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South Africa’s jobs crisis

The latest unemployment figures are out here and they have everyone from economists to ordinary South Africans holding their heads in horror. But, as Aarti Bhana and  Nickolaus Bauer report, context is key.

High unemployment remains a stubborn and relentless issue in Africa’s most developed economy, even after 26 years of democracy. 

Like a cancer eating away at South Africa’s development, joblessness has continued to rise over the past decade and, despite the government’s efforts to flatten that particular curve, the situation was just getting worse and worse, even before the coronavirus pandemic came along.

But let’s take a step back and look at the bigger picture of unemployment – with NINE things you probably didn’t know about SA’s unemployment and how Covid-19 could change that. 

1. What is South Africa’s current unemployment rate?

The most recent figures from Stats SA  — from the first quarter of 2020 — put South Africa’s unemployment rate at 30.1%. More recent projections from the International Monetary Fund estimate the figure for April 2020 to be even higher at 35.3%, but let us be generous and use the official government figure, which is still eye-wateringly high by any standard. 

Also, remember that when we say that 30.1% of people are without a job, we don’t mean that as a percentage of South Africa’s total population of 60-million people. Rather it is nearly 30% of the labour force who are unemployed. 

2. So… who makes up the labour force?

If you’re between the ages of 15 and 65, you are considered to be part of the labour force — unless you are in secondary or tertiary education, receiving on the job training, unable to work due to medical reasons, a homemaker, or considered a “discouraged jobseeker”. This labour force is the pool from which the country’s job statistics are drawn — the 23.3-million South Africans expected to be working and earning a living. 

“Discouraged job seekers” means people who are otherwise able to work but have given up trying to find a job. Estimates vary but if you were to include these South Africans in the labour force, our unemployment rate would be far scarier — as high as 40% to 50%.

But today we’re focusing on those who are looking for a job but can’t seem to find one. The approximately 6.7-million South Africans who are unemployed.

3. So why can’t people find jobs? 

Joblessness is not something new in South Africa. It goes far back, well before the transition to democracy in 1994.

Apartheid laws favoured white people, providing them with automatic access to better education, better living conditions and job opportunities that make the good life look easy. But this unjust and racist system came at a great cost to everyone else. 

Black, coloured and Indian men and women were deliberately excluded from these opportunities. Education was poor, living conditions were shocking and job opportunities were all too scarce. The majority of jobs available for non-whites were cheap and unskilled labour, either on farms or in the mines.

This led to a massive skills shortage that saw skilled white workers from Europe and North America being imported by the Apartheid government, INSTEAD of empowering people of colour to gain an education and take up opportunities in the economy.

In a nutshell: When the doors of democracy finally opened, most South Africans did not have the skills to take up the opportunities in the new, theoretically free economy.

So unemployment really is a legacy of apartheid playing out today. 

But there’s also more to it than that. 

A great many South Africans lack access to education and resources to this day, which means that they aren’t able to take up the opportunities that do exist.. 

This is further aggravated by the fact that the labour force is always growing: South Africa produces more school leavers, graduates and trained artisans annually than the economy produces jobs for them. And yet there are significant skills shortage elsewhere – which means the training and education sectors are not in sync with the economy. 

Structurally speaking, inflation is also tied to unemployment, but we’ll save that for another day. It’s between the systems of our country and the people they are meant to serve that we find the real unemployment gap. 

4. What are the biggest sectors driving employment now? 

During Apartheid, South Africa’s economy was driven by industries like mining, engineering and manufacturing – powered by an endless (they thought) stream of cheap black labour.

But since the transition to democracy in 1994 the game has changed completely, with a mixed economy that relies less on industrialisation and more on services like finance and tourism.

Mining may have been the major contributor to GDP growth for decades, with manufacturing and agriculture playing a similarly huge role, but these industries have slowly but surely lost their lustre as resource deposits dried up and the sectors became less labour-intensive and more mechanised.

In many ways the financial sector has become the economy’s powerhouse. It comprises of retail, commercial and the real estate sectors. It’s big, stable and inviting — if you have the cash to play in it. 

South Africa may be a middle income country – but it has the financial plumbing of a rich country. Our financial markets are deep and liquid, meaning that large swathes of capital can flow across our borders with ease.

In 1994 the financial sector contributed 15.27% to the country’s GDP. By 2014, that number had increased to 21.65%.

In addition to being one of the major contributors to South Africa’s GDP, the sector also managed to come out of the 2008 global financial crisis relatively unscathed, its success owed to a strong regulatory framework backed up with orthodox economics.

Local and foreign capital like South Africa’s finance sector because it is watched over by strong institutions like the South African Reserve Bank.

5. What is the informal sector? 

South Africa has a flourishing informal sector — often referred to as the shadow economy. It’s made up of those people you see on the side of the road, making small sales from selling anything from vegetables and fruits to paintings or cooldrinks. They do not form part of the “official” labour force, but they are still in some way employed, either in their own right as entrepreneurs or by someone else.

