Category Archives: Unemployment

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In a post-Zuma SA, sacrifice will be needed

In the wake of the Gupta leaks, polarisation in SA has increased significantly with a strange alliance of free-market (mostly DA), populist (mostly EFF) and disgruntled ANC voices (often repressed) on the one side with Zuma and Gupta defenders on the other side. The current discourse often ignores the elephant in the room, which is that with a sky high unemployment rate, faltering economic growth and poor education outcomes, serious changes are needed in SA, regardless of who is at the helm. If we do not aggressively address the inequality in our country, exacerbated by these factors, we are at risk of a populist uprising, which could set us back significantly. Sacrifice will be needed.

The Zuma and Gupta defenders faction is aggressively employing a strategy of shifting focus away from the accusations of corruption and weak delivery toward the ills of what they call White Monopoly Capital. On the other side, you find a strange union of populists, who want Zuma out of the way to deliver genuine redistribution, aided by nationalisation and seizure together with ardent supporters of the free market, many of whom are fed up with funding an often inefficient government and yearn for the days gone by.

Because of the polarised environment, these two factions often misunderstand each other and may be talking across purposes. Firstly, not everyone who is concerned about the influence and ownership of the white population on the SA economy are simply taking this stance as a way of defending Zuma (and the Guptas). Many of them have valid concerns, including the extreme inequality in our country (to a great extent along racial lines), the high unemployment and the low economic growth.

Secondly, not everyone who is calling for the ouster of Zuma and the removal of Gupta influence is a closet racist secretly yearning for the return of Apartheid. Many of this faction are genuinely concerned that the country is poorly run and recognise that for the long-term success of SA, we need better education outcomes, increased employment and higher economic growth.

What is plain to me though is that whatever happens to Zuma, whoever succeeds him and whoever wins the 2019 general election, serious issues need to be addressed in SA and it will take sacrifice from especially the wealthy in the country. Even if the DA manages to secure a victory (outright or through coalition) in 2019, they will have to continue with and implement new more aggressive redistribution policies in addition to dealing with the existing challenges of our country, including poor education outcomes, crime, healthcare, unemployment and weak economic growth. Even if the new government manages to enhance efficiency (reduce corruption) and achieves better bang for the taxpayer buck, this is unlikely to be enough. To fully address the growing challenges of our country, especially in the light of a rising debt load, pressure on exports and credit downgrades, whoever takes over will have to seriously look at the tax dispensation.

The aim of the new government should be to enhance its tax revenue through higher tax rates and possibly a wealth tax (which will put direct tax pressure on wealthy citizens and corporations), but in exchange to deliver improved services (which could reduce the indirect tax burden, including school fees, private health costs and security); to drive skills development to make the populace more employable; and to create a conducive environment for economic growth and job creation.

Any party who claims that they can create a stable and growing economy, which provides opportunities for all and reduces inequality, without raising taxes, may be fooling themselves. At the same time, any Zuma and Gupta opponent that thinks that their removal and replacement will usher in a golden age of growth and wealth creation without sacrifice, will be hugely disappointed.

We are facing some serious challenges. Our first phase of redistribution (from the mid-1990s to the late 2000s), which resulted in significantly improved service-delivery, the creation of a large and growing black middle class, the transfer of meaningful corporate ownership through BEE and the introduction of a basic (albeit insufficient) safety net through grants, occurred during a period of almost unprecedented asset appreciation, commodity price increases and economic growth.

These tailwinds are gone now. We cannot depend on rising asset prices to lead to almost all BEE transactions being successful and creating an effective transfer of wealth. We cannot depend on high commodity prices to buoy our exports and support our tax receipts. We cannot depend on low interest rates to allow us the freedom to drive lending-based growth.

We have to find a solution that will be effective in the world we live in. Part of this solution will necessitate a South African New Deal, where the haves pay more in tax, which is utilised to upskill the have-nots, to employ them through infrastructure programmes and to provide them with many more opportunities to increase their economic participation across the board.

