Unemployment shock coming for South Africa

 ·29 Sep 2022

Recent data from financial services firm PwC expects that by 2030 South Africa’s unemployment rate will be sitting at 40%.

The group said that this is due to a faster growth rate in the labour force, with economic growth and job creation unable to keep up.

Almost 350,000 adults are to be added to the labour pool every year, PwC said, while the economy is only able to grow at a rate supporting around 200,000 jobs per year. This will drive unemployment higher.

PwC’s downside scenario indicates that South Africa’s unemployment rate would be sitting at 40% by the end of the decade.

The country’s official current unemployment rate, as provided by Stats SA’s Quarterly Labour Force Survey (QLFS), decreased, albeit marginally, by 0.6 of a percentage point from 34.5% in the first quarter to 33.9% in the second quarter – down from an all-time high.

The expanded unemployment shows a similar downward trend over the second quarter, with it declining from 45.5% in the first quarter to 44.1% in the second, said PwC.

The graph below shows how the firm expects unemployment to perform until 2030:

A country’s real GDP and employment are fundamentally intertwined and have a historical relationship.

According to PWC, at an expected GDP growth rate of 1.5% per annum, employment – comprising both formal and informal jobs – will grow at a rate of 1.2% every year from 2024 onwards.

PwC expects 1.5% of GDP growth as a result of the country’s fundamental and structural constraints. The failing national power utility Eskom has placed significant pressure on the country’s GDP.

Earlier this month, Stats SA reported that the country’s GDP decreased by 0.7% in the second quarter. This matched predictions made by economists and analysts – which ranged between a 0.5% and 1.2% decline.

Rolling blackouts as a result of mismanagement and poor maintenance at Eskom drove GDP to be a primary driver of GDP decline. Bloomberg calculations added that record load shedding from March onwards hobbled economic growth.

The current record levels of load shedding are expected to have the same impact on Q3 GDP.

Knock on effects

The exclusion of millions of adults from partaking in the country’s economic life is contributing to the decline in social cohesion, says PwC.

“This, in turn, is causing an increase in societal breakdown and stability risks associated with protests and unrest.”

PwC warned that when the general population is not prospering, societies are in deep trouble; “real and felt prosperity is are absolute requisites for countries or regions to function effectively.”

In July, banking group Absa reported that rising unemployment, alongside other factors, has the potential to fuel civil unrest in South Africa.

“Both unemployment and inflation are higher at present compared to the levels seen during the July 2021 unrest. Furthermore, research by the Bureau for Economic Research shows that consumer expectations in Q1 2022 for their household finances were more positive compared to their outlook for the economy,” the group said in April.

Both former president Thabo Mbeki and finance minister Enoch Godongwana have warned this year that governments’ failure to address high unemployment and inequality could lead to growing discontentment.

Read: Middle-class South Africans are looking for a way out

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