South Africa’s weakest economic vital measurements are inequality and unemployment by many a mile.
Unemployment, in my view, is the prime cause of inequality as well as poverty. But unemployment is not something where one can just put a policy or two in place and have it decline overnight.
Unemployment is a complex problem on so many levels, and one that government on its own cannot fix.
Looking at international statistics, it’s clear that some of the causes of unemployment lie within the ability of the South African economy to nurture, grow and attract businesses. Enterprise data indicates that South Africa has one of the lowest rates when it comes to getting businesses to start becoming viable.
Maybe government and the people who study employment need to try to find the reason why South Africa has no ‘animal spirits’ – a term used by economist John Maynard Keynes (1883-1946) to describe the instincts, tendencies and emotions that drive human behavior, and which can be measured in terms of aspects such as consumer confidence. Keynes believed most of our decisions to do something positive are the result of ‘animal spirits’ – a spontaneous urge to action rather than inaction.
The concept of animal spirits has been known and encouraged for hundreds of years by successful countries around the world.
Government wants to be a developmental state, but what it means is that it wants to fulfil the role of the animal spirit – which, frankly, is a disaster. Rather than new viable enterprises, South Africa is attracting corruption ghosts that leach onto animal spirits, turning government into a kleptocracy that succeeds only in stealing jobs.
Colouring in the full scale of the disaster
South Africa is the country with the world’s highest unemployment rate at over 27%! Never mind the fuller picture with the expanded definition, South Africa has this dubious distinction based only on the standardised rate.
An unemployment rate of 20% often leads to political changes in government, but South Africa is now entering its 22nd consecutive year with an unemployment rate of over 20%.
Interestingly, the only neighbour of South Africa not to be inside the highest 15 countries is Zimbabwe, but we all know believability is not the best part of Zimbabwean economic data.
Five of the highest six unemployment rates in the world belong to South Africa and its neighbours. The whole region is an unemployment nightmare. Rates this high for this long are seemingly the norm in southern Africa.
Unemployment takes away people’s dignity and hope, and often their ability to develop or even acquire food for survival.
Is there a bigger disaster on earth than SA’s unemployment rate?
And does it lead to other indicators, such as very high crimes rates and governments that remain in power for decades?
Are South African men lackadaisical?
It is not only unemployment rates that should be looked at, as countries have different ways of measuring unemployment, besides which unemployment does not give the full picture of the ability and tendency of people to earn an income.
One way of getting a broader picture is to look at the rate of adults employed. Since there are religious and cultural differences to factor in, I have compared male employment ratios only (in some countries, for example, women are not encouraged to work; the nations with the 15 lowest female participation rates are all Islamic countries).
South Africa has the fifth lowest male employment ratio. Using International Labour Organisation (ILO) data from 2017, one can see that only 4.5 out of 10 South African adult males are in work. Are South Africa men just lazy, or is something else taking place – or is the answer more complex?
The other reason I use male employment ratio is that it is often the men who travel to cities and other places of economic activity to find jobs while females are left in rural areas to look after children.
The employment ratio of males is also unusual in that South Africa’s neighbours are also on the lowish side of things. Eswatini (Swaziland) and Namibia fall in the lowest 12 countries regarding male employment while Lesotho and Mozambique are in the lowest 30.
South Africa’s ability to employ people is its soft underbelly. The standardised number alone indicates a very dire situation in the country. Almost all of the bottom 40% of households have no one in full-time employment.
South African workers get paid regularly – others not so much
However, when it comes to paying, South Africa has a very high number of employed who receive a regular salary or wage. This little-known fact is a significant statistic in the whole employment and unemployment debate that gets overlooked.
A regular salary is not as common as many believe. In most countries around the world people are still climbing the ladder to a stable income. A decent job has a regular salary, but many jobs do not start out as decent and while we all prefer regular pay cheques, this is not the case for half of those in the world who are employed!
South African employees are among the most regularly paid workers in the world, with over 85% of all employees receiving a regular pay cheque. Only 54% of the world’s employed get paid regularly. In the EU this is 84% and in developing countries it is 47%.
You may think this is a stupid statistic, but it is crucial as most people in the informal sector do not get a regular pay cheque. This number is often also a good indicator as to how many people work in the informal economy or for the greater good of a family business for no pay (think of a spaza shop run by an entrepreneur, with their spouse and children helping for free as the whole family lives off the proceeds.)
It also indicates the number of people who have ‘piece’ work or occasional jobs and therefore don’t get a weekly or monthly wage. We forget that advanced regions such as Europe are the exception, and even here some do not get a regular salary or only have temporary work.