At the same time, steps should be taken to kickstart economic growth, including liberalising labour markets, creating an attractive tax environment for selected globally competitive (or potentially competitive) industries, selective public private partnerships to explore growing industries (Eskom in the renewable energy sector stands out), less stringent immigration requirements to allow us to attract more skills and much increased government efficiency where we get much more value for the tax rands spent.

It is my view that the majority of privileged South Africans as well as the corporate sector would be more than willing to make the necessary sacrifices as long as they see the long-term benefits that could emerge and the risks that could be moderated. Those that do not, should seriously consider the alternative, which is rising populism, increasing economic disruption and growing polarisation.

Really successful companies are not scared to invest for future growth and sacrificing short-term earnings in exchange for a more certain stream of growing earnings going forward. The average well-off South African should have a similar view. Rather sacrifice income and consumption in the short-term, in exchange for a less uncertain and brighter future. What is of course vital is that whoever increases the burden on South Africans does so from a position of zero tolerance for corruption and at the same time, significantly increases the efficiency of how tax rands are spent. Those who are currently unwilling to sacrifice may soon change their minds if they see concrete delivery. That is at least my hope.

Do you think that the removal of Zuma and Gupta influence will automatically lead to a better life for you and your family? Are you prepared to sacrifice when asked by new leadership who promises improved delivery and a more secure future? Do you think you can have your cake and eat it or are you more realistic? I would love to hear your feedback.

In the mean time, keep your talking straight!

#GuptaLeaks #WhiteMonopolyCapital #NewDeal

 

Marius Strydom is the CEO of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


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We need a New Deal in SA

South Africa is facing a national crisis of unprecedented proportions if we do not address unemployment, poverty and inequality with the utmost haste. Failure to do so could result in a populist uprising in this country, which could set us back by decades. Instead of political infighting, we need to stand together and offer the disenfranchised in our country a new deal. Unemployment and quality education must become our top priorities, even if this means we have to make sacrifices. Now is the time to act. We cannot afford to wait any longer.

In the 1990s when the ANC came to power in SA, two main deals were struck. The first was between the ANC alliance and the National Party (NP) to allow for the peaceful transition of power. The second was the less talked about deal between the ANC alliance and the private sector in SA. Although never explicitly laid out, this deal implied that that ANC would step away from some of its core Freedom Charter principles such as that “The People Shall Share in the Country’s Wealth” and “the Land Shall be shared Among Those Who Work it” and the private sector would be supportive of the ANC’s aims to transform the country from its old Apartheid state to one where there was a more equitable distribution of wealth and opportunities.

As a result, the ANC that took power in 1994 was market-friendly, did not call for the nationalisation of mines and banks or the wholesale redistribution of land. Its approach was one of fiscal responsibility that satisfied the private sector, rating agencies and foreign powers. At the same time, it embarked on a number of projects to transform society, including the transformation of the public sector, the roll-out of water and electricity supply, the building of houses, the broadening of education opportunities and the provision of social security grants. The ANC government achieved a great deal of success in these projects, which I highlighted in earlier research.

On the flipside, the private sector (especially big-business) supported the Government’s policies and were active participants in black economic empowerment and employment equity. Also here, meaningful success was achieved, especially over the course of the 2000s.

During the 1990s the supporters of the ANC as well as their partners in the tripartite alliance were willing to accept the deals that it made with the NP and big business because there was an implicit assumption that the new government would adopt such policies that would improve their plight over time. The problem facing the ANC 20 years later is that 1) it has only partly delivered on its implicit promises to it 1990s constituency; and 2) there is currently a large constituency (the millennials) who were not party to the original deal.

Although much has been delivered insofar as access to housing, utilities and education, the main laggard has been employment. The current unemployment rate based on the expanded definition is c.34% and is skewed towards the youth in the country. It is almost impossible to address the issues of poverty and inequality in our country in an economically sustainable way in an environment where unemployment is so rife. These issues can be addressed through redistribution, but the positive impact for the most vulnerable may be short-lived and cannot be achieved without wreaking havoc with the economy and the tax base. Increasingly the ANC constituency and its partners in the tripartite alliance are posing questions to the ruling party about the lack of delivery on the original deal. They are becoming impatient, they are increasingly looking for a new deal and are willing to look further than the ruling party for someone to deliver this deal to them.

