South Africa is facing an employment crisis, with millions of people set to lose their jobs thanks to a combination of the country’s weak economy and the shock of the coronavirus pandemic.
Research published by Nedbank forecasts that 1.6 million jobs will be shed in the country in 2020. By comparison, approximately 900,000 jobs were lost after the global financial recession.
“Our forecasts for GDP recovery in the current pandemic take on an inverted J-shape and so do our forecasts for employment, which is different from 2009 due to the nature of a 35-day lockdown followed by a gradual re-opening of the economy,” Nedbank said.
“What is, however, significantly different between this employment cycle and the one in 2009 is that even three years after the trough in job losses, employment still does not reach its pre-crisis peak.
Business groups meanwhile, argue that this crisis can be partly addressed by lifting the country’s current lockdown restrictions, warningd that government is running out of time to get the country back on track.
The country lacks the financial resources to withstand the extended closure of companies, said Martin Kingston, head of the economic workgroup at Business for South Africa (B4SA). “We are talking about weeks, not months, to get through the levels. That is what we aspire to as business.”
B4SA forecasts that up to four million jobs could be lost this year.
Early projections by the South African Reserve Bank suggested that South Africa could see around 370,000 job losses and 1,600 businesses being declared insolvent in the country. These predictions were made a month ago, before the extended lockdown period was announced, and is therefore likely to have been exacerbated since.
While the true impact of the coronavirus and the lockdown is likely to only be seen in the coming months and years, there are a number of companies which have already entered into business rescue proceedings – citing the pandemic as a direct contributor.
The aim of business rescue is to restructure the affairs of a company in such a way that either maximises the likelihood of the company continuing on a solvent basis or results in a better return for the creditors of the company than would ordinarily result from the liquidation of the company
Listed airline company Comair announced on Tuesday (5 May) that it will enter business rescue to safeguard the interests of the company and its stakeholders after the Covid-19 crisis disrupted the implementation of a turnaround plan.
Comair chief executive officer, Wrenelle Stander, said the company, which reported a half-year loss of R564 million for H1 F20, faced an unprecedented situation following the Covid-19 lockdown.
“While we had started making good progress to fix the financial situation six months ago, the crisis has meant we have not been able to implement it as we intended.
“We completely understand and support the government’s reasons for implementing the lockdown, however as a result we have not been able to operate any flights.
“Now that the phased lockdown has been extended the grounding is likely to endure until October or even November.”
Comair was forced to ground its fleet on 26 March, and has not operated any passenger services since. The Covid-19 crisis has severely affected the global airline industry with no clear sight as to when operations might begin again.
Businesses including Virgin Australia and Air Mauritius have implemented restructuring processes, similar to business rescue.
The Edcon Group announced on 29 April that its board has passed a resolution authorising it to file for business rescue in the course of the next few days.
Following the coronavirus outbreak in South Africa, and the president’s first announcement on 15 March, Edcon said it has lost R2 billion sales.
“The sales miss, and the decline in collections of the debtor’s book has meant that meant that Edcon is unable to pay its suppliers for both the March and April month-ends,” it said.
Paying April salaries will require assistance from the UIF Covid-19 TERS programme, the retail group said.
Edcon said it also anticipates that the sales will be depressed for some time during the “Covid-19 Risk-Adjusted Strategy” phase, which may last several months.
“The R2.7 billion (circa R230 million of which was still due to be received to March 2021) cash provided to Edcon in the last restructuring has been substantially utilised funding the losses for the financial years ending March 2019, and March 2020, as planned,” the group said.
While it will not enter into business rescue, Flight Centre said it will close 40% of its network as a result of the impact of Covid-19 coronavirus on its business, and the tourism sector in general.
Flight Centre said it owns over 235 businesses throughout the country, incorporating both leisure, corporate, wholesale and support.
“Over the past five years we have consistently seen our results increase year on year with a current annual turnover of R5.5 billion in sales and over 1,200 employees,” it said.
In a note to clients, Andrew Stark, managing director, Middle East Africa, Flight Centre Travel Group, said: “It is indisputable that the global spread of Covid-19 has had a significant impact on many industries.
“Few have been as profoundly impacted as the tourism and travel sector, with government travel bans, grounded aircraft and non-essential business lockdowns preventing the free movement of our customers, whether travelling for business or leisure.
“While we deal with these unimaginable circumstances, we – and other businesses – are taking some very difficult decisions.”
South African Breweries (SAB) has warned that around half of its front line workforce – 2,000 people – are in the firing line, should it not be able to continue bottling or distribution duties.
The group sent a proposal to the department of trade and industry on Tuesday (5 May), in which it said it may be forced to dump 132 million litres of beer – roughly 400 million bottles – if the government does not allow it to package and transport its current inventories between its depots and warehouses.
It also warned of potential job losses. “Urgent action is needed to avoid material financial losses to both the government and SAB, as well as significant job losses,” the company said in the document.
SAB said if it is forced to dispose of its current stock, the company will be forced to operate at 50% of its capacity for four months, which could result in a loss of 2,000 jobs.
An additional 75,000 jobs could be adversely affected by the company’s supply chain, SAB reportedly warned.