resolve the visa problems “with urgency” and said the delays have disrupted project schedules.

Aaron Motsoaledi, South Africa’s home affairs minister, told a parliamentary committee in September that his department was understaffed and the visa regime was overly complicated. He denied that there is a work permit backlog for critical skills applications, but said 74,000 people were waiting for residence permits of some kind.

A similar work visa process in Kenya takes a maximum of 12 weeks, while in Nigeria it is just eight, the Ramaphosa report said. Until recently applicants for a critical skills visa would need to meet 22 separate requirements from checks on the quality of their degree to X-ray proof that they didn’t have tuberculosis, the latter is among the restrictions that have recently been scrapped.

It is not just the number of requirements that is baffling companies. There is a “total lack of consistency in the handling of the applications: one person might get his or her visa in the foreign mission in 10 days, others will have to wait for over a year,” said the European Union Chamber of Commerce and Industry of Southern Africa. “In one family, the application of the spouse is accepted, but the main applicant does not get his or her visa, with no reason given.”

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The EU is South Africa’s second-biggest trading partner after China and is the largest investor, accounting for 51% of all foreign direct investment stock in 2021, or 1.41 trillion rand ($74 billion). Over 1,000 European companies operate in the country, directly employing more than 350,000 people, according to the EU Chamber. The US, another key partner with over $20 billion in two-way annual trade, also has a number of major companies including Ford Motor Co. operating in the country.

“It’s really a huge, huge crisis. And a lot of that is as a consequence of a bureaucracy that just takes forever until applicants give up or go somewhere else,” said Mavuso Msimang, a former director general of the Department of Home Affairs who left in 2010 and led the presidency’s study into the failings of the work permit process. “But it’s also a consequence of some level of hostility toward people coming from outside.”

‘We want your money, we don’t want you’

It’s not just production lines that are affected. Education has also been hit. In September, Mark Smith, the head of the business school at the prestigious Stellenbosch University quit after failing to secure the right for his family to live with him in South Africa. The Deutsche Internationale Schule Pretoria is struggling to recruit German staff so that students can be taught the subjects they need to sit the Abitur, the German high school qualification.

The country doesn’t have complete labor market data so it is unclear just how many skilled workers it needs, and how many it lacks, says Sanelisiwe Jantjies, social policy and transformation coordinator at Business Unity South Africa, the country’s largest business group. But her organization estimates that it runs to tens, if not hundreds, of thousands with a shortage of 55,000 nurses alone.

“What is encouraging is the acknowledgement” of the problem and the recommendations laid out in the Ramaphosa report, she said, before adding that she is wary of delays. “If this is not done we are looking at a situation that is going to get worse and worse to the point of catastrophe.”

In an echo of Msimang’s comments, critics of the existing system argue that the delays are the result of a general hostility to overseas workers and foreign business, born out of a perception — encouraged by some populist politicians — that jobs and opportunities are being denied to South Africans. In reality, they say, the public education system is not producing enough qualified South Africans to meet the needs of business. The Department of Home Affairs didn’t respond to detailed questions sent by Bloomberg.

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Some overseas investors have had enough. Alexander and Tatjana, a married couple who asked that their surnames not be published for fear of retaliation by the authorities, have run a bathroom supplies business in Johannesburg and Cape Town for almost three decades since emigrating from Germany. In 2020, officials from the trade department visited the business to check that it was a genuine operation, the couple said, even though it had a two-decade trading record, had been subject to multiple permitting processes and employed 14 people.

They were told their business permit would not be renewed after another three years as there were already too many foreigners in the market. They have subsequently sold the company. The Department of Trade, Industry and Competition didn’t respond to emailed questions about the case.

The government is saying “We want your money, we don’t want you,” Alexander said. “Then you hear from the president, South Africa is open for business. It’s just phrases.”

The dysfunction at the home affairs department is blamed on the nine-year rule of former President Jacob Zuma, which ended in 2018. The government has said that during his presidency at least 500 billion rand was stolen from state coffers, competent officials left public service and corruption flourished. Zuma has previously denied the allegations of theft.

With one in three South Africans out of work, and an estimated 2.4 million largely unskilled undocumented migrants from neighboring countries such as Zimbabwe and Mozambique living in the country according to a 2022 census, the continent’s most industrialized economy has witnessed regular xenophobic clashes and riots.

The Congress of South African Trade Unions, the country’s biggest labor federation, is skeptical about the need to import skilled workers and instead wants more money spent on training South Africans.

“We have been a little bit concerned that business has gone for the short cut route rather than finding out if there is someone in South Africa that can do the job,” said Matthew Parks, Cosatu’s acting national spokesman. He does accept, however, that the system needs reform. “We need to find a bit of a balance. We appreciate business’s frustration about home affairs and the chaos there.”

Some South African politicians have over the past few decades created “a mindset that inward migration is a threat,” said Jakkie Cilliers, the founder and former executive director of the Institute for Security Studies, a Pretoria-based think tank. While some of the country’s leaders are now trying to change that “you’ve got the presidency, home affairs and labor in direct opposition to one another,” he added.

However, the presidency’s push for change may eventually yield results, according to Cilliers.

“I do think the penny will drop,” Cilliers said. “We try everything and then we will eventually do the right thing after having inflicted as much damage as possible.”