The millenials are most impacted by the high unemployment and in addition, they suffer from poor education outcomes and the high cost of tertiary education. These young people were not party to the original deal and due to the lack of delivery on education and employment feel hard done by. They are increasingly demanding a deal of their own. The #fallist movements that are active on campuses all over our country are the tip of this spear. They are tired of being placated by the incumbents and are intent on agitating and supporting alternatives until they are heard. They will remain restless until they are satisfactorily included in a new deal.

Before the break-away of the EFF from the ruling party, the ANC Youth League could act as a lightning rod for the disillusioned youth and the ANC could placate them and their wider constituency using social grants and other Government programmes. This is not the case anymore. The EFF has become the first effective, undiluted voice in SA for the poor, young and unemployed. The EFF’s policies are clear and are borne from the areas of the Freedom Charter that the ANC stepped away from during the 1990s deals. Front and centre is the nationalisation of mines and banks; the redistribution of land; and free education. These policies are not watered down and they speak directly to the disenfranchised in our country. The EFF’s potential constituency is substantial, including the 34% unemployed, the poor, the youth and urban intellectuals.

Young, angry unemployed South Africans do not care about the state of the economy, the health of the tax base, the strength of the rand, the opinions of the private sector, sovereign credit ratings or how SA is viewed by foreign countries. They care about their own (often) miserable lives. Why would they not vote for a party that will take from the rich and give to the poor? Even if it damages the long-term prospects of the country, it will improve their plight in the short-term. This situation is made even more desperate by the fact that for many of the disenfranchised, there does not seem to be a viable alternative. The track record of the incumbents on employment, education outcomes and equality is poor in their opinions and they do not see light at the end of the tunnel. Without hope, why would they not be willing to embrace the alternative?

It is vital that the disillusioned block in SA is given a new deal to avoid them embracing political alternatives that could be damaging to the future of this country. The time has passed for promises. The time has passed for placating. The time has passed for short-term fixes. The New Deal in 1930s USA involved aggressive steps in job-creation and infrastructural build. It pulled the country out of the Great Depression and created the foundation for a decades-long economic boom and the creation of a vibrant middle class. We do not need to emulate what the USA did in the 1930s, but we should draw inspiration from this.

Unemployment should be the number one priority in SA, followed by education and we should be redirecting our efforts to solve these challenges quickly and effectively. It is unacceptable that we have several portfolios within our cabinet that are responsible for employment, none of which carry the ultimate responsibility or have the necessary power to aggressively change the direction we are moving in. Regardless of which political party is ruling our country, we need a Minister of Employment who is the most senior cabinet member (after the president), who has the power to set policy and redirect budgets and carries the ultimate responsibility for success or failure.

Even though we are in difficult economic times at the moment, we should make a definitive decision to refocus our budget to deal with the challenges of unemployment and education. Even if this leads to economic pain in the short-term, even if it leads to credit downgrades, even if it means we all have to tighten our belts, we cannot afford not to make this investment in the future. We absolutely have to create an inclusive economy and improved education outcomes so that we can look back a decade from now at today being the turning point in the SA story.

If we do not do this, if the business friendly ANC and DA do not join hands to lead us to this future, we are at risk of a populist uprising in SA. We are at risk that populist parties such as the EFF will force redistributive policies down our throats, whether it be at the ballot box or in the streets. Now is the time to give the disenfranchised in SA credible hope. If we expect them to be patient, they have to see a clear path to improved outcomes for them. More of the same will not cut it.

The 2016 municipal elections will offer the first opportunity in more than a decade for the ANC to actively involve opposition parties in the business of governance. There is likely to be no other option when they fail to win majorities in major municipalities. It is time for the ANC to change its direction, it is time to strengthen its leadership and with the buy-in of the DA (and maybe the EFF) to embark on a dramatic and aggressive new deal.

To the ANC I say, stop focusing so much on discrediting the DA and seeing the EFF as a naughty child. Realise that the EFF is a major risk (and rightly so) and that the DA can be an ally in improving governance. However, it remains up to you as the majority party and the party of liberation to refocus our attention on growing employment, creating an inclusive economy and improving education outcomes for all.

