SA's unemployment crisis: Economy screaming for reforms | Fin24

SA's unemployment crisis: Economy screaming for reforms

Nov 22 2016 20:45
Arabile Gumede and Thembisile Dzonzi

Johannesburg - An analyst has warned that South Africa needs faster economic growth after the country's jobless rate surged to the highest in over a decade.

The jobless rate rose to 27.1% in the quarter through September, from 26.6% in the previous three months, Statistics South Africa said in a report released on Tuesday.

READ: Unemployment hits 13-year high

This is the highest unemployment rate since 2003, according to data from the International Monetary Fund. The median of six economist estimates compiled by Bloomberg was for unemployment to stay unchanged from the second quarter. The number of people without jobs rose by 239 000 to 5.9 million while those employed increased by 288 000 to 15.8 million.

South Africa has struggled to rein in unemployment after the 2009 recession as Gross Domestic Product (GDP) growth stayed below 3.5% annually and is projected by the government to slow to 0.5% this year. The sluggish economy, policy uncertainty and rigidities and instability in the labour market are some of the factors that rating companies like Moody’s Investors Services and S&P Global Ratings, which will publish their assessment of the nation’s creditworthiness in the next two weeks, have highlighted as risks.

Economy screaming for reforms

“We need faster GDP growth, because once we do that we will find that a lot more people are absorbed in the labor force,” Lesiba Mothata, head of market and economic research at Investment Solutions in Johannesburg, said by phone on Tuesday. “Unemployment is a big challenge and it’s an economy that is screaming for reforms.”

The number of discouraged work-seekers fell by 235 000 to 2.3 million as more people started looking for employment in the third quarter, the statistics office said. Manufacturing shed 28 000 jobs and employment in community and social services, which includes the government, fell by 45 000. Construction added 104 000 jobs and agriculture employed 56 000 more people in the third quarter than in the previous three months.

A minimum wage of R3 500

A panel of experts commissioned by the National Economic Development and Labor Council, known as Nedlac, which promotes negotiations among labour unions, government and business, recommended on the weekend that a minimum wage of R3 500 a month to be phased in over two years. This is part of a plan to stabilise the labour market and retain an investment-grade credit rating. The nation’s biggest union has rejected the proposal.

“The default reaction is if you put in a minimum wage it’s going to cost some jobs,” Christie Viljoen, an economist at KPMG LLP in Cape Town, said by phone. “I can only see one direction for the unemployment rate and that is higher” as more people enter the labour market.

South Africa has the highest jobless rate of more than 60 emerging and developed countries tracked by Bloomberg. The economy needs to expand at 7.2% a year from 2018 to achieve the government’s goal of reducing the jobless rate to 6% by 2030, the World Bank said in February.

Finance Minister Pravin Gordhan projected output growth of 2% and 2.2% for 2018 and 2019 in his October mid-term budget.

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