Ramareality: SA unemployment near 15 year high as factories cut jobs

By Ana Monteiro

(Bloomberg) – South Africa’s jobless rate stayed near a 15-year high in the second quarter as factories shed jobs.

The unemployment rate was 27.2 percent compared with 26.7 percent in the previous three months, Statistics South Africa said in a report released on Tuesday in the capital, Pretoria.

The manufacturing industry lost the most jobs in the quarter, employing 105,000 less people than in the first three months of the year. Community and social-services, which includes the government, shed 93,000.

Africa’s most-industrialised economy is struggling to create jobs as it hasn’t expanded at more than 2 percent since 2013. For the past two years, more than one in four people in the workforce has been unemployed. Per-capita economic growth has turned negative, and South Africa has the highest income inequality among nations measured by the International Monetary Fund, the Washington-based lender said Monday.

In his previous role as deputy leader of the country, President Cyril Ramaphosa helped initiate talks with the private sector on a jobs program and in March the country announced a Youth Employment Services pact that will offer 1 million young people paid internships over the next three years.

The number of people employed declined by 90,000 to 16.29 million, while those without jobs rose 102,000 to 6.08 million.

Here are some highlights from the statement:

  • Mining gained 38,000 jobs
  • The construction industry employed 45,000 more
  • Trade lost 57,000 jobs
  • Transport gained 54,000

SA unemployment rate rose sharply to 27.2% in Q2 2018, with the economy losing 90 000 jobs in the qaurter. Number of discouraged workers also noticeably high and at record levels

By Kevin Lings*

Stats SA released the Labour Force Survey (LFS) for Q2 2018 today. The LFS is a quarterly household survey specifically designed to measure the dynamics of employment and unemployment in South Africa, including the informal sector as well as small-scale subsistence farmers. The following is a summary of the key trends in the labour market as at Q2 2018 (see charts attached for further information).

In Q2 2018, there were 37.832 million people aged between 15 and 64 years in SA (up 154 000 relative to Q1 2018, and up 615 000 over the past year).

Among these people:

  • 22.370 million were economically active (up 12 000 relative to Q1 2018, and up 94 000 year-on-year)
  • 16.288 million were employed (down 90 000 relative to Q1 2018, and up 188 000 year-on-year)
  • 6.083 million were unemployed (up 102 000 relative to Q1 2018, but down 94 000 year-on-year, helped by the massive increase in the number of discouraged workers)

As mentioned above, the number of employed people fell by 90 000 in the second quarter of 2018, while the number of discouraged workers jumped by a substantial 77 000. Over the past year the number of discouraged workers has risen by a phenomenal 503 000. The net result is that South Africa’s official rate of unemployment remained rose by 0.5 percentage points to 27.2% in Q2 2018. Bizarrely the rate of unemployment was helped by the further increase in the number of discouraged workers. The total number of people unemployed was recorded higher at 6.083 million in the second quarter of 2018, which is still down from a peak of 6.214 million, but trending firmly higher. South Africa’s unemployment data will continue to deteriorate the country is able to meaningfully lift its economic rate of growth.

According to the expanded definition of unemployment, which includes discouraged workers, the unemployment rate is a very worrying 37.2%, up from 36.7% in Q1 2018. In addition, the unemployment rate for the youth (younger than 25), using the expanded definition, is a shockingly high 67.1%. Clearly, the rate of youth unemployed has become a national crisis, with significant social, economic and political implications.

The Q2 2018 deterioration of the unemployment rate is consistent with the overall performance of the South African economy (SA GDP declined by a shock -2.2%q/q in Q1 2018 and is likely to record very modest growth in Q2 2018). It is extremely concerning to see that the formal sector employment is still well below the increase in the working age population and the number of discouraged workers is on the rise. This will lead to a further increase in social tension and sluggish tax revenue collection.

Flag map of South Africa

Overall, South Africa’s labour market has failed to gain any meaningful traction over the past few years with the unemployment rate (especially for the youth) remaining exceedingly high by global standards. Fundamentally, this reflects the lack of fixed investment spending by the private sector, as well as the sustained low business confidence. Furthermore, the high rate of unemployment contributes to much of the social tension and anguish experienced in South Africa on a daily basis, especially among the youth. Increasing employment in South Africa has to be the number one economic/political/social objective, and can only be resolved meaningfully through a concerted and sustained effort to improve skills development as well as encourage private sector fixed investment spending, business development and entrepreneurship.

Under these circumstances the number of social grants paid will continue to increase, putting further strain on the government’s fiscal position. Back in the year 2000, a social grant was paid to 2.946 million people. This increased to 14.624 million in 2010 with the extension of the age for child grants. By 2015 the number of social grant recipients was up at 16.928 million and was budgeted at 17.517 million in 2018.

  • Kevin Lings, chief economist, Stanlib.