To the DA I say, by all means continue the fight against poor governance, but realise that it will become increasingly difficult for you to govern if the serious challenges facing SA are not addressed. Try and be less adversarial towards the ANC because you may have to work together and in the end, your policies are not that different.

To the EFF I say, continue pushing. You are increasingly the voice of the poor majority in SA. You have to ensure that the ruling party implements policies that will improve the plight of the disenfranchised and if they do not, you must defeat them at the ballot box. However, I ask you that if the ruling party is willing to put a new deal on the table, that you will be willing to focus your efforts on the ballot box and avoid being a disruptive influence in the extra-political sphere.

In conclusion, our challenges in SA are monumental and must be faced head-on. We need a new deal and we need co-operation amongst political parties to implement this. If such a deal is done, we will need patience from our citizens, whether it is because they have to tighten their belts or whether they have to wait longer for an improved outcome. And we need a supportive private sector. You have had a good run for the past 20 years, but where we are now is not sustainable. Be willing to sacrifice short-term profit in exchange for a higher price earnings multiple (PE). We need to lift the valuation of SA.

 

Do you think our country in its current format is sustainable? Are we at risk of a populist uprising? Would you support a new deal if it will drive employment growth and a more inclusive economy? Would you be willing to sacrifice today if it means a much better future? I would love to hear your opinions.

In the mean time, keep your talking straight!

 

#Populism #Unemployment #NewDeal #MinisterOfEmployment

 

Marius Strydom is the CEO of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


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We need a Minister of Employment

Unemployment is the most important issue facing SA at the moment. If we do not grow employment numbers aggressively and quickly, we face an increase in poverty and inequality that could result in a populist uprising. Past attempts at dealing with this issue have failed and we now need a new approach. We need a Minister of Employment who will stand or fall based on employment levels. This needs to be a very senior appointment, which has the mandate and power to co-ordinate efforts across all ministerial portfolios, unions, NGOs and the private sector.

For much of the past 15 years, more than one third of South Africans have been unemployed (using the expanded definition). The most recent expanded unemployment rate (October 2015) was 34.4% (whilst on the narrow definition, the rate was 25.5%). For the youth, the situation is much worse with almost half of people between 15 and 34 being unemployed on the expanded definition (and more than 60% of those between 15 and 24). We are sitting on an unemployment powder keg in SA.

Whilst numerous reasons can be put forward for our low employment numbers in SA, including low cash deployment and increasing automation by the private sector, inflexibility of labour, low economic growth and weak commodity prices, the main responsibility should lie with our government. Globally, governments stand or fall based on their ability to reduce unemployment levels. SA should be no different.

It is time that our Government identifies unemployment as the top priority for our country and throws all that it can at dealing with the problem. Despite having a large cabinet with 35 ministers, there is not one department (or minister) that has as its primary responsibility the increase of employment in SA. The Department of Labour comes the closest, but in its stated vision, “employment creation” is only mentioned after “investment” and “economic growth” as priorities. The Department of Labour and the Minister of Labour also do not appear to rank amongst the most senior portfolios and ministers in cabinet, with the departments such as Treasury, Basic Education, Health, International Relations, etc., attracting much more attention. It is difficult to see Minister Mildred Oliphant dictating to Minister Pravin Gordhan on appropriate tax rates for promoting job creation; demanding from Minister Malusi Gigaba that visa regulations need to be relaxed to boost tourism; or setting targets for Minister Angie Motshekga and Minister Blade Nzimande on the number of science and engineering graduates required to boost the SA economy.

What we need in this country is a new Ministry that has as its sole responsibility the creation of employment. We need a Minister of Employment. This needs to be a very senior appointment in the league of a Nhlanhla Nene or a Trevor Manuel. The Minister of Employment should be empowered to co-ordinate all the resources within the cabinet to address the issue of unemployment. As such, this minister should be the chair of an inter-ministerial committee, including Treasury, Labour, Education, Public Enterprises, Tourism, Trade and Industry and other relevant portfolios. This minister should report directly to the president and provide at least quarterly feedback to Parliament. This minister should stand or fall by trends in employment numbers.

