SA’s official unemployment rate increased to a record in the first quarter of 2021, highlighting the need for economic reforms in a country still struggling to shake off the effects of 2020’s pandemic-induced slump.
The country’s jobless rate rose to 32.6%, up 0.1 percentage point from the final quarter of 2020, the quarterly labour force survey released by Stats SA on Tuesday showed.
That is the highest level since the report was introduced 13 years ago and shows the recovery from the worst slump in a century is not translating to increased hiring in an economy that was hobbled by one of the highest rates of unemployment and inequality even before Covid-19 hit SA.
"Whether the unemployment rate peaks at 33% or 35% is actually irrelevant — the point is that SA is sitting with structurally high unemployment and that isn’t going to go away until we get the real economic reforms that make for a more friendly business environment," said Maarten Ackerman, chief economist at Citadel.
The first-quarter rate was slightly lower than the 33.4% predicted by the median estimate in a Bloomberg survey.
Even before the shock in 2020, SA had an underperforming economy marked by a decade of stagnant growth as the government failed to deal with constraints such as a lack of reliable energy. Power cuts by Eskom are back, while companies are waiting for the state to liberalise the energy sector to allow them to generate more of their own power.
That is despite President Cyril Ramaphosa’s pledge to speed up reform and boost SA’s competitiveness. He made attracting foreign investment a key part of his agenda when he took office.
While Covid-19 vaccinations rates are boosting optimism elsewhere, SA’s programme for the wider population has got off the ground just as the country suffers a new wave of infections. That may be a drag on traditional sources of jobs in services and tourism, while putting off the return of foreign travellers.
SA suffered its worst economic contraction in 100 years in 2020 after a national lockdown led to mines, factories, restaurants and other places of work being shut for months on end, resulting in a 7% drop in GDP. That precipitated an employment bloodbath during which the economy shed more than 1-million jobs.
At the same time that SA is battling structurally high unemployment, it has slipped to 84th out of 190 economies ranked in the World Bank’s most recent Ease of Doing Business report, which was published in 2019. That compares with a ranking of 32 recorded in 2008, which was SA’s best.
While the Reserve Bank upgraded its 2021 GDP growth forecast in May to 4.2% from a previous 3.8%, it said that it would "take time to get to pre-pandemic levels". In contrast, Brazil, one of SA’s peers among major emerging-market economies, has seen GDP go back to 2019 levels.
"Just as it is going to take a few years for GDP to recover to its pre-pandemic levels, it is also going to take a number of years for employment to return to the levels we had prior to Covid-19," said Citi economist Gina Schoeman.
"The only way you are going to fix unemployment in SA is to get the private sector to invest more into the economy in a way that goes beyond capital expenditure and results in them adding workers to their payroll.
"To do that you have to address their lack of confidence in the future, which means providing greater certainty around policy and political issues that impact growth."
SA’s expanded unemployment rate, which includes people who have given up looking for work, increased 0.6 percentage point to 43.2% in the first quarter. The official unemployment rate among South Africans aged 15-34 years was 46.3%.
While the first-quarter data showed employment increased in the formal sector by 79,000, people employed in the informal sector fell by 19,000.
Ackerman noted that the biggest drop was in trade and construction — something that could be turned around by faster implementation of Ramaphosa’s much-vaunted infrastructure development plan.
"So far the rollout of the infrastructure development plan has been very slow, but if the tender process picks up we could see that change fairly quickly," said Ackerman.
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