The problems of South Africa’s sky-high unemployment and inflation


THE unemployment crisis

The latest unemployment numbers released by Statistics South Africa (Stats SA) last week, depressed me again. The official unemployment rate rose to 32.9% in the first…


THE unemployment crisis

The latest unemployment numbers released by Statistics South Africa (Stats SA) last week, depressed me again. The official unemployment rate rose to 32.9% in the first quarter of this year, an increase of 0.2% in comparison to the last quarter of year 2022. When the folks who have given up looking for work are included in the calculations, the unofficial unemployment rate stands at 42.4%.

These shocking unemployment rates are a catastrophe. The media house Bloomberg has been right to describe South Africa’s unemployment a “crisis”.

The staggering unemployment rates should not be surprising to anybody who has kept up with South Africa’s affairs over the years. As I echoed on Gareth Cliff’s morning show The Burning Platform last week, there is no way we can have significantly reduced unemployment rates in an environment that is not conducive to stronger business productivity and increased investment.

Let us be honest, we have an environment that discourages business expansion and rapid employment.

On The Burning Platform show, I pointed to the energy crisis that continues to crush business across South Africa. The recent Nedbank report details the damage that has been done by blackouts on township economies.

In an environment with the energy crisis of this shocking magnitude, where electricity can be off half a business day, there can be no ability to create the jobs at a level that South Africa desperately needs to drastically reduce unemployment.

Rand Merchant Bank (RMB) chief economist, Isaah Mhlanga, has said that South Africa needs at least 4% economic growth to drastically reduce the current shocking unemployment rates. No way we can get to 4% with this energy crisis!

If, amongst other things, South Africa’s energy crisis is not resolved, the high unemployment rates are not going anywhere anytime soon.

It is disheartening to hear that loadshedding could increase beyond Stage 6 during this winter, as Eskom struggles to keep the lights on.

Public Enterprises Minister, Pravin Gordhan, has said that Eskom’s new CEO will be appointed “within the next month or so”, after Andre de Ruyter’s departure. De Ruyter’s successor will also resign. Too much rot at Eskom, too much political interference, too much criminality.

Speaking in KwaZulu-Natal recently, President Cyril Ramaphosa said that since 1994, “the ANC has created close to 8 million new jobs.”

What the President chose not to tell though, is that unemployment rates have risen in South Africa post-1994. The reason this has happened is because our economic growth underperforms population growth. We have had an economy that is not productive enough to create the needed jobs for the rapidly increasing population. Sad state of our country.

After Ramaphosa’s “8 million jobs” comment and having watched Fikile Mbalula in an interview with journalist Stephen Sackur on BBC this week, I have concluded that the ANC will have a tough time making a case for re-election next year. They have no message of substance that can get rational, informed voters to vote for them.

That is not to say they will lose the election. They could still win, there are South Africans who will still vote for them even though they have messed up the country. Can you believe it?

Fellow South Africans, the government is not an employer

Some people think that the solution to our unemployment problems is government employing the unemployed. I disagree. Businesses in both big and small towns, in townships, in rural areas, are job creators and must be seen as job creators in the country.

In his new book, Andre de Ruyter writes that increased government interventions and bureaucracy are no solution.

People must be left alone to address the problems of the country. All government must do is invest in human capital, law and order, to allow people to participate freely and safely in the market.

Minimum wages are a problem

On The Burning Platform, current affairs commentator Kanthan Pillay who was a fellow panellist, said that minimum wage laws are counterproductive in South Africa’s labour market. Correct!

Our unemployment rates are too high for us to have such laws. First year economics sheds light on the harm minimum wage laws do in the market. Empirical evidence supports the theory. Economist David Neumark has done great written works over the years on why minimum wages are not a good policy.

Given that the biggest problem we face in the country is the disturbingly high number of unemployed people, we ought to start by focusing on getting as many people as possible into jobs. Joblessness is the biggest crisis facing us.

Amongst the questions we must ask ourselves, is why do companies like Tesla and Apple choose to go manufacture in Asian countries and not South Africa? With these sky-high unemployment rates we have, surely we do need companies like Apple and Tesla to come invest here.

President Cyril Ramaphosa should be working hard to get Tesla and Apple to come invest in South Africa, to create jobs. Attracting these companies, and many others around the world, would require stronger structural reforms from Ramaphosa.

If companies like Apple and Tesla choose to go manufacture in China and India, what that tells is that we lack a competitive labour market in the emerging markets. We need policies that will create a competitive labour market. A market with Stage 6 loadshedding cannot be a competitive market.

The inflation problem

The South African Reserve Bank (SARB) hiked interest rates again this week, with 50 basis points. Lesetja Kganyago the governor of the SARB said that blackouts, the ZAR that is under pressure, and inflation remained a threat to South Africa’s economy.

Since November 2021, when rates were lowered to 3.75%, the repo rate has been increased by 450 basis points. Inflation remains a serious problem and is still way above the SARB’s 3-6% target. Last month, South Africa’s inflation slowed to 6.8% from 7.1% in March. Core inflation remains at a high rate of 5.3%.

My hope is that inflation deaccelerates again this month and the next, and that in the second half of this year, we will see no more interest rates hikes. In fact, I hope for the cuts.

Late Nobel economist Milton Friedman called inflation “a disease” that destroys wealth. Last year, I wrote that at the root of this sustained inflation is reckless political decision-making. The sky-high inflation was not caused by the failure of markets or natural disasters. Actions of politicians led us here.

The fall of the ZAR

The weakening of the ZAR has its negatives, including its contribution to increased inflation. What is important to remind the readers of this column about, is that the ZAR has been falling for twenty-five years now. We should reflect on its fall as a nation.

In his illuminating article published on Moneyweb in March this year, investment advisor Michael Haldane discussed the fall of South Africa’s ZAR over the past twenty-five years. A fall in comparison to three major international currencies, that is, the American dollar, the British pound, and the euro.

Haldane argued that there are a lot of things we can do to avoid weakening the rand further. These things “include avoiding bad political choices, selecting qualified candidates for important government positions, budgeting sensibly, and encouraging investment.”, Michael wrote. These are the things that our political leaders are not good at, sadly.

My hope is that in next year’s election, South Africans will wise up and vote new leadership that will take the country in a new direction. Without a new direction at this point, we are doomed, with an economy that is going nowhere leaving millions jobless. PM

This article was first published on LinkedIn.


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