BusinessDay... the voice of business: Economies in transition: The case of South Africa

Economies in transition: The case of South Africa
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Razia Khan on 28 April, 2008 02:00:00
 
Unsurprisingly, given the extent of economic growth in recent years, the labour
force survey LFS found that employment growth was particularly strong in the
three years to Sept 2007, when over 1.5mn additional people were employed. (To
put this job creation in perspective, during the period Sept 2007 and Sept 2007,
the cumulative employment gain totalled 2.1mn. Much of the job creation has
taken place only very recently, coinciding with a significant consumption-led
boom in the economy.)
The unemployment rate dropped for the second consecutive year, declining from
25.5 percent in Sept 2006 to 23 percent in Sept 2007. Curiously however, not all
of this was due to employment gains. A rise in the number of discouraged job
seekers, supposedly exiting the labour force completely, was also a factor.
According to the (LFS), at least 208,000 people who had previously been
unemployed gave up looking for work altogether (bringing the total number of
discouraged job seekers to 3,425,000). The labour force participation rate (the
labour force as a percentage of the working age population) declined from 57.3
percent in Sept 2006 to 56.7 percent in Sept 2007, a statistic that we find
difficult to square with what we know of the incredibly strong growth in the
economy over this time.
Moreover, it is not just the participation rate that is relatively low. The
labour force absorption Rate (the total number of people employed as a
percentage of the working age population - which we show in Chart 2) is only
43.5 percent, suggesting that either the economy is not very good at generating
jobs, or that a large amount of employment - whether formal or informal - may
not be properly accounted for in the survey. For reasons that we explore in
greater detail below, we believe the latter explanation may be more applicable.
Gender and race-based differences
In assessing the longer term outlook for South Africa, it is important to look
at the extent to which race-based inequalities are in decline, and the findings
of the (LFS) shed more light on this. Fourteen years after the end of apartheid,
there are still wide disparities amongst South Africa's different population
groups, with the unemployment rate amongst 'black Africans' highest at 30.5
percent, followed by unemployment amongst 'coloureds' (mixed race South
Africans) at 19.4 percent, 'Indian/Asians' at 9.6 percent, and unemployment
amongst the 'white' population reportedly the lowest, at 4.5 percent. What
matters most, however, are the changes over time in these rates. As seen from
Table 1, there is evidence of some progress. The rate of 'black' unemployment
has fallen significantly since 2001, although it remains - admittedly - high.
What is striking is the extent to which gender-based differences in the labour
market remain. The unemployment rate is consistently higher for females than it
is for males, with average male unemployment (for all population groups
combined) currently running at 'only' 20 percent. In each population group,
female unemployment is higher, with 'black African' females seemingly worst off.
This is significant, given that the Black Economic Empowerment (or BEE) program
aims to promote employment amongst all of those considered to have been
economically disadvantaged under apartheid, including women. Yet the labour
force absorption rate for males remains much higher, calling into question
whether there is some room to improve on current BEE policies. If race-based
unemployment has declined - it may be due to overall economic growth rather than
specific BEE policies.
BEE appears to have made little difference to gender disparities in the labour
market, one of its central aims. Persistently higher unemployment in younger age
groups also suggests an urgent need for policy to be revisited.
Distribution of employment by industry
Where are jobs being created? The charts above compare the sectoral
distribution of employment by industry in 2001 and in 2007. While employment in
mining had trended down, reaching a low of only 3.1 percent of total employment
in 2006, in 2007 job growth picked up.
Given the strength of the ZAR in recent years, manufacturing's share of
employment has declined, but only marginally, from 14.5 percent in 2001 to 13.6
percent in 2007. Provided this data is accurate, it suggests that the vocal
opposition of labour unions to inflation targeting (on the grounds that higher
interest rates lead to currency strength and job losses) is overdone.
Construction, trade and services have been the big gainers in jobs in recent
years. In particular, construction has seen a consistent rise in employment in
every year since 2001, a trend that looks set to continue. While employment in
trade dipped slightly in 2007, perhaps indicative of the beginnings of a
consumer slowdown, broadly speaking, the outlook for employment growth remains
sound. Although greater cyclical influences may manifest themselves in the near
term, there is evidence of a significant enough structural shift in the economy
to suggest that recent employment gains will not be eroded by a relatively
short-lived economic slowdown. While the findings from the latest (LFS) are on
balance broadly positive, there are two more issues that need to be considered -
that of skills flight from South Africa, and a broader issue on the accuracy of
the data itself.
Skills flight
There are two assertions that are often made about South Africa - one, that the
economy continues to experience a considerable brain drain, which will be a long
term constraint on growth, and second, that the up-skilling of South Africa's
current unskilled labour force is not happening rapidly enough. While there is
some truth to the latter assumption, given the persistence of high unemployment
levels amongst the historically disadvantaged groups, it is an interesting note,
that in terms of the distribution of employment by occupation, the highest three
levels (managers, professionals and technicians) have seen their combined share
of total employment levels increase.
The level of skills flight spoken of anecdotally may be exaggerated. Some
up-skilling is certainly taking place to allow this to happen.
A health warning - can the statistics be trusted?
The big picture implications of all of this are clear. Growth has begun to
boost job creation but unemployment remains high. Regulation needs to be changed
to reduce hiring costs for smaller firms. Growth is also helping to reduce
race-based inequalities, but more can probably be done. The persistence of both
gender and race-based
disparities suggest that current BEE policies do not yet go far enough. Other
solutions need to be considered, but that is a much broader topic than we have
the space for here. Overall, the prospects for continued job growth are good:
the government is in a position to spend, construction continues to grow
strongly and, given strong external demand, the current power crisis may not
affect mining employment significantly. Moreover, the services sector of
the economy is doing well. Job growth should help to sustain future
consumption, in turn leading to more economic
growth, and more job creation - a virtuous cycle.