Why it’s too soon to celebrate South Africa’s job numbers: economists

 ·24 Aug 2022

Economists at Nedbank and AlexForbes say that the surprising – albeit slight – improvement in South Africa’s employment numbers belie a more sober reality in the country.

Statistics South Africa on Tuesday reported a small improvement in the country’s unemployment crisis, showing a 0.6 percentage point decrease in the unemployment rate to 33.9%.

The data showed that 648,000 more people were employed in the quarter than in the previous period.

According to Nedbank, South Africa’s unemployment rate is now the lowest since the first quarter of 2021.

“The labour force expanded by 3.5% over the quarter as the end of lockdown restrictions encouraged discouraged workers to return to the market. At the same time, employment increased as economic activity normalised and profitability returned,” it said.

The numbers were encouraging, the bank said, noting that there has been a general improvement in the job market so far in 2022, compared with the same period in 2021.

Community and social services – including government – remained resilient, employing the highest number of people (276,000) after creating 281,000 jobs in the first quarter.

“As expected, employment in the domestic trade sector improved significantly as the end of lockdown restrictions supported the resumption of tourism and hospitality activities,” it said.

The finance sector also saw an improvement, and Nedbank said it is encouraging that employment also increased in the construction industry after three consecutive quarters of job losses. The rebound is in line with recent growth in fixed capital formation, it said.

However, the bank pointed out that employment has not yet recovered to pre-Covid 19 levels. At 33.9%, the unemployment rate is still higher than 29.1% recorded in the fourth quarter of 2019.

Total employment is also still 858,000 short of the levels that prevailed in Q4 2019, with nine of the 11 industries well below pre-crisis levels.

Employment in export-orientated and power-dependent industries suffered from intensive load-shedding, and the slowdown in global demand and ongoing supply constraints worsened by Russia’s war on Ukraine.

The manufacturing industry lost 73,000 in the second quarter, while the mining sector only managed to create 1,000 jobs.

“The higher-than-expected rise in job creation during the second quarter is encouraging. However, the outlook for the job market remains uncertain given the hesitant nature of the economic recovery.

“Business confidence was still depressed in the second quarter, with the RMB/BER Business Confidence Index falling to 42 – and remaining below the 50 neutral level for the fourth consecutive quarter – from 46 in the first quarter.

The sobering factors at play include:

  • The impact of the Russian/Ukraine war;
  • Concerns about global growth;
  • Floods in KwaZulu Natal;
  • Slow policy implementation;
  • Persistent power shortages; and
  • Unfavourable labour market conditions, including increased strike actions and high wage demands.

“Under these difficult operating conditions, most employers will likely adopt a wait-and-see approach and be wary of resuming aggressive capital expansion. Even if conditions were to improve significantly, the number of jobs created would not be enough to match the likely increase in the labour force as more discouraged workers return to the market.

“Therefore, the unemployment rate will remain high in the short term. A significant unemployment rate reduction will be achieved through a more robust economic growth of at least 5%,” Nedbank said.

Currently, analysts expect GDP to grow by 1.7% in 2022, and to average less than 2% over the next three years.

“Nevertheless, the removal of lockdown restrictions should continue to support improvement in labour-intensive industries such as hospitality and tourism,” it said.

The decrease in unemployment is a positive development, given the current tough economic backdrop, said Adriaan Pask, CIO at PSG Wealth.

“However, to ensure an upward trend in employment, both the private and public sectors must accelerate the implementation of structural and pro-business reforms to unlock investment, reduce costs and increase competitiveness and growth, all of which will go a long way in creating sustainable employment.”

Unsustainable

While South Africa’s employment numbers are an improvement, Isaah Mhlanga, chief economist at AlexForbes, said they are not something to celebrate.

Speaking to 702, Mhlanga pointed out that the improvement in the unemployment rate really comes down to technicalities rather than actual, viable job creation in the country.

“We have to receive these numbers positively, but it’s really nothing to celebrate,” he said.

“To a large extent, it’s really technicals, rather than the actual creation of jobs in the economy. A large portion of the formal jobs that were created is in the government sector – that 236,000 jobs.

“The government is doing what it is supposed to do during times of economic slack – they do increase the number of employment – but the bad thing is, they are part-time jobs, not full-time jobs. They will be forever vulnerable for what the fiscus can handle.”

Mhlanga said that these jobs are not permanent and thus, not sustainable. But that aside, 648,000 found jobs in the economy out of 780,000 that went to look for jobs, he said.

Ultimately, the number of unemployed people increased by 132,000 in Q2, bringing that figure to 8 million.


Read: Good news for South Africa’s unemployment rate

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