This article investigates the contribution skills development can make in promoting South Africa's wider socio-economic development. It provides a broad overview of the emerging gap between those who are benefiting from South Africa's transition to democracy and those who are not. Overcoming these worsening social conditions has become a major priority in government's new policy framework. It has been referred to as the challenge of the "second economy," a polemical device aimed at drawing attention to the two-fold challenge of promoting economic growth, whilst reducing poverty and inequality. The article then goes on to describe the new skills development policy framework and the ways in which the Department of Labour is attempting to deal with the "second economy" through a variety of skills development strategies. The progress made in implementing this new approach is then interrogated. Several problems are identified. The analysis concludes by arguing that both government and employers are currently falling short of the capabilities required to effectively rollout these ambitious reforms. (Contains 3 tables and 1 figure.)