Those employed in South Africa are lucky in that most have regular pay cheques and our new minimum wage as a percentage of per capita income will at the very least be in the top half of countries with minimum wages.
In other countries many people seem to take up self-employment in high unemployment conditions. Many in SA do, but not as many as in other parts of the world. This could act as a nursery school for business formation.
South Africans dream – but there’s much talk and little action
It’s incredible that we rarely measure how many adults employ others.
We measure unemployment, skills, poverty and inequality, but we hardly talk about that strange animal – enterprise.
I would think this an important indicator, especially when one knows that unemployment is a very high – and destabilising – indicator that the country needs to address.
The reason may be that South Africa has the fifth least established business ownership rate per adult among 90 major economies in the Global Entrepreneurship Monitor.
While the world has an average of 9.1 established businesses per 100 adults, South Africa has only 2.15 – which means there are more than 46 adults for every employer in SA.
An established employer is defined as someone who has employed at least one other adult and paid them a wage for 42 months. This is generally seen as an established business, although data from South Africa Labour Force Survey indicates that many of these businesses fail within the next few years.
The new-venture-into-established-business failure rate is never reported on. We more often hear about a business or business owner being amoral or a cheat, but very rarely do we hear about the effort it takes to become an established or successful business.
You would be forgiven for believing that South Africa can afford to vomit on enterprises, but the facts show that the exact opposite is true. Even our business media rarely celebrate successful enterprises and the tenacity that it takes for business people to survive.
Unfortunately dreams turn to bust and dust
South Africa fails to notice that it has business dreamers, or that many of these dreamers enter into nascent business ventures. This happens more often than acknowledged.
What is interesting, however, is that South Africa has a higher number of start-up businesses and business ideas. The world has an average of 14.8 young nascent entrepreneurs and self-employed adults per 100 adults. In Uganda, 28% of all adults are self-employed, leading to 35% that are considered nascent entrepreneurs.
South Africa has nearly 11 adults per 100 who are nascent entrepreneurs or self-employed. This is much better in relative terms than South Africa’s rate of established businesses or enterprising employees.
This little statistic shows that about 70% of new ventures and self-employed go on to become stable employers later in life, according to world data. Perhaps a little less, while established businesses also remain for a while.
The number for South Africa is only about 20%, which tells us that perhaps micro business is unable to convert to small business, and unable to convert into employers.
Put another way it seems South Africans want to be business people but the ideas they have are not translating into employment for others – or, in many of the new ventures, are not progressing to become employers.
While South Africa has the eighth lowest conversion rate from a lowish new venture rate, one has to say something is deeply wrong with the ability of adults in SA to become entrepreneurs.
Other resource-rich countries such as Mexico, Botswana, Qatar and Malaysia also have low conversion rates, which may actually show that the so-called Dutch Disease (negative consequences arising from sudden wealth) is a real factor at play here.
Moreover, high tax countries such as Denmark, Botswana and Namibia, which have a high tax-to-GDP ratio, have even lower new-venture-to-established-business rates.
Other data from the quarterly Labour Force Survey indicates that South Africa records a high failure rate of even established businesses, which all points to a very fragile enterprise environment.
The average formal private sector business employs about 10 other adults when it needs to employ about 20 adults to bring all aboard in the formal sector.
Clearly even our established firms are small – and while the average is around 10, the median is around three to five people in a formal enterprise.
Many are not in fact as established as they need to be and are often survivalist in nature.
Very little of the activity of the National Economic Development and Labour Council (Nedlac) represents any of these employers and employees. Neither can Nedlac talk for the self-employed.
In smaller chambers of commerce, Nedlac has been referred to as the Big BUG (Big business, big unions, big government) – all important in their own minds, but screwing the real entrepreneurs where ever they can.
We need to change our thinking to ‘Smuse’ (small, medium, unemployed and self-fmployed) or put in urban slang to be stupidly amused by what real enterprises do and get out of the way of their abilities.
Promote the small and the big will grow out of it.
SMME businesses might not be sophisticated, but they are street-wise, bumping along by the seat of their pants on a road that does not exist.
Many talk a lot about wages and jobs but few know the animal spirits of enterprise. That part is never understood or embraced in the current political climate in SA. Conventional wisdom shouts ‘Jobs, we need jobs’ but no one shouts ‘Business,we need business”. That is just not done. Also, we tend to think of business as ‘big’ or ‘semi’, like government departments.
How stupid can one country be?
If we do not listen and implement behaviour that is inclusive to the needs of the average business, we will see our children export themselves elsewhere into slavery in the decades to come.
Mike Schüssler is an economist at Economists.co.za