More job cuts on the cards if the economy doesn’t stabilise

SA’s high rate of unemployment is a reflection of a weak enabling environment for businesses.
Predictions are that the downsizing seen in the first three weeks of the year is likely to continue. Image: Andrey Rudakov, Bloomberg

South Africa got off to a rocky start this year, with almost 6 000 possible job losses in just the first month.

And things are likely to get worse before they get better. Investments have been low, and companies are barely surviving hence the numerous retrenchments which put even more strain on demand and economic growth.

Jobs are the bedrock of economic growth and political stability.

When the citizens of a country are employed it means they can provide for themselves, their morale is high, and things are stable. Employment is also an indication of production and investment, leading to the creation of more jobs.

When a developing country such as South Africa is seeing more and more job losses, it reflects a weak enabling environment for businesses.

Read: Telkom in talks with 20% of workforce over cuts as economy wilts

Indeed, the ease of doing business has declined steadily this decade as the regulatory burden placed by the state on businesses has increased. Poor management in some companies has also weakened the business environment, even causing corporate failures, leading to job losses.

Read: Massmart could cut 1 440 jobs

Mike Schüssler, chief economist at Economists.co.za, says the downsizing seen  in January so far is likely to continue this year.

More people, fewer jobs

“If you look at the number of people employed, it has been decreasing for at least three or four quarters and the chances of that continuing are very good,” he says.

Schüssler says one of the main issues is that the formal labour sector continues to outpace job growth. “So we will continue to see a number of people that are unemployed.”

The employment rate in the country decreased to 42.4% in the third quarter of 2019. It averaged 43.17 % from 2000 until 2019, reaching an all-time high of 46.17% in the fourth quarter of 2008 and a record low of 41% in the first quarter of 2004.

Unemployment exceeds 29% currently. It reached an all-time high in the first quarter of 2003 of 31.2% and averaged 25.77% from 2000 to 2019.

The graph below depicts how unemployment has risen from 26.5% in January 2017 to 29.1% in 2019.

South Africa’s unemployment rate

Source: Tradingeconomics.com, Statistics South Africa

On average, worldwide unemployment is at 6.97 %.

“Many developing countries are far less in unemployment than us. I think a typical unemployment rate for us would be at below 15% but the best must be below 10%,” Schüssler says.

South Africa’s metro cities are growing at a staggering rate and, according to Schüssler, could help unlock South Africa’s growth potential.

“We have a situation where some of our cities are growingly quite rapidly and that is where the unemployment issue could be solved easier than the unemployment in the rural areas,” Schüssler says.

He adds that if cities such as Johannesburg, Cape Town and Durban were to have economic growth of 6% to 9% – “because they are an engine of growth” – then the smaller urban areas could grow at 5% to 7%, with the rural areas at 3% so that South Africa could have economic growth of at least 6.5%.

He says this would ensure that economic growth is growing at a higher rate than inflation.

“We also want our share; we also want our increase to be higher than inflation,” Schüssler says.

Schüssler suggests that in order for there to be a turnaround in the economy there needs to be a radical look into how more firms could be encouraged to establish businesses in the country.

Another downgrade looms

Moody’s, the New York-based rating agency, is scheduled to deliver its country review on March 27 after the national budget is presented in February.

Annabel Bishop, chief economist at Investec, says it foresees an evenly-weighted chance that SA will be downgraded this year.

Bishop says Moody’s has said SA would avoid a downgrade “if the government’s efforts to rein in spending, improve tax compliance and lift potential growth became increasingly likely to successfully stabilise debt ratios” and if “National Treasury has put forward key areas where expenditure cuts need to be made to consolidate the government’s finances materially”.

“Moody’s says SA [has a] negative rating outlook, which indicates the agency will downgrade SA unless it returns to a stable outlook,” Bishop says.

A downgrade is more likely if, as Bishop says, the outlook “reflects the material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures”.

Challenges

“The challenges the government faces are evident in the continued deterioration in South Africa’s growth and public debt trends; [this] specifically includes cutting above-inflation civil servants’ remuneration growth. If unsuccessful SA will likely see a rating downgrade,” says Bishop.

The agency already placed SA’s long-term sovereign debt on a negative outlook towards the end of last year, indicating that it plans to downgrade SA to sub-investment grade, from its rating on the last rung of investment grade, if SA does not make the necessary changes that would allow its rating to return to stable.

