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Jobs massacre: This is only the beginning

Economists foresee unemployment rising further.

Labour statistics released by StatsSA on Monday revealed that unemployment in South Africa had climbed to its highest levels since the global financial crisis of 2008, to 26.7%. But many economists believe this is only the beginning of a catastrophic jobs decline.   

Loane Sharp, director of economic analysis at Prophet Analytics, says that, according to his economic model, the South African economy is going contract by 1.1%, shedding 285 000 jobs in 2016. And, if the global economy remains as sluggish as it is now, we will lose a further 400 000 jobs in 2017.

“That will push the unemployment rate above 30% using the beneficial measure that StasSA uses (which excludes the informal sector),” says Sharp. “It will push the broad unemployment rate to about 45%. So, we haven’t even seen the beginning (of the unemployment crisis) yet.”

Unemployment increased by 2.2 percentage points to 24.5% in the fourth quarter of 2015. But, with the mining and manufacturing sector struggling, increasingly having to retrench workers and replace them with machinery that allows them to be more efficient, one cannot help thinking that job opportunities and job security are bound to worsen.

Incidentally, Prophet Analytics is a company that helps companies become more efficient by reducing their headcount.

“We’ve just done a big cost-saving initiative for a large JSE company, saving them R135 million annually without a single retrenchment of an entry-level employee,” says Sharp, adding that they frequently suggest management cuts because management-level employees are often overpaid and under-skilled.

“In fact, more and more, my attitude about trade unions is that trade unions get involved when management is weak. They give employees a reason to bring in trade unions. No trade union was ever brought in where the workforce was largely happy.”

About a year ago, Chris Hart, who is now the financial market strategist at Leapfrog Global, used some strong words to describe South Africa’s unemployment crisis, saying the country was on the cusp of ‘a jobs holocaust’. Given recent data, it appears his utterances had at least some truth to them, if not so politically correct.

“I got into some trouble for using that particular language last year,” says Hart, adding that the message he wanted to get across at the time was that the social tension that would arise from extreme joblessness would lead to unrest and violence, exacerbating the unemployment problem and creating a vicious cycle.

Says Hart: There are three dimensions to this unemployment problem. First is that a lot of people entering the job market are facing huge difficulties, and the people that already have jobs are also struggling, just to keep up with their standard of living given the inflation that we have had. And there is no job security for them either. The third element is social tension. Xenophobic violence is an example of how those frustrations can manifest.”

Chief economist at Economists Dotcoza, Mike Schüssler, agrees, saying that when he speaks to portfolio management analysts, both locally and abroad, he gets a sense that they are paying more attention to the impact of protests and political instability than before and that this has implications for investor confidence. He believes that, while it is impossible to predict what will happen in the future, unemployment is far likelier to worsen than it is to improve.  

“The last time the world went into a recession, the stats we got – before the quarterly labour force survey was revised – showed that we lost more than a million jobs,” says Schüssler. “Now it looks like we have lost about 700 000 jobs, using the broader definition of unemployment, which includes discouraged people.”

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COMMENTS   19

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Whilst unemployment is a multi-faceted problem there are some glaringly obvious touchpoints most of which lead to government. A more business-friendly engagement policy over the past 20 years would have seen the creation of many innovative and forward-thinking businesses that would have bolstered industry and absorbed a large number of the unemployed along the way. Instead, government cracked the AA and BBBEE whip which served only to score political points and alienate business. Government needs to understand that politics cannot dictate to business. The resepective agendas are poles apart. A free market system will always correct imbalances, unemployment included.

perhaps but you cannot escape the reality that big business remains a haven of white capital. much like rugby, business has done very little to ingratiate itself into the new SA and this is why the government acted. to solely blame government for where SA is right now is pointless and achieves nothing.

and as with so many statements by SA whites ….

“Government needs to understand that politics cannot dictate to business”

you seem to have already forgotten about how business was conducted under apartheid.

finally if you really think a free market system is SA’s way to prosperity you are in for a rude awakening. MASSIVE social reform is the only way SA will avoid some form of revolution …. the rampant capitalists have been feasting in SA for 300 years and the outcome of that is self-evident.

Social reform? That was exactly what motivated Mussolini, Poll Pot, Stalin, Lenin, Hitler and Kim jong un. They ruined their economies, caused widespread hunger and murdered millions in the process of “transforming the economy”. All centrally planned “social reform” eventually enslaves the citizens. People flee from centrally planned socially reformed countries to free market countries, never the other way around. Take another look at the evidence. You don’t have to go back 300 years, 100 years are enough.

As Margaret Thatcher said “Socialism works until you run out of other people’s money”.

lets not be dramatic 🙂
there is a big expanse between unfettered capitalism and communism.

I am talking about the types of social reform which provide a basic standard of living for all, which act to reduce the huge inequalities which SA faces, which would work to prevent some form of “African spring”.

these would include free medical, a proper living wage, state pensions, minimum wages which grow over time, childcare vouchers, (good) free schooling.

your reference to Thatcher is apposite. the UK has a strong soclal welfare programme in place and recently uplifted its minimum wage to >£7 p/hr. elsewhere in Europe the social welfare programmes are even wider and stronger. in fact there is talk in Europe of trialing lump sum monthly payments of EUR1000 to each and every person.

imo SA needs to move in this direction and this will hit the taxpayer in the pocket, probably hard.

the alternatives would be worse though imo

I agree with your points below, and I also fear that rising social unrest is imminent.
My point is that our only hope to get out of this mess is by growing the economy and for government to get out of the way. We need less red tape and constraints on free enterprise, not more. Government can do nothing for the poor without taxes from the wealthy and the poor in SA receive the highest social grants in Africa because of private enterprise over the last 300 years.

not sure you will pick this up but yeah I agree completely. while BEE has been a general failure unfortunately some form of regulation is going to be required as business (by its ethos I guess) is unable to transform demographically on its own.

how many unemployed vote? I guarantee very few. so the govt couldn’t care less about them. that is the sad situation

What absolute nonsense. Have you got any figures to back your claim?
I thought not.

