SA could learn from Spain's reform
Spain has historically had relatively high unemployment for a developed country, but the eurozone crisis has pushed its proportion of joblessness to 22.85%, compared with South Africa’s 25%. Youth unemployment in Spain now tops 48.6%, not too dissimilar from South Africa’s 51% for people aged between 15 and 25.
Population size is similar at 46-million for Spain and 50-million for South Africa, but the Spaniards dwarf us in economic output: they generate a gross domestic product of R11-trillion compared with our R3-trillion.
But Spain is in recession, meaning the economy is shrinking, whereas South Africa’s is growing.
Spain’s public debt, at about 60%, is nearly twice that of our 36%, but is modest by European standards. But public debt is not what has put Spain in the headlines as Europe’s newest problem child – it is its unsustainable private-debt markets.
Investors are spooked by Spain’s troubled banking sector in which, according to its central bank, total exposure to real estate is €338-billion, about half of which – €176-billion – is problematic, meaning payments are in arrears.
In South Africa’s case, by contrast, National Credit Regulator figures show that the total mortgage loan book is R791-billion and 88% of loans are up to date.
Spain’s borrowing costs for 10-year loans spiked above the 6% danger level this week and credit default swap rates, the cost of insuring debt, peaked at all-time highs.
The country is preparing to recapitalise its banking sector by demanding, among other things, that banks set aside €35-billion against property loans. This after €54-billion has already been written off since the property crash in 2008. Some of the worst-performing banks will get an injection of state funds through partial nationalisations.
The initiatives are intended to force the banks to write down assets to a level at which they can be sold, kick-starting the property sector.
Markets internationally were weaker this week following elections in France and Greece, where voters were shown to reject austerity.
It sets the stage for potential dis-agreements between France and Germany, the eurozone’s largest two economies, and for Greece to leave the euro in some form of disorderly exit.
Spanish private-debt worries add to what again looks like a troublesome cocktail.
South Africa’s own financial position may be relatively sound, but renewed eurozone instability will dampen demand globally and be felt negatively on our shores.
Spain’s bank recapitalisation moves are part of a comprehensive package of economic reforms it has put in motion. These include cutting state expenditure, freezing civil servants’ salaries as well as the minimum wage, restructuring state enterprises to create a smaller and more efficient public sector and introducing labour market reform.
“The main goal,” said a document released in March by the Spanish government, “is to slow down job destruction in the short term and lay the foundations for creating stable employment as soon as possible.”
It blames a stringent labour framework for a rise in the unemployment rate from 8.3% in 2007 to 22.8% in 2011. The plan is to restructure the market so that adjustments can be made to wages and working conditions rather than mainly through dismissals, which is now the case.
Severance costs are to be cut and incentives given to companies to hire people on indefinite contracts. Bonuses will be given for the hiring of workers aged between 16 and 30.
Whereas campaigns continue in South Africa to ban labour broking, the Spanish government is authorising temporary employment agencies to function as private employment agencies because “they have a widespread network of branches throughout Spain and wide-ranging experience in the labour market”.
The intention is also to give priority to agreements at company level over industry level to introduce more flexibility into the labour market.
You could make the argument that Spain has to act because of the financial crisis engulfing it. South Africa’s key numbers are mostly healthier, but just one of our numbers, unemployment, should mean that reforms such as the long-mooted youth wage subsidy should be pursued here with as much vigour as they are by our sunny northern cousin.