Unemployment growth is a deep systemic threat

The quarterly Labour Force Survey from Statistics SA is a timely reminder of what really matters when assessing political risk associated with investing in South Africa.

Julius Malema’s predations,  Jacob Zuma’s extraordinary sex life, Cosatu’s and the SACP’s millennial economics would just be irritating noise, unless they relate to the country’s chronic levels of unemployment, poverty and inequality – and the racial overlay of the same.

Think of society as a complex system and unemployment, poverty and inequality as deep tectonic stresses that honeycomb and hollow out the underpinnings and foundations of the system. As the stresses grow so does the potential for catastrophic events.

South Africa has the highest jobless rate of the 62 counties tracked by Bloomberg and the unemployment rate rose for a fourth consecutive quarter in the first three months of this year – that’s a 1.3% contraction in employment or the loss of 171 000 jobs in that period. The following graph shows the general trend – and also demonstrates slight seasonal increases in the fourth quarters of 2008 and 2009, the result of the obvious stimulations from the holiday season and the rush to get things done.

Employment contracted in all industries but Agriculture, Private Households, Transport and Community and Social Services.

Read this alongside these points:

  1. More than 50% of South Africans live within the most common definitions of “poverty” or “below the poverty line”,
  2. South Africa has dropped approximately 30 places in the UN’s  Human Development Indicators index (to 125) since 1990;
  3. South Africa shares with Brazil and a few other Latin American countries the highest measures of inequality (the “Gini-coefficient“) in the world.

Add to this the dismal outcomes of Affirmative Action and Black Economic Empowerment and you have a system shot through with instability.

When we worry about the ANC and its performance – and the increasingly profound failures of its key leaders –  when we worry about State Owned Enterprises like Eskom being hijacked by a predatory new elite, when we worry about the collapse of governance and service delivery in poor townships; our worry is actually about the impact on the deep, underlying trends in unemployment, poverty and inequality- and the possibility of fixing these problems.

When the bombast coming from the political and economic elite draws the national focus away from the real issues and challenges, then the trouble we are in becomes more threatening and more concerning to investors.

6 thoughts on “Unemployment growth is a deep systemic threat

  1. Nic you’ve hit the nail on the head. All the rhetoric doesn’t change the bottom line. But how to fix it?? Weaker rand for exports; import taxes to block the imports; skills increase for quality – all of these bear other, more baleful side effects as well.

    1. I am completely in agreement Sarah (and luverly to see you here!). I unfortunately don’t have an answer and am therefore not too absolute in my rejection of the “learning through doing” approach of Rob Davies’s ipap2 and the stuff from Ebrahim Patel’s new dept – I don’t like their economics, but they are the only ministers I am certain are doing what they are doing because they believe they have a strategy to fix unemployment, poverty etc. My gut distrusts the capacity of this government to get anything right … and my instincts are against giving them more resources to piss up against the wall. That is not to say that ALL governments should steer clear of regulating the economy and attempting to influence economic growth to take a form that maximally benefits the majority. This should be the role of governments (which is why I am all in favour of Obama’s health reforms, for example) but once a government is dysfunctional or even predatory (which this one is becoming) I am not sure that “policy discussion” has any meaning ….. hmmm that is WAY too negative and while I will post this reply I will think about moderating what I have to say during the course of the day.

  2. Nic – really like this piece. What is your source for the following “More than 50% of South Africans live within the most common definitions of “poverty” or “below the poverty line””?

    1. Thanks Jannie …. I am just about to post about some of these figures … I have been doing some work on the poverty stuff and found a great source in Institute for Justice and Reconciliation 2009 Transformation Audit: Recession and Recovery. One set of figures from 2006 puts absolute levels at 54% of South Africans living below R346 per capita in 2000 rands (from AMPS) and 52.6% living on less than R322 per capita (from Stats SA) ….. other figures show significant improvements in the last 7 or so years as a result of the social grants so a figure from AMPS using a poverty line set at R3000 per year in 2000 rands indicates 41.6% of the population is living below that line in 2009 ….. much depends on how you slice and dice it … but I will post these figures in more details in the next while … I am busy with a roadshow and am on my way to Jhb later today.

  3. Hi Nic

    What I can’t help wondering about is what the contraction figure would’ve been without the World Cup contracts currently under completion … this may have inflated the employment figures artificially (and temporarily). When the fans and players leave many workers will face the end of a contractual period of work with nothing to replace it. Especially in construction, security and hospitality where the jobs were borrowed employment that certainly can’t be sustained after the festivities … how far has the govenment progressed with creating employment through a public works programme, do you have any information about this? The most worrying part is that the last GDP figures show growth of over 4%, why is this translationg in job losses?? Or am I missing something obvious here … ?

    Regards
    Wendy

  4. No Wendy, I think you identify something very worrying. There appears to be a significant lag between GDP figures and unemployment figures. We can expect a degree of low job or “jobless” growth just as we emerge from the recession because much of the gains come about from increased efficiencies – and the economic machine remains lean and mean .. but the data releases are as confusing to me as they are to you …. so I will have to ask some economists what they think. The Fifa hangover story is going to be difficult … I am busy with a magazine piece in which the conflict (in my own mind) between the excitement of the world cup plays against the very dark political story that is unfolding …. I want to find a way to salvage my own happiness and pride (there, I admitted it) about the soccer from the sea of political negativity and, frankly, the very disturbing observable trends in unemployment, inequality, poverty, racial skewness (of ownership and control of the economy, crime etc. which I think are strongly predictive for the country and government as a whole ….

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