‘Explosive’ jobs crisis imperils SA
Experts’ strategies for fixing the unemployment crisis range from devaluing the rand to a universal income grant or accepting debt from loans
Covid-19 descended on South Africa when the country was already reeling from a deepening jobs crisis. The pandemic’s economic assault pushed the unemployment rate to record levels into 2021, indicating that recovery would be hard-won.
If unemployment continues to climb, experts say South Africa’s economy risks becoming unviable as the country is thrust into a growthkilling cycle of political and social disorder — and most agree that not enough is being done to avert this.
Statistic South Africa (Statssa) is set to release its third-quarter employment data next week. The quarterly labour force survey will reveal just how hard the civil unrest in July hit jobs.
The estimated R50-billion knock to the economy from the looting and vandalism that rocked Kwazulunatal and Gauteng is expected to show in third-quarter GDP data due to be released in December.
High-level data from the period has already painted a grim picture: Between June and September, the composite leading business cycle indicator, which measures economic activity, deteriorated by over 5%.
South Africa currently has an unemployment rate of 34.4% of the labour force. The country’s job numbers had steadily worsened even prior to the pandemic. By the second quarter of 2019, it hit 29%, the highest reading in the history of Statssa’s surveys at the time.
The unemployment rate has only escalated since then, save for in the second quarter of 2020, when the global health crisis threw the job numbers out of whack. Since the third quarter of 2020, official unemployment has hit record levels with each Statssa release. In the second quarter of 2021, expanded unemployment — which also counts job seekers who have given up on the search — was at 44.4%.
“In some sense, we’ve had an unemployment crisis for a very long time. Covid has certainly made that much worse,” said Andrew Kerr, an associate professor in the School of Economics at the University of Cape Town. “But we have had broad unemployment rates of above 30% pretty much all the way since the mid-1990s … Economists were raising concerns about unemployment in the 1970s. The state of the economy in the 2010s and Covid made things far worse.”
If there were more jobs, there would be fewer discouraged work seekers, Kerr noted. “So the key question is: How do we create more jobs, so that more of those people who have given up are able to find work?”
Cas Coovadia, chief executive of Business Unity South Africa, states the obvious: that the economy needs to grow to create jobs, adding: “And the economy is not going to grow substantially until there is policy certainty … that will send out a very clear message, [one of] ‘We are open for investment.’”
If the job crisis persists, the country will enter a “vicious cycle”, Coovadia said. “And the virtuous cycle has got to be investment, growth and employment. We don’t have many choices.”
Independent economist Duma Gqubule noted that there is a broad correlation between GDP growth and employment. However, economic growth is no longer being driven by labour-intensive sectors, such as manufacturing.
“You need to change industrial policy to steer job creation … We need to create jobs for the profile of the workforce we have — not the workforce that we wish we had,” Gqubule said.
If South Africa continues on its trajectory, based on the current model of economic growth, “we are heading towards an economic wasteland”, Gqubule added. “We are heading towards repeated cycles of political and social instability, like we saw in July. We are an unviable society,” he said. “But if we project forward 10 years to 2030, South Africa is not going to be a nice place to live … When you’re talking about 48.7% black African unemployment and people want to behave like it’s business as usual, it’s incredible.”
The displacement of jobs in certain sectors stands to send unemployment even higher, development economist Ayabonga Cawe warned: “I think we are in the stage of the development of capitalism, globally and here in South Africa, where in order for capital to accumulate, there is no longer a need for warm bodies.”
He added: “If we don’t in some way try and mitigate that type of transition, then we’re going to be in much deeper trouble than we are now.”
But stemming the tide of job displacements may require the government to step in. “How would they regulate it? This is the question. It
goes back to one’s understanding of where the responsibility of government starts and ends … There is a lot of dominant thinking, in economic and public sector circles in South Africa, that government’s role should be more limited. And I think it’s a big problem,” said Cawe.
Michael Power, a strategist at Ninetyone asset management, would not speculate on where South Africa’s economy is heading if unemployment continues to climb “because it is too dark”.
The country’s unemployment crisis “is so bad that it doesn’t actually have an adjective”, Power said, noting that, according to national treasury data, 46% of the entire population currently relies on social grants.
South Africa’s economy, Power said, is split into a first-world and a developing economy. “By far and away the majority of people are in the developing economy. But policy is by and large not geared to them except by way of the grant system. The grant system is just a process by which the first-world economy in South Africa subsidises the inability of the developing country economy to create jobs.”
Power has previously argued that South Africa’s labour pool is uncompetitive and thus unemployable.
The price of wages, measured in the South African rand, is too high compared to its primary competitors in Asia. Devaluing the rand would make it more competitive, boosting growth and employment.
“If you have $100-million, who is going to invest in South Africa when you have to pay your workforce twice as much as what you would have to pay if you invested in Bangladesh? Capitalists want to make profits,” Power said this week.
The vast majority of South African economists are schooled in the West’s way of thinking, Power said. “And all they do is hope people will invest, without actually realising that no sensible person is going to invest in South Africa when they can invest the same amount of money in Bangladesh and get more for it. It’s not rocket science. That’s the tragedy.”
Neil Coleman, co-founder and senior policy specialist at the Institute For Economic Justice, said pronouncements that South Africa is an unviable society “are not overly dramatic”.
“The situation is explosive. The worrying thing is that since July people are again putting their heads in the sand and talking about interventions like structural reform, which are merely tinkering around the edges,” Coleman said.
“They are under the impression that some sort of incremental progress in these areas is going to address this crisis, such as treasury’s structural reform proposals, which on their own projections will create a mere 100 000 jobs a year — less than the annual number of new entrants to the labour market. It’s not. We are heading towards another explosion, unless we do something bold to change course.”
South Africans need rapid, high impact interventions to deal with the immediate crisis, like a universal basic income grant combined with a fiscal and monetary stimulus, Coleman argued. “Do we have a plan along those lines? It is quite clear that we don’t. Because the ideological, dogmatic adherence to austerity, and hysteria around debt, are preventing us from putting in place some of these measures, using the various tools that are available to us.”
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