President Cyril Ramaphosa announced last week the August launch of a new “national dialogue” initiative, while Capitec CEO Gerrie Fourie was standing up to challenge the credibility of our unemployment statistics.
Whereas SA’s recent unemployment rate was calculated by Stats SA to be 32.9%, Fourie said “the unemployment rate is probably actually 10%”.
The youth unemployment data compiled by Stats SA is extreme, with rates over 62% for 15-24-year-olds and about 40% for those aged 25-34. If many young adults counted as unemployed by employment surveys can successfully service loans, as the CEO of SA’s largest lender to low-income households has indicated, this merits much consideration. Actual transactions should be more reliable than survey answers.
Yet while SA’s unemployment percentages could be overstated, the ongoing deterioration in formal employment captured by Stats SA’s data is almost certainly correct. If, rather than stagnating our per capita income had grown by 2% a year over the past 17 years, our economy would be 40% larger. It is also noteworthy that surveys identify jobs as voters’ top concern.
Ramaphosa and Fourie are both right. We need to upgrade our national dialogue, and we should start by understanding the relationships between the informal sector, employment and long-term goals. Fourie correctly points out that our informal sector employment is small compared with Mexico’s, whose economy is broadly comparable to SA’s. But we should also note that financial services’ share of SA’s GDP exceeds 20%, whereas Mexico’s financial services account for barely 5% of its GDP — consistent with global averages.
Growing an economy is mostly about increasing productivity while saving and investing prudently. Whether we believe Fourie’s unemployment estimate or Stats SA’s survey results, the productivity of our young adults is extremely low. Productivity is mostly about hours worked and leverage from investments in knowledge and tools. Productivity among our formal sector workers is low due to a disproportionately high number of low-productivity civil service jobs and various regulations undermining merit-based hiring and promoting.
Informal jobs rarely involve significant investments in tools or skill development. An informal job is better than no job, but this era’s high volume upliftment escalator is value-added exporting. Apart from the highly distorted automotive sector, almost none of our young adults add value to exports.
China’s dominance of manufacturing-led exporting reduced its poverty level from over 90% to less than 2% in less than four decades. Yet while China’s worker productivity has soared and its households have saved prudently, their investments, mostly in residential real estate, have faltered. Our low workforce productivity has been accompanied by much consumption being funded by debt.
More than half of our young adults will go through life poor for lack of meaningful employment. Their consumption of financial services will be concentrated on debt service, followed by investing in funeral policies. Low-income earners who never borrow except to buy a car or home will, after a brief period of delayed satisfaction, enjoy a substantially higher quality of life than their siblings with similar jobs who fund current expenditure with credit.
Market forces cannot easily remedy this situation, as price sensitivity to high interest rates is muted by low comprehension of the full cost of credit. Those who dutifully repay expensive debt subsidise lenders making up for those who default. Our low-income communities service far too much expensive debt. This contributes to SA having so many poor people, alongside financial services accounting for such a large portion of GDP.
An opportunity to correct this formidable obstacle to upliftment was presented when African Bank collapsed a decade ago. If the bank had not been rescued more efficient lenders such as Capitec would have benefited, and this should have been accompanied by ongoing efforts for regulators to work with lenders to lower lending costs.
What Ramaphosa has in mind isn’t clear, but we need a new national dialogue that delves deeply into how misaligned our economy is relative to those that sustain high growth.
• Hagedorn is an independent strategy adviser.
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