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Stanlib’s Kevin Lings on South Africa’s unemployment disaster
Stanlib’s chief economist Kevin Lings unpacks the latest unemployment data, which reveals a decimated South African economy. In the third quarter of 2021, 660,000 jobs were lost in the formal sector. This takes the total to 2.1 million jobs lost since the start of the pandemic. The unemployment rate rose to 34.9% from 34.4% in the second quarter. The broader definition – arguably a more accurate indicator as it includes discouraged workers – came in at a staggering 46.6%. Lings outlines the importance of the growth of small- to medium-sized businesses, which are the backbone of an economy. He lambasts policy for making business difficult in an environment where we should be promoting policies that uplift the economy. Lings says there aren’t too many positives to take out of the data; it paints a bleak macroeconomic picture in South Africa. – Justin Rowe-Roberts
Kevin Lings on the unemployment data:
I think they are absolutely shocking, especially given that ahead of this data, the unemployment rate was already exceptionally high. We are under pressure in terms of the labour market and now we’ve lost – I just cannot believe this – we’ve lost another 660,000 jobs in one quarter. That’s in three months, most of those jobs in the formal sector. You can blame the looting and unrest in July, but it’s not enough to explain the loss of 660,000 jobs. [It is] telling me that businesses are broadly under pressure. They are trying to cut costs out of the business and they’ve got no choice. Where do they take costs from? They are cutting back in terms of employment and there are very few entities in South Africa that are expanding or adding jobs. So, we’ve lost 660,000 jobs. That obviously pushes the unemployment rate up.
The unemployment rate is at around 34% or 35%; I think that in itself [does not really reveal] what is happening because there’s a huge number of people who are what we call discouraged. In other words, they lose their job and simply stop looking for work. They get discouraged. But once you stop looking for work, by that definition, you’re no longer unemployed. So, we know how many people there are. We can add that back. And when you add that back, South Africa’s total unemployment rate jumps to 46%. Then, if you look at certain categories – particularly young people in the youth category – the unemployment rate is 77%. It is hard to get your mind around just how bad that is. I think what is even more damaging is, if you look at the category one age group above that … now you’re looking at people up to the age of 35, the unemployment rate is over 55%.
Think about people who are in their 30s: a huge number of them don’t have employment – possibly have never worked in the formal sector in their life or have lost their job with very little prospect of getting a job – how do those people think about building careers, starting families, owning houses, all of those things that go with employment? It’s got to be very damaging in the system. And if you break down the data, according to provinces, pretty much most of the provinces are under pressure, with a couple of exceptions like the Western Cape but on the whole, the numbers look dreadful. I cannot really find any redeeming features.
I guess for me, the most damaging number overall is that if I look at where we were in [terms of] employment before Covid-19 – obviously the economy declined and now we’re trying to recover – but our total employment is down 2.1 million, relative to where we were just before the pandemic. You cannot brag about our employment before that. I would have described it as shockingly weak, and now we’ve lost 2.1 million jobs in total.
On South Africa’s unemployment crisis:
If you look at the age group 15 to 64 – the people who could well be employed in South Africa; below 15, you shouldn’t be employing anybody and people over 64 are not counted as part of the total employable base and we assume people at that age are retired – the total employable base is 40 million. You could argue that we want to get close to that number. If you look at the number of people formerly employed in this country, it has now dropped below 10 million; 10 million have a formal job.
That is an incredibly narrow consumer base. That’s a narrow tax base. It is hard to become an economic success story when you’ve got [just] 10 million people in a country our size who are in formal employment. That means social grants have to continue and increase. That tells you the pressure on the government to provide more social spending is going to remain high. The pressure on families and communities to provide for extended families is going to remain high.
The risk of looting and unrest is going to remain high until we start to make a dent in the unemployment rate. All of these problems are going to remain relevant. You also cannot realistically talk about easing the income divide or the wealth divide, the so-called gini coefficient or the level of inequality until you create jobs.
The best way to deal with inequalities is to create employment. The sad thing is the government knows what it needs to do. Government has spoken about what needs to happen in terms of investment and deregulating the business sector and getting fixed investment but the ability to implement these changes is just not effective enough.
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