As if a recession risk and a near-bankrupt power utility aren’t enough, South African President Cyril Ramaphosa now also has to deal with the news that unemployment has surged to the highest level in more than a decade.
The jobless rate in South Africa rose to the highest in at least 11 years, according to Statistics South Africa’s current data series that starts in 2008 and is based on a quarterly survey. It gets worse: earlier biannual data published by the agency suggests that unemployment is now at the highest since 2003, when it was at 31.2%.
The latest increase was partly because 150 000 additional people reached working age and the number of people classified as discouraged work seekers or not economically active dropped by more than 300 000, which means they were included in the official jobless rate. Still, the expanded definition of unemployment, which includes people who have given up looking for work, increased to 38.5% from 38%.
Gross domestic product contracted the most in a decade in the first quarter. While the Reserve Bank said economic growth probably rebounded in the three months through June, the surge in unemployment is also due to the lagged effect of poor output at the start of the year, according to Siphamandla Mkhwanazi, an economist at FirstRand Group’s First National Bank.
Ramaphosa pledged to boost growth to 5% by 2023 when he was campaigning to become leader of the ruling African National Congress two years ago. This is also the rate that the National Development Plan, the government’s 2012 economic blueprint that Ramaphosa co-authored, says is needed to reduce joblessness to as little as 6% by 2030. According to central bank forecasts, expansion will only reach 2% by 2021.
“South Africa’s economic malaise is weighing heavily on the country’s ability to create employment,” PwC economists Lullu Krugel and Christie Viljoen said. “Turning the tide on the weak economy is not enough” because structural changes such as improving the quality of governance, increasing the level of competition in many industries, more labor-market flexibility and reducing the cost of doing business are needed, they said in an emailed note.
New population estimates show there are 58.8 million people in South Africa. Almost 30% of them are younger than 15 years and will enter the labor market in the next decade.
“Any viable solution to the unemployment crisis will need to include a significant revaluation of the current education system to ensure necessary skills are produced for the economy,” Lara Hodes, an economist at Investec Bank, said in a note.
Job losses are likely to continue: Business liquidations rose 25% in the second quarter compared with a year earlier. And with the government wage bill making up more than 35% of the national budget, the National Treasury said in February it will scale up early retirement for state employees to cut costs. Community and social services, which includes government, is the largest employer in the country.
© 2019 Bloomberg L.P.