SA is at risk of seeing an economic growth rate of below 1% year on year this year as a number of structural problems remain unresolved. This comes after a growth rate of likely below 0.5% year on year in 2019, not least due to substantial, periodic losses of electricity supply.

Moody’s has shown marked concern over the slowdown in economic growth in SA. The agency most recently said it “forecast[s] medium-term growth of 1%-1.5%”, but 2020 risks being below this, at 0.8% year on year.

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Easy, basic things like govt shying away from their pro-populist talk (…EWC / RET / other anti-capital slants) is a good start.

Will that happen? Not quite, as it will cost the ruling party votes.

Need effective rule of law (..plus a plethora of matters mentioned on this site by other commentators) & respect for property rights.

Red tape….snip snip.

My guess is…more of the same. (SA is merely last colonial domino falling. a Huge domino, so it takes longer to fall…or sink. The ‘face’ of SA is transforming…no qualms about that….but then all citizens need to accept SA will function more poorly going forward, in line with the spirit of Africa. Either live with it or “pack for Perth”.)

….the image of pipe welding is impressive! (I instantaneously ducked when this image opened *lol*)

It just shows you, you don’t have to be employed in any Air Force to witness “afterburner jet-pipe” glow 😉

Job cuts are exactly what the economy needs right now. Public sector job cuts, that is.

The grotesquely bloated and incompetent personnel corps of the public alleged service and all state owned enterprises immediately need to be cut by at least 30% to 60%. These useless deployed cadres are placing an immense drain on the economy. Without deep and immediate cuts among these utterly redundant employees, South Africa is looking at a bailout very soon.

Agree Incitatus. Except last point….NO “bailout soon”. Not yet.

We can thank our R6-trillion in retirement fund assets for that, to help SOE’s limping longer before they eventually become too costly for state.

I brace for Feb 2020’s budget speech….I will not be surprised if there’s mention of newly introduced ‘prescribed assets’ 🙁

I have absolutely zero doubt that there will be tens of thousands more jobs cut this year.

The South African government should drop all income tax and put VAT up between 3%-10% on all goods and services the middle class and rich buy, this will result in a lot of money being pumped into the economy which will create new jobs without creating new credit. Dropping all income tax would also make South Africa an investment haven for international investors which would also result in more jobs being created.

The South African government should also force the banks to stop lending so much money to people to buy existing houses and force the banks to lend more money to people to build affordable middle class houses/flats for other people to buy or rent. High house prices is just a sign of inflation i.e too many people chasing too few properties.

If house prices and rents were lower first time buyers and renters would have more money as well to spend in the actual economy on goods and services and this would also create more jobs.

Yanni a new Moneyweb chatbot??

Spewing a bag full of pseudo-economics in all the commetns sections Hahahah

As long as the ruling party lingers on with it’s factions and infighting, the economy won’t grow.

We expected too much from Cyril, but it’s clear the looters and communists are the driving force directing the way

Ace and his comrades vs Cyril and his!

It’s a race over good vs evil

Question is, who will win whilst jobs are being cut, the rand keeps sliding, junk status looming, SOE’s falling apart, Municipalities bankrupt

I’ve come to the conclusion the so called leaders are in it to line their pockets, not to fix. Why should they fix when they are the cause?

They don’t care

The Dear Leaders have no skin in the game.

I’m telling you now, BEE is killing this economy! Tens of thousands of skilled workers are leaving this country every month, closing down or taking their businesses with them because of these economic empowerment policies.

“And things are likely to get worse before they get better“ says the article

Things can only get better if:

Government downsizes

Municipalities downsize (why do we amongst other things need Mayors on a payroll)

The looters must go to prison in so doing Government is hiving the assurance that the Zondo Commission isn’t a smoke screen

SOE’s need to downsize

SOE’s need to bring back the skill they got rid of due to BEE

Scrap BEE. Make South Africa a home for all

Incentivize and look after small business
In so doing employment will rise, so to the tax base

Find ways to increase the tax base. 3 million tax payers from a population of 55 million contributing 50% of Government revenue isn’t sustainable

Scrap the idea of an NHI and come up with something more sustainable

Appoint me as Minister of “regruk”

Only then can we say ““And things are likely to get worse before they get better“

You get unemployment when a country creates more people than jobs.

Black leaders opposed the family planning measures (a UN Human Right) of the government in the 70″s – today we have the results.

Also, unemployment is measured in terms of second world, formal jobs, whilst there should be a much bigger emphasis on the informal sector.

End of comments.

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