/ 19 August 2011

South Africa’s hidden economy

Consider these cases. A builder has about eight people who work on his projects on a more or less regular basis, but his company has only one employee, himself. Everyone else contracts to the company.

Case number two is a small business owner involved in the manufacturing of signage, who outsourced his operation to a labour broker after protracted disputes with a union. He now has one-third fewer workers, the same productivity and, from his point of view, hassle-free labour relations.

The third case is a Mpumalanga plantation owner who has 18 farms on which 400 people work, but not a single one of them is an employee; the work is all done on an out-sourced, contract basis.

Official figures show that the number of jobs peaked at 14.1-million in 2008 and has fallen since to 12.9-million. The latest Statistics South Africa quarterly labour force survey — for the second quarter — shows that unemployment is at 25.7% and 174 000 more people are unemployed than in the previous quarter.

The Democratic Alliance’s Ian Ollis said: “Since 2009, when President Jacob Zuma took office, South Africa has shed a net total of 902 000 jobs.”

Finance Minister Pravin Gordhan this week bemoaned the over-regulation of the labour market. He did not give details, but treasury has been trying unsuccessfully for some years to introduce a youth subsidy for first-time workers. Gordhan has said that the new scheme will begin in April next year. His complaint comes as the National Economic Development and Labour Council is deliberating on new labour market restrictions.

But policymakers in the department of economic development argue that critics of labour regulation fail to give specifics when invited to do so. They say that at a median wage of just R2 800 a month South African wages cannot be considered excessive or the labour market to be too regulated.

When the democratic South Africa dawned, gross domestic product (GDP) stood at a humble R550-billion; tax collected amounted to R113-billion. This year GDP will top R2.7-trillion; tax collected comes in at R664-billion.

Social spending — welfare, health and education — increased from R33-billion in 1995 to R181-billion today. The number of registered taxpayers has increased tenfold from 1.8-million in 1995 to 10-million; companies registered to pay tax have exploded from 456 000 in 1995 to two million.

The increase in tax revenue has funded a dramatic increase in social spending, including on grants, which were paid to 2.9-million people in 1997 compared with 13.1-million now.

Unemployment stands at 25% of the economically active population, but employment grew by 62%, from 8.7-million in 1997 to a peak of 14.1-million in 2008, before declining to the present 12.9-million.

The 62% growth in employment represents 5.4-million new jobs, but the size of the economically active population (anyone aged 15 to 64 employed or looking for work) increased more or less as fast as the job growth rate: from 13.5-million in 2001 to 17.4-million in 2011, according to data from the Commission for Employment Equity. This increase in population size has meant that the unemployment rate has remained stubbornly high, at about 25%.

The poor performance of manufacturing has been blamed for the lack of employment growth; this sector’s contribution to the GDP has fallen from 20% in 1995 to 17% now. But this is a relative decline — finance and business services have increased from 16% of GDP to 24% in the same period. In terms of value-add manufacturing has grown from R106-billion in 1995 to R459-billion last year.

A war of words broke out earlier this year between Adcorp’s Loane Sharp and Stats SA’s Pali Lehohla after Sharp claimed that the government underestimates the true size of the job market by as much as four million.

Adcorp estimates the job market at 12.8-million formally employed and 3.8-million temporarily. It estimates that close to one million people are employed through labour brokers.

Stats SA shot back, saying that it uses rigorous, peer-reviewed methodology whereas Adcorp has not disclosed the research methods that underpin its findings. Both measurements include the contribution of the informal sector, but Adcorp sees this to be greater than Stats SA.

Earlier this month the Commission for Employment Equity published its biannual review based on the compulsory reports of 18 500 companies each of which employs more than 150 workers.

It found significant evidence of informalised labour. Of the 926 976 new jobs included in its 2010 reports, nearly half — 445 703 or 48% — were temporary.

The official number of employed people may stand at about 13-million, but many more people have bank accounts and are accessing credit.

National Credit Regulator records show that 18-million people have credit accounts and banking statistics show that 21-million people have bank accounts. This is up by 53% since 2004, when the number stood at 13.7-million.

The regulator’s data show that the biggest category of credit facilities accessed is through store cards (38%), with credit or garage cards (32%) and overdrafts (16%) making up the bulk of the rest.

The gross monthly income of the people who had credit facilities granted to them was lower than R10 000 in 72% of cases.

How easy is it to get credit? The RCS Card is indicative of most others and works at 14 000 shops. All that is needed for an application are proof of employment, bank account and residence. These details are checked and the card company then decides to grant credit or not. For most bank-related credit facilities it is the same — some require a minimum monthly salary, but most just ask for proof of employment for the previous three months.

South African Revenue Service (Sars) data show a rapid growth in people moving up the tax brackets. In 2003 37% of the 3.35-million taxpayers were below the pay-as-you-earn threshold; by 2009 this had fallen to 18% of 3.58-million taxpayers. Only 14.3% of taxpayers were in the R150 000 to R400 000 bracket in 2003; by 2009 this number had more than doubled to 35.5%.

Sars does not provide a racial breakdown of who pays what tax, but All Media and Products Survey data analysed by economist Servaas van der Bergh have shown that an additional 5.6-million people joined the working and middle classes — earning above R200 000 a year (for a household of four) between 1994 and 2008. This is an impressive 65% growth from 8.6-million to 14.2-million people.

The black share of these classes grew from 33.4% in 1994 to 80% in 2008, according to Van der Bergh. In the case of the higher-middle class — R320 000 annual income for a household of four — the black share jumped from 12.3% to 36.4%.

The Commission for Employment Equity review showed that black people remained under-represented in senior management and in general were making slow progress up the ranks. An exception was qualified black professionals, who were up by 50% since 2006.