The Minister of Employment should be involved at a high level with all areas in SA that are needed to promote employment growth. As the ultimate champion of employment, this minister must ensure that all areas are working in concert, that duplication is avoided and that all the required energy is focused on the problem of unemployment.

The Minister should have insight and influence over all legislation and regulations in SA to ensure that they are aligned (or at least not contrary) to increasing employment. With such a minister in place, we would not have experienced the own goal of stringent visa regulations impacting tourist numbers and hence tourism employment growth.

A task team should be formed with industry, Treasury, the DTI and other parties to identify specific job-creating industries to promote through regulations, tax incentives and protection, if needed. Similarly, a task team should be established with organised labour and the private sector, possibly using the Nedlac infrastructure, but chaired and driven by the Minister of Employment. This task team must ensure that the labour environment becomes more flexible (even if only in selected job-creating industries) to boost employment growth.

The Minister of Employment should involve organisations such as Brand SA, Proudly SA, SA Tourism, Homecoming Revolution and others in a co-ordinated campaign to promote SA as an investment destination and the consumption of SA-produced products over imported ones.

On the skills front, the Minister should co-ordinate a strategy to ensure that the country produces the right graduates, provides the right vocational training and imports the right skills to support the industries identified to be major job creators. To achieve this, the Departments of Basic and Higher Education need to be involved as well as the Department of Home Affairs and the private sector.

There are numerous other areas where the Minister of Employment could become involved, including trade deals with other countries, infrastructure development, agriculture, science and technology, public enterprises, etc.

The role of Minister of Employment will be very challenging and will require hard work and commitment. However, we need large plans to address large problems. This role will need support from a wide range of role players, regardless of political affiliation. There should be large-scale buy-in from all South Africans. It is difficult to see how the vast majority of South Africans would not benefit from growing employment. Solving this problem will go a long way to addressing other problems facing SA. I therefore call upon the ANC, opposition parties, the Government, private sector, NGOs and ordinary citizens to speak out and demand action on unemployment. I call for your support in appointing a Minister of Employment (together with the power and support that such a role requires) immediately. We cannot afford to wait any longer.

 

Do you agree that unemployment is the most serious challenge facing SA? Do you think more can be done with centralised planning and coordination? Would you support the appointment of a Minister of Employment? What suggestions do you have to improve my description of this new role? I would love to hear your feedback.

 

In the mean time, keep your talking straight!

 

#MinisterOfEmployment #Unemployment

 

Marius Strydom is the CEO of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


  • 1

The economy, stupid

In 1992, Bill Clinton’s campaign strategist coined the phrase “the economy, stupid” to highlight that many of the issues facing America at the time really boiled down to the economic pressures felt by the country. Similarly, many of the issues in SA currently, including xenophobia, the removal of statues, the increasing polarisation and despondency are being exacerbated by economic pressures. These issues can be better addressed in an environment of economic growth, job creation and improved outlook. It is therefore so important that we deal with the issues hampering our economic growth, including the Eskom electricity supply, the delays in the National Development Plan (NDP), education and the development of and promotion of new industries.

Over the 9 years from 2000 to 2008, SA’s real gross domestic product (GDP) grew on average by 4.2% per year. Since then it has slowed to an average yearly growth of only 1.7% with the latest growth rate for the final quarter of 2014 only being 1.3%. The International Monetary Fund (IMF) is forecasting growth of only 2% and 2.1% in 2015 and 2016, less than half of what was achieved during the first part of the 2000s.

Unemployment in SA declined from a high of 26.6% on the narrow definition in 2002 to 21% in 2007. However, since then it has picked up and during 2014 was at 25%. That implies an additional 800 000 people that want to work that are unable to find work in 2014 relative to 2007. In addition, food inflation has averaged 7% over the past 5 years, petrol prices have increased by over 75% since the start of 2008 and since the start of 2014, interest rates have risen by 0.75% with more hikes likely to come.

