Jobs bloodbath in South Africa continues

South Africa has been rocked by news of mass retrenchments over the last three months as businesses continue to feel the effects of a weak economy and the coronavirus pandemic.

Data published by Statistics South Africa last week shows that 2.2 million jobs in the second quarter of the year, leaving just 14.4 million employed people in both the formal and informal sectors.

Since June, a number of large South African companies have indicated that they plan to make retrenchments including:

  • Leisure and entertainment group Sun International has warned of 2,300 layoffs;
  • Industrials group Bidvest said 1,200 jobs could be affected by the sale of its car-rental unit;
  • Barloworld has warned of retrenchments that could affect 3,750 workers;
  • Mobile operator Cell C  expects to close 128 retail stores around the country, putting 546 positions at risk.

Commenting on the job losses, Business Leadership South Africa (BLSA) chief executive Busi Mavuso said that StatsSA’s figures point to a growing unemployment crisis in the country which has been compounded by the pandemic.

“We have always had an unemployment crisis. Our lowest unemployment rate was in 2008 when it fell to 22%, a figure that would still be considered a crisis in many other countries. However you look at it, our economy simply doesn’t employ enough people,” she said.

“We can use social grants to limit the poverty this causes, but we cannot substitute for bad policy that leads to unemployment in the first place.”

Nedbank economists Busisiwe Radebe and Nicky Weimar said in a research note, that the latest labour figures make forecasting future employment figures challenging.

This is because doing so would require knowledge of how many of the non-economically active group would once again enter the labour force.

“The numbers however also signal how difficult the economic recovery will be, with so many having completely just dropped out of the labour force,” Nedbank said.

“The chances of a V-shaped recovery are probably out of reach and the South African economy will need some form of further stimulus.

“The Reserve Bank, by keeping rates on the hold, have signalled that they have done as much as they can for the recovery, therefore other more structural changes will have to take place to put the South African economy a better footing.”

Courage needed

Mavuso said that it is the instinct of business people is to employ more people where they can. Every business wants to grow and more people are a key way to do it, she said.

“Yet our economy has seen a structural shift out of employment-intensive sectors like mining and industry and into highly skilled and capital-intensive sectors like financial services.”

She pointed to the automation of mining which has obviously been affected by difficult labour relations that have seen investors spending money on machines rather than people.

“I have read arguments that our stringent labour regulations don’t contribute to unemployment. I find the logic of these tortuous. It is unarguable that the higher the cost of an input in production, the less of it will be used, especially when there are substitutes.

“And there are substitutes for labour – work with fewer people and give them more machines to increase their productivity.”

While wages play a part, Mavuso said that much of the cost is created by regulation as employers spend a great deal on labour disputes that end up in the CCMA or in court.

A lot of production is also lost to strikes, she said. “Many employers sit with unproductive or even destructive staff members because it is too difficult to fire them. With millions of unemployed, our labour regulation is incredibly biased toward the already employed.

“An economy that is able to quickly replace unproductive workers at minimal cost will be one that employs many more workers, both because on average they will be more productive, and because the all-in cost of hiring them would be lower. That’s even while wages are high.”

However, Mavuso said that South Africa seems to lack the political courage for an honest conversation about these issues.

“The employed are a powerful political bloc while the unemployed don’t have the resources to advocate for their interests. At least, not yet.

“As their numbers grow relative to the numbers of employed, they become more politically important. The time cannot come fast enough for us to talk openly about the kind of radical changes we need to really get the economy growing and hiring more people.”

Read: Major strike action in South Africa this week

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Jobs bloodbath in South Africa continues