It’s hard to determine its actual size, but it’s generally accepted that without the country’s informal sector the jobs situation would be catastrophic.

Although people in the informal economy do not pay direct taxes, they do have a critical role in the economy. In fact, we all do, because we all make purchases — whether it’s bread, milk or chocolates, so through value-added tax (VAT), a percentage of that payment will somehow trickle into the broader economy. We are all part of a bigger system. 

Estimates vary but up to 3-million people work in the South African informal sector, depending on the sector’s definition. That’s a huge number considering there are just over 16-million people working in the South African formal economy. While the informal sector may not pay direct taxes it forms a critical component of the South African economy. Consider supporting small-scale informal traders, entrepreneurs and artisans to bolster this vital sector.

6. How does our unemployment rate compare to other countries? 

Compared with pretty much anywhere in the world, South Africa fares poorly when it comes to unemployment — at least, among nations that provide reliable statistics of their own.

The IMF’s projections for 2020 notwithstanding, South Africa’s unemployment rate peaked in 2002 at 30.4% and reached an all-time low of 21.5% in 2008.

Other countries that do have higher rates of unemployment are generally in the grips of either war — or economic insanity!

Syria, for example, has an unemployment rate of 50%, while Burkino Faso has a jobless rate of 77%. And, depending, on who you talk to, Zimbabwe’s jobless rate could be as high as 90%.

7. So… can we beat unemployment? 

The common solution to high unemployment is to create jobs – simple, right? But it’s easier said than done.

Generally, if a nation’s unemployment rate exceeds 7%, it means the economy cannot create new jobs on its own, and government intervention is required.

In 2012, Spain and Greece had an unemployment rate that matched South Africa’s at the time, of around 24%. Since then, the Greeks and Spaniards have made huge strides in reducing their jobless rate, yet South Africa’s unemployment rate continued to rise.

There are opportunities for South African in agriculture, manufacturing and construction, and sectors like the textile, energy and mining industries have untapped potential, but it would take serious reforms of government policy to match the recovery seen in the Mediterranean economies.

8. What can the government do to improve the situation? 

It’s not like the government hasn’t already tried to create more jobs. In the past decade the South African state has:

  • Invested in job creation initiatives, especially for youth; 
  • Established investment drives for small businesses and enterprises; and 
  • Created Stimulus packages to get the economy going

But, these have not led to the job growth that is needed.

We also know that Covid-19 has thrown a SERIOUS spanner in the works, and some of the government’s plans to address unemployment have been delayed or reversed altogether.

Since the pandemic hit, the government introduced a range of measures to help prevent job losses and shore up the economy, from tax relief, to starting the Temporary Employee/Employer Relief Scheme (TERS), and extending grants to those currently facing the ugly side of Covid-19. 

President Cyril Ramaphosa said last week that the UIF’s special Covid-19 relief scheme has already paid out over R11-billion to 2-million employees in over 160 000 companies in distress. 

And, so far, R55-million has also been paid out to about 14 000 domestic workers.

Since Ramaphosa has come to power he’s made creating jobs a top priority. The 2018 Jobs Summit drew together business, labour and government to try to ensure it was all hands on deck in the mission to increase employment. 

But it has not been enough. In the past two years South Africa’s economy has entered recession twice, and unemployment has grown.

9. What’s next for South Africa? 

This is the biggest question on everyone’s lips. Where to from here? 

Economists forecast a major dip in the world economy. South Africa’s GDP could contract between 5% and 15%, and government debt will likely increase too. And we know we’ll see a massive rise in unemployment, as seen in the IMF’s forecast. But nothing about this is exceptional to our country. Most other nations across the world are facing the same problems. 

Germany, for example, is already in a recession. And the US’s unemployment rate has skyrocketed over the past few months. Italy’s debt to GDP ratio is expected to soar to 160% this year and France and Spain will probably be about the same. Covid-19 has changed the game for everyone. 

It isn’t a game, though, is it? We just don’t know how these economic earthquakes are going to affect people’s lives in the medium to long term, as different countries implement different structural changes to shore up their own economies. But there are some predictions emerging, though they are far from certain:

  • Global supply chains will break and (almost) everyone will go local; 
  • Work, play and shopping will shift even further online;
  • Healthcare standards will change, hopefully for the better; 
  • The insurance industry will see a boom as people realise its importance 
  • Countries will think greener and finally deal with climate change 
  • Socialising will change, meaning restaurants could become a thing of the past

President Cyril Ramaphosa himself noted that things will never be the same again and that the virus presents an opportunity to forge “a new economy in a new global reality”.

In Ramaphosa’s eyes, South Africa’s new economy must be founded on fairness, empowerment, justice and equality, using every resource, every capability and every innovation we have in the service of the people of this country.

South Africa has a massive opportunity fraught with challenges ahead of it. Can we reshape our economy to ensure more people have jobs?

By Aarti Bhana and Nickolaus Bauer