Many South Africans are suffering at the moment, have seen their situations deteriorating over recent years and have a bleak outlook of the future. It is no wonder that they are lashing out in frustration. They are lashing out at foreigners in xenophobic attacks, they are lashing out at government in service delivery protests, they are lashing out at statues and they are lashing out at each other. I am not making light of the issues at which people are lashing out or the often violent and unacceptable way in which they are lashing out. However, I believe that if we were not facing the economic hardships that we are, we would have seen less lashing out. It is therefore imperative that we do not simply try and address the symptoms, but that we focus on the root causes of unhappiness in our communities.

Electricity supply

The electricity supply disruption that has become a daily part of our lives is the first issue that needs to be addressed. It is a daily reminder to our communities of the failings of government. It is a distraction from productive behaviour, it creates unhappiness and it leads to people having a bleak outlook. In addition, it is starting to hamper economic growth and limiting foreign investment, exactly the things that we need to improve the lives of our communities. I have suggested two key steps that government and Eskom could take to aggressively and promptly deal with the situation. Firstly, Eskom needs to find a way of ceasing the sale of below cost electricity to BHP’s aluminium smelters which suck up 5% of our electricity supply. My suggestion is that Eskom (or government) buys these smelters (which are housed in BHP Billiton’s spin-off company South 32) and mothballs them. This would save a great deal of money that can be reinvested in the economy (more than offsetting the economic cost of the mothballing) and it would end load shedding immediately.

Secondly, Eskom should do a Telkom. I have suggested that Eskom forms a 50:50 joint venture (JV) with a private partner and house all new electricity generation projects in this JV. This would bring in capital and technical know-how and allow Eskom to focus on maintaining and repairing its existing infrastructure.

Job creation

Unemployment in SA is becoming a national crisis and needs immediate and concerted attention. It is undeniable that the collapse in global commodity prices has had a very detrimental impact on the SA economy and that this is something outside of our control. However, there are other contributing factors that are within our control, including protracted strikes, rigid employment regulations and delays in launching the NDP.

Government should as a matter of urgency fast track the roll-out of the NDP. This plan has the potential to be a meaningful job creator in SA through high public sector infrastructure investment; boosting private investment in labour-intensive areas; professionalising the public service to strengthen accountability, improve coordination and prosecuting corruption; etc. However, since this plan was initially mooted in May 2010, 5 years have passed and we are still waiting for implementation. The plan was strongly supported by the National Assembly in January of this year, which is a positive step. Now we need action. Government, please give us action.

Labour unions need to come to the party and recognise that protracted strikes are not just hurting their own members, but damaging the SA economy and the wider SA population at exactly the time that we cannot afford it. It is important that they act in a responsible and pragmatic fashion during the current difficult times.

It is also vital that government and unions recognise that the current rigid labour regulations could be a serious hurdle to effective job creation. It is too difficult to hire and fire employees and this is causing companies to err on the side of not hiring. A more liberalised labour regime could help to reduce unemployment markedly. In addition, we also need a strong focus on youth unemployment. We need more vocational training, we need more apprenticeships, we need more internships, we need a youth subsidy.

Education

The poor standard of our education in SA is arguably the most meaningful hurdle to long-term economic growth and job creation. This is an issue that needs to be addressed with urgency, even if we will only reap the benefits in years to come. In my opinion, it is not necessary to spend more money on our education, but instead to spend the money better. We deserve much better outcomes for the investment we are making.

I have suggested that the key steps that we need to take to fix our education system are to lift standards and to empower principals. We need students to attend school, arrive on time and stay until the school day is over, we need teachers to be present, we need students to have text books (even if they get it from the previous years’ pupils) and we need students to aim to achieve 100%, not just scrape by with a 40%.

I have spoken about Mbilwi Secondary School in previous blogs, but I would like to share the story again. This township school in Limpopo is a beacon to other schools faced with the same challenges all over the country. This school achieves an almost 100% pass rate with almost 80% of pupils achieving matric exemption. It has more than 2500 learners and has become a very attractive destination for pupils who are searching for excellence. What makes Mbilwi different from many underperforming township schools is excellent management, dedicated teachers and very high standards. At Mbilwi, the target is not to achieve a pass (typically 40%) – instead, the target is to achieve 100%. If Mbilwi can do it with limited funds, so can so many other schools.

