Nearly 1.4 million formal and informal jobs are at risk in the South African economy, with the current Covid-19 lockdown alert Level 3 restrictions having a direct impact across at least seven sectors: travel, tourism, entertainment, leisure, manufacturing, agriculture, and services not classified elsewhere.
The total number of people employed across these sectors equates to one in 12 jobs being directly at risk of destruction. If one includes family and dependants as a reflection of the normal size of households, the Level 3 restrictions could impact millions more as they rely on the breadwinner’s wages.
Since many also help dependants outside the immediate family, the overall number of people impacted could be as much as 10% of the South African population.
Remember too that South Africa is often credited with the highest unemployment rate in the world. The impact will be felt even if only half of the jobs at risk are destroyed.
Impact on some provinces and metros will be more severe
Some provinces have even higher numbers: one in six jobs in the Western Cape and one in five in the Northern Cape are at risk.
While the Eastern Cape has ‘only’ one in 13 jobs at risk, the impact could be greater, as the province’s extended unemployment rate could increase to close to 60%.
Measured differently, the risk for the Eastern Cape is that only one in four adults will have a job if the jobs at risk are destroyed.
While metropolitan unemployment rates are generally lower than rural unemployment rates, all eight metros in the country could end up with extended unemployment rates above 40%.
One, Nelson Mandela Bay, would have an unemployment rate of over 50%.
Two others, Mangaung and Ekurhuleni, could have unemployment rates of close to 50%.
Employment impact of current Level 3 restrictions by province
|Province||One out of x number of jobs at risk||Number of jobs at risk|
|Western Cape||6.1||417 953|
|Eastern Cape||12.8||109 643|
|Northern Cape||4.6||74 222|
|Free State||18.3||43 805|
|North West||28.1||35 615|
|SA||12.1||1 376 682|
Base source: Statistics SA’s Quarterly Labour Force Survey (QLFS); with added data for barley-, hops- and wine-grape farming, as well as annual reports for airports, rail services, and data on Uber and Bolt from desktop research. Provincial split from QLFS and commercial survey of agriculture.
Limpopo and the Eastern Cape already have the highest unemployment rates in the country, so any increase, not matter how small, will have a devastating impact.
Overall, South African unemployment could rise from 43.1% to 51.6% within a year, driven by the potential Level 3 job losses and increasing numbers of job seekers.
In addition to these unacceptable job losses, the Level 3 restrictions are having detrimental repercussions for the turnover of industry as well.
Turnover, tax and knock-on effects
The turnover of those formal private sector industries most impacted by the restrictions was R69 billion a month in 2019.
Using annual financial statistics, the formal private sector is at risk of losing 8.1% of its turnover every month the restrictions remain in place.
The estimated impact across these sectors is a reduction of at least 60% in turnover.
This means R41.4 billion is lost every month the restrictions remain.
The formal salaries paid to employees in these sectors is R9.6 billion per month. Personal income tax is estimated at R1.5 billion per month. Adding agriculture and informal employee income would take the total close to R10.5 million.
The knock-on impact can be seen by the fact that these industries buy R38.7 billion worth of goods from other sectors every month. They also spend R1.5 million on advertising, and R4.6 billion on fixed costs such as rent, leases, and interest per month.
Moreover, these sectors pay R7.6 billion in taxes every month, over and above the employee paye-as-you-earn (PAYE) tax mentioned above. These taxes are made up of value-added tax (Vat), excise duties, and company taxes.
The total taxes combined are well over R9 billion per month for the formal sector alone.
Adding things like passenger taxes and tourism spend along with informal sector Vat spend, the impact of the Level 3 restrictions on the fiscus is certainly well over R10 billion per month.
Keep business alive
The fact that the government extracts over R10 billion per month from these industries during normal times, but cannot find any funds to help them when they are in trouble, is economically short-sighted.
Keeping these businesses alive and operating as far as possible, while they take precautions against the Covid-19 pandemic, will help pay for the now bigger deficit even in the short term.
Over a maximum period of six years, a relief package that helps the whole industry for three months at a rate of just over R10 billion will have been more than paid back.
Government relief on that scale will also mean that banks will be more likely to help restructure repayments, and suppliers would be able to help with more finance too.
Paying employees extra via the Temporary Employer-Employee Relief Scheme (Ters) would also help greatly. No one can go 10 months with restrictive earnings as a result of harsh restrictions without any government relief.
Government has a moral duty to not cause business failure, and to avoid mass hunger.
It must immediately reopen the economy and allow businesses to take the necessary hygienic precautions without undue interference.
Mike Schüssler is a long-time Moneyweb columnist and Phumlani Majozi is a business and macroeconomics analyst and commentator.
Listen to Nompu Siziba’s interview with Mike Schüssler on level 3 restrictions, (or read the transcript here):