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After the Bell: Are we ready for a big debate about SA’s unemployment rate?

A recent survey by a group called African Response found that among people who classified themselves as unemployed and looking for work, 41% were earning up to R15,000 a month through income-generating activities such as baking, building and hairdressing — the ‘side hustle’.
After the Bell: Are we ready for a big debate about SA’s unemployment rate?

I cannot tell you how many times I have read these words: “South Africa’s unemployment rate, the highest in the world, …” blah, blah blah. It’s worrying, irritating, demeaning and, I’m willing to bet, totally wrong. Of course, that doesn’t mean SA does not have an unemployment problem, but it’s very different from the one generally described.

You need to bear three things in mind. The first is how the history of SA’s employment and unemployment has unfolded. Second, the incentives for those cited in the official surveys on the subject, and third, the incentive systems for the people who cite SA’s unemployment levels.

Let’s start with the data itself, as presented. 

after the bell unemploymentThis is a little dated — it comes from an article penned for the Human Sciences Research Council in 2022, The State of Employment and Unemployment in South Africa, by one of the country’s most engaged and informed economists, Miriam Altman. 

As everybody who follows this data knows, SA has two measures: a strict definition, which, as is normal in international practice, excludes people who have given up looking for work. We also have a broad definition that tries to take into account the general working-age population. Both of these measures are parlous and both have been increasing. 

Altman says the build-up of unemployment in South Africa over the past decades can most accurately be attributed to the demise of jobs in traditional resource-based industries in agriculture and mining without a concomitant employment take-up in more advanced industrial sectors, as would be expected in a process of structural change and development. The other important factor is “weak human and physical capital formation”, which goes back to the apartheid minerals economy. 

The nature of employment has also been changing rapidly because the proportion of formal-sector workers to informal-sector workers has been declining dramatically. Between 1994 and 2001, it fell from 69% to 49%. “At the same time, those underemployed rose from 14 to 21 per cent, and unemployed from 17 to 30 per cent,” writes Altman.

This is all interesting and significant, but there is a contrasting view offered by GG Alcock, who is well known as a champion of the “ikasi” economy and has written books on his adventures in small business entrepreneurism. He goes nuts when he reads about the notional unemployment levels in SA and says the “unemployment stats are rubbish” because they measure something he calls “payslip employment”.

In his book, Born White, Zulu Bred, he estimates that “real unemployment” in SA, which means a lack of any form of income (excluding social, old age or unemployment grants), is around 12%. To get to this number you have to look further than SA’s official statistics and into SA’s corporate sector. One example he cites is Transaction Capital’s CEO, David Hurwitz, who pointed out that even though technical unemployment is at historically high levels, one-third of customers making monthly repayments on their debt via TCRs were not formally employed, “reflecting some resilience in South Africa’s informal sector”.

To take another example, Capitec CEO Gerrie Fourie was reflecting on the bank’s stellar performance and made the point that after walking around some of SA’s townships and seeing the vibrancy of the businesses, he asked his staff to calculate how many Capitec customers were making deposits of more than R3,000 five times a month. The number had increased from about 200,000 in 2018 to more than a million in 2022. And these are deposits into personal accounts, not business accounts. 

In some ways, Capitec’s extraordinary advance is itself an example of this trend. The bank now has an active client base as large as the SA clients of Standard Bank, Absa and Discovery Bank combined. How did the pillars of SA’s banking industry miss this trend? 

One possibility is they were relying on the official numbers about SA’s unemployment rate and betting, as conservative bankers must, that the economy was under pressure, so the banks’ lending policies should be constricted till the economy turned around. 

Alcock’s numbers are routinely questioned by formal economists, who claim they are too anecdotal and based on questionable statistical methods. Fine, but here is the thing: SA’s unemployment stats claim the absolute number of people in SA’s “informal sector”, as it’s called — trust me it’s not informal to the people living in it — has consistently been a little over six million people since 1994, compared to just under 11 million people in the formal sector. 

after the bell unemploymentThat is just horse manure for two reasons: it’s too small and it cannot have been that consistent over 30 years. Some of what Alcock discovered by actually talking to people in SA’s informal sector is just how much some street sellers take home. 

A recent survey by a group called African Response found that among people who classified themselves as unemployed and looking for work, 41% were earning up to R15,000 a month through income-generating activities such as baking, building and hairdressing — the “side hustle”. They say, “What this shows is that many of our young people are resilient and inventive about making ends meet. We need to reinforce that and build their confidence so that that attitude catches on.”   

So, back to the incentives of the different players here. I don’t know how much this all plays into these issues, but just think about it for a moment. “Progressive” economists and politicians have a huge incentive to bump up these numbers to justify extra fiscal distribution. Opposition politicians have an incentive to boost these numbers because they can rub the government’s nose in this “failure”. People who answer surveys about employment have a big incentive to not alert the taxman to their business successes.