Building world-leading industries

Another step that we should be taking in SA, even if it will only pay off in the future, is to build, promote and support world-leading industries. In a previous blog I spoke to the need to identify and aggressively support new generation industries where SA can become competitive in the global market over time, including renewable energy generation, biotech, software development, mobile telephony, etc. I suggested that we change our thinking in two ways to allow this to occur.

Firstly, I suggested that certain industries be protected (using tariffs) and promoted through tax concessions, less rigorous labour laws and government tenders. Secondly, I suggested that we throw our doors open to skilled immigrants. To build world-leading industries, we need many more engineers and scientists than our country produces. We should use the substantial assets that we have as a country, including our space, our weather, our freedom, our infrastructure and the aggressive support of leading-edge industries (in this scenario) to attract large amounts of scientists and engineers from other countries. Not just will these immigrants help to build new industries, they will help to create jobs and help to impart skills to our own people.

Our economy cannot simply remain dependent on taking raw materials out of the ground and exporting them with limited beneficiation. We need to add value to our product and we need to start today.

Conclusion

South Africans are suffering and this is making them unhappy and fearful. Let us see the lashing out of various communities in SA in various ways for what it truly is, a cry for help. Let us not just deal with the issues raised by different communities, but let us also look at the root cause of the suffering. People don’t have jobs, the economy is not growing and the cost of living is rising. Let us address issues such as the electricity supply and the roll-out of the NDP with the utmost urgency, while at the same time investing in our future through improving education and building industry. Let us stop fighting each other and start tackling our challenges. Together, we can do so much better.

 

What do you think of my assessment? Do you think that our main problem is “the economy, stupid”? What do you think of the solutions I have put forward? Do you have solutions of you own that you can share? Do you think we can do it? I would love to read your feedback.

In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


  • 0

Unemployment is lower than you think

The latest official unemployment rate in SA is 25% on the narrow definition and 36% based on the expanded definition. Such unemployment levels are very high compared with other emerging markets. However, a large number of people that are officially unemployed are not so in practice. They do work in and earn an income from the informal economy in SA. Fully taking them into account could mean that SA unemployment is lower than you think with the expanded rate at 18% and the narrow rate at 14% or below.

The UCT Unilever institute has done a great deal of research on what they call the Survivors in SA, people who live in households earning less than R6000 per month. According to them, this equates to 10 million households or 70% of the population. On average, these households earn less than R3000 per month.

What makes these people interesting to the topic of real unemployment is that many of them do a great deal to supplement their income by becoming involved in the informal economy of SA. They do not just depend on social grants. They aspire to be employed as the UCT Unilever Institute found in their Majority Report of 2012. They also do not deliberately get pregnant to receive social grants as the Human Sciences Research Council found in a 2012 report.

As many of you will know, the average township or rural community is abuzz with informal economic activity. An interesting case study that the UCT Unilever Institute considered was Ivory Park in Gauteng, just West of Thembisa. In this 1.5km² area there were more than 2300 informal businesses in 2014, including taverns, hair salons, tailoring, building, personal services, appliance repair, agriculture, art & craft, entertainment, educare, recycling, health services, phone shops, takeaways and other businesses. In addition to this, a large proportion of home owners in the area also supplement their income by renting out part of their space on an informal basis.

Ivory Park is by no means unique and what happens there is the status quo in many other areas of SA. So what does it mean when there are so many informal businesses in SA? Well firstly, it means that our SA economy is larger than the formal measurement. The latest estimate of SA’s gross domestic product (GDP) or size of formal economy is R3500bn. Research from different sources (and please understand that it is difficult to measure the informal economy) puts its size between R280bn and R680bn. That would imply that when including the informal sector, the total SA economy would be between 8% and 19% larger.

Secondly, it means that unemployment in SA is lower (maybe much lower) than formal estimates if we include the informal economy of the country. According to StatsSA, the number of people employed in the formal economy as at June 2014 was 10.8 million, with 2.4 million employed in the informal economy and 8.3 million people being unemployed using the expanded definition. Using the narrow definition, the number of unemployed was 5.2 million with the main difference being that 2.4 million were classified as discouraged work seekers. The expanded unemployment rate at this point was 36% and the narrow unemployment rate, 25% (see the calculations in the table below).

