/ 11 June 2021

Economy’s signs of life mean little for the poor

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Struggles: Many South Africans sought relief from the Unemployment Insurance Fund at the start of the Covid-19 pandemic. Jobs are now increasing but not fast enough. (Delwyn Verasamy/M&G)

Still reeling from Covid-19’s initial onslaught, South Africa recorded better-than-expected GDP growth in the first quarter of 2021. 

This comes after the South African Reserve Bank recently revised its growth outlook to 4.2% in 2021, up from 3.8%. Economic recovery has been buoyed by the rally in key commodity prices. And earlier this week the rand rose to a two-year high against the dollar.

But whatever recovery has occurred will probably only be enjoyed by the portion of the population lucky enough to be employed, analysts say. For the have-nots, the picture is bleak. 

The country’s unemployment crisis has continued to deepen. In the first three months of 2021 the unemployment rate reached 32.6% — the highest since the survey was launched in 2008, according to Statistics South Africa’s (StatsSA’s) quarterly labour force survey. 

This dire statistic conceals even harsher ones: the unemployment rate under the expanded definition, which includes those who have given up looking for work, now stands at 43.2%. Youth unemployment under the expanded definition is at 74.7%.

Even as the economy recovers, after a Covid-induced 7% contraction in 2020, there are no signs that jobs will bounce back to the already low pre-pandemic levels.

Analysis by PwC shows that under the baseline economic growth scenario, South Africa’s economy will add only 467 000 jobs in 2021. The baseline scenario sees employment returning to pre-pandemic levels by 2024. 

Isaah Mhlanga, chief economist at Alexander Forbes, says unemployment could continue to worsen. Alexander Forbes has forecast that the unemployment rate will continue to rise over the next five years, reaching 37%. 

“This is simply because the rate of the recovery is much slower than the rate of labour force growth. It is also much slower than the rate of population growth. So the economy is not creating enough jobs to absorb everyone that is getting into the labour force.”

The rising level of unemployment is not a sign that the economy has stagnated, Mhlanga said. “The level of economic activity is rising …. Jobs will be created but those jobs are too few to cater for the number of people that are getting into the labour market. It is not a reflection of an absolute loss in jobs over the next five years.”

This week, reported GDP figures surprised on the upside with an annualised growth rate of 4.6%. The first-quarter growth marks the third consecutive quarterly increase in real GDP, but the economy is still 2.7% smaller than it was in the first quarter of 2020.

According to StatsSA, growth was driven by the finance and mining sectors, which contributed 2.7 percentage points to GDP growth. Finance is the largest industry in South Africa.

Mining sector growth is a reflection of the recent surge in commodity prices. Platinum mining in South Africa accounts for more than 80% of the world’s platinum group metals (PGM) reserves. Higher PGM prices have been triggered by an increase in demand from the automotive industry and low supply growth.

In May, the reserve bank’s monetary policy committee attributed its revised growth outlook to commodity prices having risen to new highs, “strengthening income gains to the economy”.

But the finance and mining industries have lower employment shares relative to their GDP contribution. 

Economist Thabi Leoka said it is worrying that growth is being driven by finance and not by more labour-intensive sectors such as manufacturing. “… there are sectors that are growing. But the fastest growing sector is not one that employs a lot of people,” Leoka said. “The finance sector is a non-tradable industry, we don’t get a lot of revenues from it, it doesn’t employ many people — and when it does, it typically employs highly skilled labour.”

Manufacturing, mining, trade, agriculture and tourism need to grow faster to drive employment, she added.

Leoka noted that finance has been the main driver of growth for years. “This indicates the structural problems that we have …. For mining, trade and manufacturing to grow you need a concerted effort in terms of policy; opening up markets, boosting entrepreneurship, supporting manufacturing, localisation.”

Finance and markets analyst Mark Barnes agreed it is better to see growth in sectors “which lend themselves to an increase in demand, directly resulting in an increase in jobs”.

Growth in mining, which is a big employer, is positive, Barnes added. But “to the extent that those companies contributing to an increase in GDP are already at full employment in the context of their profitability, they are hardly going to fortuitously hand it out to the rest of us.”

Barnes noted that growth in mining is also good insofar as it contributes to the country’s reserves. “This increases the role the state can play in growing the economy. And the state has a greater employment mandate.”

On whether corporate South Africa should be doing more to invest in the economy and drive employment, analyst Simon Brown said: “Ultimately corporates will consider their fiduciary duty to maximise profit. And they are pretty much going to do that in any way they can.”

Covid-19 shook business confidence in South Africa, causing it to crash to an all-time low in the second quarter of 2020. But even before the pandemic, companies — including Woolworths, Sasol and Old Mutual — chose to expand outside of Africa, usually with little success.

“Corporates talk obliquely about stakeholders, which includes their staff and communities. But if they think that they can make a better return elsewhere, they’re not going to worry about the political, social, and economic implications of that,” Brown said.

If there is improved economic activity, it is going to have a fairly broad benefit, he said. “There certainly is trickle down … But trickle down as an economic concept has largely been disproved as being able to solidly lift people out of poverty.” 

“It takes a bad situation and makes it slightly less bad. It doesn’t take a bad situation and makes it acceptable.”

He said the GDP numbers only refer to the two thirds of the population that is employed. 

“And that’s great for those two thirds. But there’s a 32% unemployment rate, which means there is a significant portion of the population to which the GDP is irrelevant … GDP is very much a measure of people who are active in the economy. So if you’re unemployed, it doesn’t include you.”