Debates about jobless growth, especially with reference to the enduring unemployment in the economic boom of the late 2000s, are emblematic of the political economy’s discomfort with SA’s economic growth appearing to deepen inequality. The Covid-19 crisis has further exposed this and made it worse. It poses a profound problem for the country’s politics.
When the world went into economic crisis in 2020, the domestic economy collapsed in line with economies everywhere else. Unemployment jumped in the lower productivity services. This sector is the largest employer of unskilled labour in the country. At last count employment remained well below precrisis levels. Labour absorption will have increased now that we have the worst of the Covid-19 crisis in the rear-view mirror. However, low-skilled people have been the hardest hit by the pandemic.
Skilled labour escaped much of the jobs fallout from the pandemic. Employees moved from office to home and are now mostly concerned with how many days a week they can demand to keep working from home. At the higher end of the income spectrum household wealth had the benefit of a strong rally in share and house prices.
In 2020 and 2021 the JSE was supported by buoyant mining profits resulting from the commodity rally. The finance sector benefited from ample liquidity provided by central banks, and the bounce in financial firms’ earnings has buoyed the JSE in 2021 and 2022 to date. While higher interest rates and increased risk premiums depressed equity valuations, surprisingly strong corporate profits more than made up for this drag.
Strength in finance and mining tends to bolster the income of professional service professionals, and the global skills shortage will anchor the incomes of skilled labour. Accountants, lawyers, bankers and the like might be walking off with better incomes than ever even as their compatriots struggle to make do with the social relief of distress grant of R350 a month. This widening chasm between the haves and have nots, already uncomfortable going into the Covid-19 crisis, will at some point become intolerable.
The lack of dynamism in the domestic economy is also a big problem for employment. In a recent conversation a veteran economist said this was the weakest translation from a commodity boom to broad-based economic growth he had ever seen. Higher commodity prices should lead to higher investment in the mining sector and the expansion of activity in downstream sectors, including manufacturing. Mining profits would also typically lead to higher income in supporting industries and higher household expenditure overall. This does not appear to have happened this time around.
Many explanations are possible. However, the most salient is the shortage of electricity. Mines need electricity to operate and cannot expand as long there are power shortages. Expansion in manufacturing in supporting and beneficiating industries is also constrained. Other than electricity, expensive and inefficient transport has hindered exports. The slow opening of the hospitality industry probably explains some of this slack. We also do not know how much scarring the economy has suffered.
The windfall taxes that have accrued to the state from such strong corporate profits can bolster social support. However, this is wholly inadequate. People would be better off if the economy were more dynamic and labour absorptive. Absent the fulfilment of the government’s reform agenda and more besides, SA’s poor will continue to get poorer, and the social fabric more fragile.
SA’s poor are increasingly cut off from participating in the upside of the global growth cycle, but are subject to the full scale of its calamities. Meanwhile, those at the upper end of the wealth and income spectrum are cushioned by globalisation and economic integration. This is not a situation that can be sustained.
• Lijane works in fixed income sales and strategy at Absa Corporate & Investment Banking.
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