“To judge whether economic policy in South Africa is ultimately an economic and social success, presumably a clear, sizeable growth in employment and associated decline in unemployment are necessary.”
This quote from a Goldman Sachs employment scenario plan released this week indicates that while the rationale for a Growth and Development Summit is still contested, the summit is forcing joblessness to the top of the economic agenda.
The investment bank’s report is part of the plethora of research and opinion positions being put out for debate ahead of the June 7 meeting, where the issue of jobs will finally take centre stage.
Until now, the mantra in business and government circles of “sound economic fundamentals” has overlooked the drag on growth that an official unemployment rate of 29,5% has become.
The report, prepared by analysts Carlos Texeira and Rumi Masih, paints three scenarios for employment. These assume different sets of growth rates which, in turn, are influenced by policy choices such as fiscal and labour market policy and performance of factors like productivity, wages and investment over the next 10 years.
It calls these the “optimistic”, “central” and “pessimistic” scenarios.
Pessimistically, unemployment will remain stubborn, at best falling by half to 16%. An expanded figure of 41,2%, which includes those who have stopped looking for work, is probably more accurate than the official 29,5%.
Reducing unemployment to 11% (the government has set itself a target of 12%) will require growth to expand from the current 3% to 7,1% by 2014.
The more realistic scenario is the bank’s “central” option, which requires that growth double to 6,2%. This will reduce joblessness to 16,5% — a rate more manageable than the current crisis.
Until 2014, the bank argues, it is also necessary for the state to bolster welfare benefits — an unusual call by business, and one that tallies with the growing consensus in civil society. “South Africa’s unemployment rate will remain very high in the period being addressed,” say Texeira and Masih.
“The implication of any of these outcomes is that in the years ahead, government most likely will need to allocate more resources within a disciplined fiscal policy to alleviate the effects of poverty.”
In a finding that no doubt pleased the government when Goldman Sachs presented it earlier this week, the report states that “in our view to further boost economic growth does not require a new policy framework, but rather the acceleration of many of the reforms already taking place”.
But one of its reasons for the loss of 1-million jobs since 1994 will be music to labour’s ears. “Structural and fiscal reforms by the democratic government contributed to some of these job losses. The introduction of new labour legislation may also have dampened the utilisation of labour.”
The government’s current trade, fiscal and monetary policies get the nod. However, the report says “the aim should be to have steady, relatively low positive real interest rates,” and finds existing real rates high.
The biggest problem it finds is that levels of fixed investment are too low because of the correlation between investment, productivity, growth and employment. “Irrespective of the reason, the bottom line is that South Africa’s investment ratio remains low by emerging and developed market standards.”
While trade policy is likely to stimulate foreign investment, the bank says that new economic policies have created uncertainty about future profits. “The problem however lies in the additional costs/taxes to business that have emerged recently”, and adds that government “needs to make clear its vision on what additional burden it expects business to carry in the future”.
The report makes two additional recommendations that have become hardy annuals: the elimination of foreign exchange controls and “labour market flexibility”. It argues: “If policies to raise the growth of fixed investment are successful then it is possible to both increase employment as well as increase wages, if there is a flexible labour market.”
The report also calls for incentives for labour absorbing technologies, the recruitment of skilled foreigners and the address of the mispricing of labour. “The other element of South African labour policy in recent years has been increased regulation of the market, and an associated increase in the cost of labour.”