SA economy: Jobs blight worsens

First published in DM168

So it’s official: unemployment remains South Africa’s national tragedy and President Cyril Ramaphosa’s greatest challenge. All the talk about attracting investment and growing the economy will mean nothing if the ranks of the unemployed don’t start shrinking.

Statistics South Africa (StatsSA) said on Thursday that the official unemployment rate rose 7.5 percentage points to a record high of 30.8%. But that was off a distorted base in the previous quarter, when many people stopped looking for work or were unable to do so during the hard lockdown to contain the Covid-19 pandemic.

“The results ... for the third quarter of 2020 indicate large movements out of the ‘other not economically active’ category to ‘employed’ and ‘unemployed’ between Q2 and Q3 2020. The number of employed persons increased by 543,000 to 14.7 million compared to the second quarter of 2020,” StatsSA said.

“Unemployment increased substantially by 2.2 million to 6.5 million compared to Q2 of 2020 resulting in an increase of 2.8 million (up by 15,1%) in the number of people in the labour force. The number of discouraged workseekers increased by 225,000 and the number of people who were not economically active for reasons other than discouragement decreased by 2.9 million between the two quarters, resulting in a net decrease of 2.6 million in the not economically active population.”

So, what is the upshot of these trends?

“What the rise in the unemployment rate from 23.3% to 30.8% hides is that there was a net 543,000 jobs created in the third quarter,” Nazmeera Moola, head of SA Investments at Ninety One, told Business Maverick. This development in many ways was expected: the economy has been recovering since the Q2 lockdown meltdown, when it contracted 51% on a seasonally adjusted and annualised basis. Many people who were unable to work then have been able to return to their jobs – that is, if the businesses that employed them did not go under, or could afford to re-employ them.

“Despite this improvement, after 2.2 million job losses in Q2, this means there have still been a net 1.65 million jobs lost to Covid by the end of September. Going forward, it will be key to see how this recovery in jobs continues,” Moola said.

Ian Fleming, CEO of Engaged Business Turnaround, a business rescue and turnaround specialist, said in a commentary that worse was yet to come.

“Judging by the enquiries we are seeing and the business leaders coming to us, the worst is yet to come as more companies will hit the wall in Q1 next year and will contribute to further push up unemployment numbers as businesses fail,” he said.

Huge structural challenges remain. Population growth has been outpacing economic growth, and South Africa still has a woeful shortage of skills. BEE requirements, while understandable given the apartheid history of racial exclusion and exploitation, remain a significant deterrent to foreign investment because of the costs involved.

Labour intensive sectors such as mining have been in a long-term structural state of decline. And Eskom remains as unreliable as ever, with no sign that additional power is being fast-tracked onto the grid. On that note, a general decline in public services –in large part attributable to ANC nepotism, corruption and incompetence – thwarts the private sector’s ability to function properly and create jobs.

“... unemployment challenges cannot be addressed in the traditional way and an entirely new approach by government is needed to resolve this issue,” accountancy and consultancy PwC said in a brief commentary on the data.

Are there signs of that happening? The government is focused on a state-led infrastructure drive, a track that has been played before. But at least there are hopeful signs that it is finally getting serious about dealing with the corruption that can undermine such initiatives.

Realistically, such a drive cannot be done without the private sector. New power projects – which are absolutely critical to growth and job creation – will also have to come from the private sector, but investors still face BEE requirements and other red tape, which is astonishing, as beggars can hardly be choosers.

The government has also proposed a chrome ore export tax in a state-driven bid to spur ferrochrome production, which one comprehensive study has found could backfire spectacularly and shred jobs instead of creating them.

So the signs are mixed, to say the least. Meanwhile, the swelling ranks of the unemployed mean that poverty and inequality are on the rise, a trifecta of woes reflected in South Africa’s high rates of crime and social unrest. And next week the government will host another investment conference. Investment is also crucial for job creation. But for those desperate souls begging at robots, it may be just another talk shop that does little if anything to relieve their plight. DM168

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