Why it’s too early to celebrate South Africa’s jobs numbers: Economists

Economists from Nedbank and AlexForbes say the startling – albeit slight – improvement in South Africa’s employment figures belies a more sober reality in the country.

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

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

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

“The labor force grew by 3.5% in 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 normalized and profitability returned,” he said.

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

Community and social services – including government – remained resilient, employing the largest number of people (276,000) after adding 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 hotel activities,” he said.

The financial sector also saw an improvement, and Nedbank said it was encouraging that employment also rose in the construction sector after three consecutive quarters of job losses. The rebound is consistent with recent growth in fixed capital formation, he said.

However, the bank pointed out that employment has yet to recover to pre-Covid 19 levels. At 33.9%, the unemployment rate is still above the 29.1% recorded in the fourth quarter of 2019.

Total employment is also still 858,000 below levels prevailing in the fourth quarter of 2019, with nine of 11 industries well below pre-crisis levels.

Employment in export-oriented, power-dependent industries has suffered from severe load shedding, and slowing global demand and lingering supply constraints have been compounded by Russia’s war on Ukraine.

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

“The stronger than expected increase in job creation during the second quarter is encouraging. However, the labor market outlook 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 neutral level of 50 for the fourth consecutive quarter – from 46 in the first quarter.

Sobering factors at play include:

  • The impact of the Russian-Ukrainian war;
  • Concerns about global growth;
  • Floods in KwaZulu Natal;
  • Slow implementation of policies;
  • Persistent electricity shortages; and
  • Adverse labor market conditions, including increased strikes and high wage demands.

“In these difficult operating conditions, most employers are likely to adopt a wait-and-see approach and be wary of resuming aggressive capital expansion. Even if conditions improved significantly, the number of jobs created would not be enough to offset the likely increase in the labor force as discouraged workers return to the market.

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

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

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

The drop in unemployment is a positive development, given the current difficult economic environment, said Adriaan Pask, CIO at PSG Wealth.

“However, to ensure an upward trend in employment, the private and public sectors must accelerate the implementation of structural and business-friendly reforms to unlock investment, reduce costs and increase competitiveness and growth, which which will greatly contribute to creating sustainable employment”.

Unsustainable

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

Speaking to 702, Mhlanga pointed out that improving the unemployment rate really comes down to technicalities rather than real and 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, these are really technical aspects, rather than the actual creation of jobs in the economy. Much of the formal jobs that have been created are in the public sector – 236,000 jobs.

“The government is doing what it is supposed to do in an economic downturn – it is increasing the number of jobs – but the problem is that these are part-time jobs, not full-time. They will forever be vulnerable to what the fiscus can handle.

Mhlanga said these jobs are not permanent and therefore not sustainable. But that aside, 648,000 found jobs in the economy out of 780,000 who went looking for work, he said.

In the end, the number of unemployed increased by 132,000 in Q2, bringing this figure to 8 million.


Read: Good news for unemployment rate in South Africa

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