To grow the economy and solve our employment problems, we need a Margaret Thatcher. What currently have is an Al Capone in the form of Zuma and a Hitler in the form of Malema.

here is a suggestion to debate and that is instead of pointing fingers at Government/Trade unions etc all business leaders start employing a minimum of ONE unemployed person for every 100 on the payroll or more if the CEO really wants to make the sacrifice.
What is the trade off? Ensure your business is cost efficient and eliminate waste and effect real savings instead of taking the easy way out of retrenching just to meet the bottom line targets.
If each CEO did their small bit we could mitigate the abject poverty we see today, but more importantly give back dignity to our labour force.
Business leaders need to change as “The Need for Greed” has got quite out of hand.
I do not take the credit for this idea as the Prime Minister of Turkey stated this partial solution ? to their employment crises at an address to Industry & Commerce.
any business leader willing to stand up and be counted?

you don’t get it … the answer is not to put further demands on businesses – the answer if to free up business to make commercial decisions that are in the best interests of the business … Create an environment where business can thrive and as it grows and prospers it will employ many more than 1 in a 100

I agree but I think there is room for both.

take the 4 major banks …. I would estimate that there are more than 150 people across the 4 banks earning more than R10m per year. skimming R1m off each of these gets you starter funds for R150m for a bank-sponsored programme of upliftment.

why hasn’t anyone suggested this ? because since day 1 SA has been the home of the entitled and its every man for himself.

How does employing unnecessary people help big business other than pushing up their costs which ultimately get paid for by you, the consumer? We have complicated and cumbersome labour legislation which means that if you do employ someone, it is easier to get rid of your wife then your employee if you no longer want them around. It is NOT the business of private enterprise to be responsible for the unemployment statistics of the country. If you want business to take on that responsibility, then private enterprise must make the rules. ~Not government or trade unions. Yes, private business must play their part, but government must change the rules too. We want to employ people yes, but we do not want to have them as our ball and chain for life. If government make it difficult for enterprise to employ people, then who is to blame?

welcome to globalisation and the free economy.

Good Day

Unemployment is certainly the greatest challenge facing South Africa.

The challenge being – how do we reduce unemployment significantly and in a sustainable manner.

Big business is not doing too much and to expect SME’s to solve the problem just won’t work. They are too small and have very limited resources.

However, government has significant resources, but above all, is the largest single consumer of goods and services in SA.

It is the latter that must be used by government to incentivize and stimulate job creation and growth.

Legislating AA and BEE/BBBEE has resulted in a tremendous change and transformation of corporate SA. Corporates have been able to use their BEE scorecards to tender for and secure government contracts.

I suggest that the government link JOB CREATION and BEE. So a company will receive a score based on transformation and job creation. Both should have a weighting of 50%.

Legislation should require companies to add a NET 1% to their workforce every year, measured over a rolling 3 year period. This is quite easy to measure/ascertain as companies are audited on an annual basis.

Companies that meet or exceed these targets should get preferential treatment when applying for government business. I personally don’t see anyone complaining that a certain company gets more government business than other companies when they are creating more employment than the others. This is positive for our country, for our government and most importantly for our economy.

Research/statistics shows that consumers make up 2/3 of our economy, so we are very dependent on consumption for economic growth.

The beauty of this approach is that over time – 5/10 yrs – we will begin to see the compounding effects of the increased spending power in our economy, across most, if not all sectors eg banking, retail, manufacturing, transport, property etc.

You might ask, how will companies and their shareholders feel about this?

What about their cost to income ratio?

Let’s look at this: initially there may a drop in share prices, but in my opinion, this will be short lived as markets are Forward Looking.

Secondly, markets like certainty more than anything else. Share prices have continued to rise in spite of BEE/BBBEE.

Let’s use an example: Company X – Before – Income R 10 billion After – Income R 10 billion

Expenses R 5 billion Expenses R 5 036 000 000

Staff Complement 30 000 Employees 30 300

Cost:Income Ratio – 50% Cost:Income Ratio – 50.36%

In my opinion this something government should look at doing. It is not a govt’s responsibility to create employment and to keep employing more and more people.

Govt should be an employer of last resort.

You said “In my opinion this something government should look at doing. It is not a govt’s responsibility to create employment and to keep employing more and more people.”

While there is merit in what you say, Government must take full responsibility to create an environment in which job creation and the employing of people is made friendly and made easy. And that includes legislation. Present attitudes of government and the unions and the labour laws in place are prohibitive disincentives for private enterprise to employ people. Unions continually create a hostile environment for employers to create jobs. Any liability a company takes on in the form of an employer is for the cost of their investors or shareholders. ALL and every failure that occurs has a cost which is passed onto the consumer. You cannot get a tax refund or rebate for employing someone who ends up useless and a liability. You get stuck with them. You cannot get rid of them. They end up being leeches on the system.

Hello Sweetpea

you can have the most relaxed legislation in the world, in fact you can have no legislation at all, but that won’t lead to a drop in unemployment.
An economy, any economy, needs demand ie consumers with buying power, that is what is lacking in SA, simple as that!!! Youth unemployment is over 60%!!! so where is future demand going to come from??????????? that is why our economy continues to shrink!!!!

For some strange reason the places with the lowest unemployment figures (Cape Town and the Western Cape) are NOT run by the ANC.

It is not strange. It is fact.

End of comments.

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