Last week South Africa edged closer to the holy grail of its inflation target, the rand continued to display defiant powers and we were reminded that jobs are a social time bomb. Maybe it is time to rearrange a familiar tune and put jobs in the first verse.
Figures released by Statistics SA on Tuesday showed that in August, CPIX, inflation minus mortgage rates, stood at 6,3%, down from 6,6% in July. The statistical agency also released the Labour Force Survey, which showed that unemployment among the economically active stood at 31,2 %. If you broaden this to include discouraged work-seekers, the figure jumps to 42,1%. On Tursday the rand touched R7,11 to the dollar, its best level in five months.
Over the past three years, any unemployed person listening to Finance Minister Trevor Manuel deliver the Budget, or Reserve Bank Governor Tito Mboweni presenting his once quarterly and now two-monthly interest rates decision, could have been forgiven for thinking that job creation is a by-product, not the ultimate aim, of sound economic management.
It is time to reassure the unemployed that decisions affecting the economy are ultimately made to secure quality, sustainable employment opportunities for them. If not now, then certainly before the prolonged joblessness creates a scar that can never heal. To quote American economist Alfred J Marshall: ‘The first thing to tell the unemployed is that [the] government does not create jobs, and that the policy path pursued thus far is correct. If we did things any other way, we would be saddled with high interest rates, high inflation, unsustainable state debt, a high budget deficit, a weak currency — and still no jobs. The ultimate solution lies in a prosperous world economy. This is why we should lament Cancun.”
Dawie Roodt, chief economist at The Efficient Group, offers a few ideas of what must be done to create jobs. First, the fight against inflation must not be relaxed. Lest we forget, the target is to have an annual average CPIX of between 3% and 6 %.
Roodt believes that although the target will not be achieved this year, next year’s CPIX average will stand at 5,5%. For the remainder of the year, he anticipates two interest rate cuts of 1% each.
On the fiscal side of things, Roodt suggests relieving the tax burden on the economy — first by decreasing corporate taxes, then by moving the top tax bracket from its current level of below R300 000 a year to more than R500 000. This will help relieve the tax burden of middle-income and high-income earners — the savers and investors who provide capital.
Finally, the rand, one of the most traded and liquid currencies in the world, continues to strangle the export sector. Roodt believes the Reserve Bank can afford to buy up dollars and let the market know about it.
Then, without aiming for a fixed range of exchange, the currency should be gradually devalued. Roodt’s suggested level for now is R8,50 to the dollar, steadily moving downwards in the years ahead.