Service-led growth in the context of de-industrialization: opportunities for structural transformation and job creation in South Africa

South Africa’s persistent unemployment crisis, with the unemployment rate reaching 32.0 percent in 2024, has intensified debates about viable pathways for structural transformation, following the sustained decline of the manufacturing sector. This paper investigates whether services-led growth can replace the role of manufacturing and identifies which services subsectors hold the greatest potential for productivity enhancement and employment creation. Employing a multi-criteria framework adopted from Whitehead et al. (2025) and Nayyar, Hallward-Driemeier & Davies (2021), the study analyses formal employment and labour productivity trends across ten services subsectors between 2010 and 2024. In addition, we apply the McMillan-Rodrik (2011) labour productivity decomposition and provide sector-level assessments across the dimensions of productivity, tradability, skills inclusivity and agglomeration potential. The results reveal a bifurcated services economy in which modern, skills-intensive subsectors are expanding, while traditional labour-absorbing services have either stagnated or experienced a decline in productivity. While four services subsectors – transport services, information and communications (ICT), financial services and professional and business services – are identified as offering the greatest potential for growth and job creation, none are sufficient individually to resolve South Africa’s structural unemployment challenge. This paper contributes to the emerging literature on services-led development in middle-income countries by demonstrating that the potential of services subsectors are realized not through focusing on any individual sector but through enabling growth throughout the broader economy. The study concludes that accelerating cross-cutting institutional and infrastructure reforms, alongside targeted sectoral masterplans, are essential for translating services expansion into inclusive and sustainable employment gains.