Why do shareholders invest in companies? Do they invest to make money or to create jobs? A simple answer to these questions, which at first glance come across as rhetorical, is that shareholders invest to make money, not for the sake of paying salaries that eat into their profits.
Making a profit is a primary motive that sustains businesses, with employment creation a by-product of the pursuit of profits. Companies hire workers to help them add value and generate wealth, a portion of which is paid to workers in the form of salaries and other financial perks.
During market booms companies employ more workers to extend their tentacles to reach more customers to make more money. The opposite is true during economic downturns: they slash workforces to save money to survive financial blows or protect profits. This is the brutal nature of market capitalism, a dominant feature of our economy.
However, there is an entrenched view in SA, held mainly by Marxist-Leninist communists and trade unionists in our body politic, that state-owned enterprises (SOEs) or partially government-owned companies should not retrench workers, even when it makes commercial sense to do so. Rather than trim wage bills to strengthen their balance sheets, SOEs are expected to approach government with begging bowls to ask for financial bailouts to help them stay afloat.
With a new round of job cuts hanging over the SA economy, trade unions are gearing up to fight off retrenchments as a dangerous concoction of extensive power cuts, rising energy costs, interest rate hikes, logistical bottlenecks, high wage demands and labour strikes threaten to sink the economy. Given the challenges faced by our economy, which the SA Reserve Bank forecasts will grow at only 0.3% this year and 0.7% next year, we can reasonably expect to see job losses in coming months.
These job losses are unlikely to be as severe as the jobs bloodbath experienced during the highest level of Covid-19 lockdowns in the second quarter of 2020. That period saw the SA economy shedding two million jobs.
However, the writing is on the wall, and trade unions are panicking. The Communications Workers Union warned recently that the unprofitable state-owned SA Post Office plans to retrench 6,000 workers, although the Post Office itself says it is looking to cull only half that number. Partially state-owned telecommunications company Telkom has also announced that it will start workplace consultations that could result in the company laying off 15% of its staff as it restructures its business to make it profitable.
Other large corporates that have announced plans to wield the jobs axe are British American Tobacco SA, Naspers and its Amsterdam-listed subsidiary Prosus. BAT plans to retrench 200 workers and Naspers wants to slash 30% of its corporate workforce.
When it comes to retrenchments, Telkom is a curious dichotomy. The company is not strictly an SOE, even though it is expected by some to behave like one because it is 40.5% owned by government and 14.8% by the Public Investment Corporation. The latter is a state-owned asset manager that invests and manages R2,548-trillion worth of assets on behalf of government employees.
At the same time, Telkom is listed on the JSE, which implies that it is expected to generate sustainable and consistent returns for its shareholders, like any other listed company. Telkom’s plans to downsize its workforce are likely to face resistance from trade unions and left-leaning politicians, who will put it under pressure to retain jobs at all costs, ignoring that the company is under financial strain and is not a recipient of financial bailouts from government. Telkom reported a 13.5% drop in its earnings for the third quarter to end-December, which were weighed down by rolling power cuts and rising operating costs.
In opposing job cuts, trade unions are likely to point out that Telkom has already reduced its workforce by about 70% since the early 1990s. This large reduction was a direct result of a decision by government nearly 30 years ago to deregulate the telecommunications industry and expose Telkom to competition after decades as a fixed-line phone monopoly.
This decision put Telkom in the crosshairs of private sector competitors, but it also created thousands of jobs elsewhere in an expanding market. And it paved the way for entry into the telecommunications industry of mobile phone operators such as Vodacom, MTN and Cell C, which along with internet service providers ended up offering services that were not previously provided by Telkom.
Job losses are not limited to SA. Across the globe companies are retrenching to insulate themselves from a looming economic slowdown sparked by escalating energy prices caused by the Russia-Ukraine war. We are beginning to see deep job cuts in industries such as tech, financial services, automobile, tobacco and many others.
Economists predict that the job cuts we are seeing now will be less deep than during the 2009 global financial crisis, but more severe than the dotcom crash in 2000. The global tech giants — Microsoft, Spotify, Alphabet (Google’s parent company), Instagram, Dell, Meta (which owns Facebook), Intel, IBM and Amazon — all overhired during the Covid-19 pandemic and are now laying off thousands of workers, as are multinational banks like Credit Suisse, Goldman Sachs and Morgan Stanley.
In these trying and uncertain times the best employers can do is help reskill and upskill workers who are being laid off. Reskilling programmes give retrenched workers a chance to be absorbed elsewhere in the economy, or in their industries when economic prospects improve.
However, the SA economy is unlikely to improve in the short to medium term given rolling power outages caused by Eskom’s underperforming coal-fired power stations. This failure by Eskom to meet electricity demand is holding back growth in consumer demand and investment spending, the two crucial ingredients that could help our economy fire on all cylinders and retain or create jobs.
• Ntingi is founder of GetBiz
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