The need to create jobs has emerged as the burning issue for the government, labour and business, reports Reg Rumney
Suddenly, at the end of a year in which economic growth and fiscal and monetary discipline held centre stage, joblessness has entered like Banquo’s ghost.
The official unemployment rate is around 33 percent, but the Reserve Bank has estimated formal unemployment at more than 40 percent.
Why has the concern about unemployment re- emerged so suddenly? Probably because, after years of recession, South Africa had an economic recovery this year, but few jobs were created.
Growth this year has been good, held back only by a poor performance from the gold mines as they struggled to come to terms with declining ore grades and labour problems, and by agriculture, hard-hit by drought.
The South African Chamber of Business believes economic growth, as measured by the gross domestic product — the total value of all goods and services produced in the economy — – will be at least three percent this year.
The Budget presented in March by Finance Minister Chris Liebenberg was designed to emphasise to the world that the new government would not embark on irresponsible spending. It promised to reduce the amount the government has to borrow to balance its books, the so- called “deficit before borrowing” and to switch from spending on salaries and the like to investment; that is, to reduce “dissaving”.
Foreign investment poured in: Old Mutual economist Terence Moll says capital inflows will total about 2,5 percent of gross domestic product this year. Most of this was speculative, going into bonds and shares, but Alan Hirsch of the Department of Trade and Industry has reckoned that by June this year R2,5-billion had flowed in through foreign direct investment.
Business confidence remained fairly high, and economic growth led to a surge in imports.
Reserve Bank governor Chris Stals’ monetary policy did seem to have achieved its results: inflation fell below seven percent, a level last seen some 23 years ago, although competition from food imports must take some
Firms did well this year, in general. With agriculture and gold mining stripped out, the economy increased output by 4,3 percent during the first half of the year.
So why were so few jobs created?
Was it that the Trade and Industry Ministry, under Trevor Manuel, embraced competition more vigorously than some South African businessmen liked? Were tariffs on imported goods, designed to protect South African industry, reduced too sharply?
Job losses are an inevitable consequence of the long-protected South African industry being exposed to outside competition. What then of the vaunted foreign direct investment of more than R2,5-billion this year?
Hirsch notes that there is almost a total lack of foreign investment in outward-oriented manufacturing. He says most investment is aimed at getting a share of the domestic market. This introduces competition, but not the much-need filip to export earnings, and to
Domestic and foreign businessmen, naturally enough, say they would like better incentives to locate their plants here.
The conservative answer to making that growth come about is socio-political stability, fiscal and monetary discipline, wide-ranging structural reforms through trade, competition and privatisation.
“Flexible labour markets” are also part of the prescription, and inevitably this is taken to mean lower wages as well as higher productivity. The union movement, on the other hand, has argued that higher wages actually lead to increased productivity. Economists believe this is putting the cart before the
The less-conservative solution is speeded-up government spending, principally, through the Reconstruction and Development Programme (RDP), on things like housing, stimulating the economy and creating jobs.
The pace of the RDP as whole has proved disappointing, for various reasons that do not all lie with Minister without Portfolio Jay Naidoo’s office. For example, a hoped-for building boom did not come about this year because of the failure of the low-cost housing
However, a speeded-up RDP could raise investor fears over fiscal policy becoming more
One of the conservative prescriptions, privatisation, is not a panacea but seems necessary in some form or other, if only to cut into the State’s R30-billion-a-year interest bill on central government debt and to foster competition. Unfortunately, it will almost certainly lead to some job losses, at least in the short term.
Whatever the right prescription, in the coming year economists agree growth will be even better than it has been this year.
But little progress is likely in creating more employment. Moll predicts a four percent growth rate, the best in 15 years, and says it could be higher. But, he says, even though employment in the formal sector is likely to grow at over two percent next year, the labour force is growing faster than that, and unemployment is set to rise further.