However, according to Adcorp’s June 2014 Employment Index, the number of informal employees were estimated at 6.5 million (compared with the 2.4 million according to StatsSA). This amounts to 3.1 million more employed people than StatsSA allows for. In the table below, I recalculated the expanded and narrow employment rate using the Adcorp estimate of formal employment. As a result, the expanded unemployment rate drops to 18%, while the narrow unemployment rate drops to at least 14% (could be even lower if I use more aggressive assumptions).

Expanded and Narrow Unemployment Rate (Official and based on Adcorp data) – June 2014
StatsSA (‘000)Adcorp (‘000)Comment
APopulation 15-643533235332B + I
BLabour force2342623426C + H
CEmployed1509419215D + E + F + G
DFormal (non agriculture)1075510755Adcorp = StatsSA
EInformal (non agriculture)23796500Adcorp estimate
FAgriculture670670Adcorp = StatsSA
GPrivate households12901290Adcorp = StatsSA
HUnemployed83324211StatsSA H + StatsSA E – Adcorp E
INot economically active1190611906Adcorp = StatsSA
JExpanded unemployment rate36%18%H ÷ B
KDiscouraged work-seekers2419532*StatsSA K – Adcorp L
LAdcorp informal double count assumption*1887StatsSA K ÷ StatsSA H x Adcorp E
MNarrow not economically active1266512665Adcorp = StatsSA
NNarrow labour force2024820248B + I – K – M – Adcorp L (2nd column)
ONarrow unemployed51542920H + I – K – M
PNarrow unemployment rate25%14%O ÷ N

Source: StatsSA Quarterly Labour Force Survey, June 2014; Adcorp Employment Index, June 2014; *: Assuming that under the narrow unemployment calculation, a portion of the Adcorp informal sector has already been counted by StatsSA in the discouraged work-seekers section – the double count percentage set equal the discouraged work-seekers(2.4m) as a percentage of expanded unemployed (8.3m)

Although a 14% unemployment rate is by no means low, with many countries like Vietnam, Singapore, Switzerland, China, Cuba, Mexico, Russia, the UK and the US having lower rates, it would move SA from position 173 to position 133 out of 203 countries according to the CIA World Factbook. SA would look better than countries like Iran, Jamaica, Portugal, Nigeria, Spain and Greece.

Should we be satisfied with the position that our country finds itself with regards to unemployment? Certainly not! We need to generate more formal employment to attract the unemployed, informally employed individuals and discouraged work-seekers into the labour market. Despite some disadvantages of being formally employed, including increased travelling costs, the advantages outweigh the benefits. Income security and supplementary benefits (for many formally employed people) like pension, medical and annual leave are the main benefits to the formally employed. There are also likely to be more career growth opportunities for them.

There is much that can be done in SA to increase formal employment with higher economic growth and a less rigid labour market being the most important. In a previous blog I discussed the potential benefits of nurturing chosen industries in SA and encouraging the immigration of skilled professionals (scientists and engineers) to support these industries and create jobs. In another blog, I asked the SA Government to reduce the red tape and regulations for companies and allow them more freedom to dismiss underperforming workers. I asked them to consider bringing in a youth subsidy or a form of employment where young people can be employed more cheaply (like apprenticeships or internships) so that these people can earn an income, learn more skills and become more productive. Such changes may not sit well with the unions, but in the long-term, they will also benefit from higher employment as it will help to swell their numbers.

So where does this leave us? There are certainly reasons to be unhappy about the employment situation in SA and we need to be critical towards Government because of the slowness of delivery in this regard. However, we also need to come up with solutions and need to find ways that we as individuals can help to improve the situation. Further, we must also be wary not to overplay the position we find ourselves in as this tends to polarize the discussion. As I have shown above, the situation may not be a dire as many people think. Instead of just complaining, we should build on what we currently have.

How much experience do you have with the informal sector in SA? Can you see the jobs that it creates and the incomes that it provides? What do you think needs to happen to employ more people in the formal sector in SA? What can you do to help? In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

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