Economists warn that South Africa’s jobs crisis is likely to get worse

The Quarterly Employment Statistics published by Statistics South Africa on Tuesday (28 September) show that an additional 86,000 jobs were lost in the formal non-agricultural sector in the second quarter of 2021, with economists warning that the cuts will have significant knock-on effects.

The data shows that total employment in South Africa decreased from 9,652,000 in March 2021 to 9,566,000 in June 2021, with the community services industry (-65,000 jobs) and manufacturing (-15,000 jobs) the main sectors taking a knock.

However, the job losses do not come as much of a surprise as the country is still recovering from the lasting impact of the Covid-19 pandemic and associated lockdowns, says chief economist of the Efficient Group, Dawie Roodt.

“Although the economy is growing quite fast, there are many technical reasons for this. One is that 2020 was such a horrible year, and the other being that we’re seeing huge growth in primarily the mining sector. But the rest of the economy is pretty much in the doldrums and will remain like that for some time,” he said.

The job losses also have broader implications for the economy, he said. For the government, this could mean a fall in tax revenue as unemployment increases, while decreased household spending also means less VAT.

An increase in consumers borrowing money can be expected, but Roodt believes going forward, financial institutions will be more reserved when lending money to consumers.

“South Africa’s economy might be growing this year, but I believe we will see economic growth well below 2% from next year onwards. This simply means that unemployment levels will remain elevated until we change a number of macroeconomic policies,” he said.

Households struggling to cope

The further loss of jobs is also likely to impact household finances, said Neil Roets, chief executive of Debt Rescue.

“Very few households in South Africa have the savings to tap into to deal with unemployment, often borrowing money simply to survive,” he said.

“As can be expected, families will cut back on expenses, foregoing life or car insurance, or cancelling retirement annuities to cover the basics. Vehicle loan repayments also suffer as the focus quickly narrows down to avoid defaulting on a home loan, or to simply have the money to pay for rent.”

Roets said many households find themselves in a debt spiral as they max out credit cards or stretch store credit to the limit.

“They borrow money from banks through personal loans, and when this avenue is not available, less scrupulous sources such as mashonisa loans with particularly high interest rates are tried. The compounding financial and mental implications of household debt are simply too much to deal with for some,” he said.

Roets warned that the economic forecasts are also not looking good, and South Africans will be required to pull the belt even tighter.

“The next quarterly result from Stats SA will reflect the devastating impact of the July riots on the broader employment rate. With many businesses destroyed or looted, increased job losses will be inevitable as companies had to be closed and employees let go. This will see even more consumers succumbing to debt.”

More jobs losses expected

While South Africa has officially exited its third wave of Covid-19 infections, only about 31% of the adult population has received at least one coronavirus vaccine to date, and this poses risks to the recovery once the fourth wave of infections commences around November 2021, Alexander Forbes said in a research note on Tuesday (28 September).

More so, the July riots and destruction of businesses will likely lead to more job losses in Q3 2021, the group said.

“As such, we expect more job losses in the medium term before any stabilisation occurs. We expect the unemployment rate to average 33.2% in both 2021 and 2022. The labour market is unlikely to promptly follow the better than expected economic recovery which will continue to strain domestic demand and subsequently put pressure on the growth of employment levels.”

Alexander Forbes said that growth in household incomes and spending is also likely to remain low given the risk imposed on future incomes despite the low-interest rates environment and re-instated social grant payments.

“The fourth wave will likely put more pressure on the services sectors, such as tourism and restaurants; we can expect further retrenchments as many companies are likely to reduce headcount further in an attempt to stay afloat,” it said.

The absence of international tourists, Covid-related restrictions such as the curfew and consumer anxiety continues to hurt the hospitality, conferencing, exhibition and passenger transport industry in particular, the Bureau for Economic Research (BER) said in a research note on Wednesday (29 September).

The group said that a stronger, sustainable recovery in these industries is only likely to start in 2022 once vaccinations have been rolled out more widely and international travel resumes. Property management and business services are also expected to trail the recovery of the rest of the economy.


Read: How much money the average worker gets paid in South Africa.

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Economists warn that South Africa’s jobs crisis is likely to get worse