The big problem that underlies it all is that economic change happens fast, but government statistics move slowly. They need to catch up. DM 

Comments (8)

Penny Abbott Jul 12, 2024, 05:30 PM

I do agree with Tim's point of view on this, but add also that we need to sort out the relationship between social grants and informal employment. The latter will always be underreported in order for people to be able to claim social grants, school fees exemptions etc. etc. It is not sensible to compare our unemployment stats with other countries, particularly African countries, where 'subsistence' farming etc is counted as employment, but not here.

Robert de Vos Jul 12, 2024, 12:24 PM

Phew! What a relief to know that all those shack dwellers are earning so well. Now I don’t have to keep forking out cash every time there’s a disaster in one of them. But back to the “side hustle”. You haven’t mentioned the drug dealers, the Zama Zamas, the stolen car industry and the stolen copper business etc etc. The real point is that all these “informal businesses” are not paying any tax other than VAT and protection money. An investigation into the same scenario in Luanda a decade or more ago estimated the cash flow there at about $50m per annum. Untaxed. Where the state has failed yet again, is not effectively bringing Mrs David’s bakery and Sipho’s school transport businesses into the mainstream economy. Over the years I have proposed in these kinds of columns that the banks have to be incentivised and funded by the state to offer free accounts and business education to anyone who has an SA citizenship, which should eventually bring them into the mainstream economy. And get taxed. In the same way that shanty town residents must get title deeds for their piece of land, bringing them eventually into the formal property market. But as we all know, creative thinking is not the ANC’s strong point.

Ted Baumann Jul 11, 2024, 01:49 PM

This is debate has been going on from the very beginning. I was involved in economic analysis in the run up to '94 (knew Miriam well) and in the housing sector for 20 years afterwards. One thing I learned-and which I think is a 3rd analytical bias against the informal sector-is that ANC deployees in government are inherently hostile to the idea of recognizing informality. Their self-image is constructed around the idea of “upliftment,” which means bringing black people into the economic world created by the colonizers. It's not enough for people to thrive through self-initiative and ingenuity. They have to achieve the same trappings as the European descended population. You can see that in the consumption patterns of the politically connected elite, as Moloetsi Mbeki keeps pointing out. They may wear fantasy versions of African fashion to parliament launches and so on but what they really want is to be consuming exactly the same things as the colonizers-Johnny Walker Blue, expensive imported cars, and European fashions. For example, in another article in DM today, the CEO from VBS talked about how he wanted to be a big dog, with flashy consumption like his peers in politics. Valorizing informality implicitly questions that idea of "advancement." Franz Fanon would have a field day with contemporary South Africa. Or a stroke.

William Kelly Jul 11, 2024, 11:57 AM

A case of two economies. One operating within the reach of SARS and one operating without. I was wondering the other day of those operating within the reach of SARS how many are doing so legally? The answer I think is none. The compliance requirements are so onerous and complicated that it is (intentionally) made criminals of us all. I hold a Masters level degree and cannot complete my own tax return without having to pay someone to do it for me. I cannot complete and maintain my one man business records without an accountant to do it for me. I will never employ someone ever again because the compliance burden is more than it is worth, and the implications of getting it wrong so onerous the risk is off the charts. The costs to manage it all and the responsibilities put onto the poor employer - just, no thanks. So guess which economy I'd much rather be a part of? As we see the "unemployment" rate sky rocket I think we're watching a great migration unfold. The tax base is not growing. And the beast will starve. Not the people.

Johan Buys Jul 11, 2024, 09:22 AM

If a third of households in SA were unemployed barring grants for 30 years, we would see starvation and malnutrition on an impossible to ignore scale. We have a very large informal / self-employed / unofficial / untaxed economy. People had to make a plan as our governments have never (go back century) had a plan.

johnbpatson Jul 11, 2024, 08:57 AM

Yes, it is obvious that many, many people in South Africa, of all races, work off the books, sometimes there are generations of families who have never had salaried jobs. Which is all well and good, except they do not pay full taxes, and often actively avoid paying taxes -- all the "palaces" which have sprouted up like ugly mushrooms in tribal, rate free, lands, are obvious examples. In effect they are parasites in the body of the state. Greece, which had a strong "informal economy" paid the price, when the state nearly collapsed and had to have the humiliation of getting lessons from Germany, before recovering -- with much stricter tax controls. In Greece people said they did not pay taxes because they went to corrupt politicians. Sound familiar?

Nic Tsangarakis Jul 11, 2024, 04:43 AM

What a wonderful article Tim. Kudos to all South Africans for their ability to be entrepreneurial and resilient.

A Rosebank Ratepayer Jul 11, 2024, 01:43 AM

A third thing to think about is that unemployment implies no access to income, except possibly social grants. If 32 % of the working age population really had no access to income they would be breaking down the walls of the security estates and CBD CIDs to find bread. While crime is bad it is nowhere on this scale, yet. There is also lots of plastic bag litter in the townships, informal settlements and rural residential areas and people are well rounded. Neither of these conditions are found much in the low income, really high formal unemployment countries to the north. So, fortunately, as GG Alcock and Capitec bank have shared, there is a vibrant informal sector taking up the slack. It deserves huge policy support, unlike the half hearted, wish you weren’t here, response it has received to date - a job for the GNU government?…