One indication of just how much of a shock SA’s latest unemployment figures are is that the almost 28% unemployment rate is nowhere in ratings agency S&P Global Ratings’s economic forecasts.
S&P, which on Friday night affirmed its junk rating on SA’s foreign currency but held back from taking any further negative action for now, projects an unemployment rate of 26.9% in 2017, rising to peak at 27.2% in 2018.
But SA is already well past that, according to the latest Labour Force survey from Statistics SA, which shows the unemployment rate rose to 27.7% in the first quarter, from 26.7% a year before. The economy did create jobs over the period — the formal sector alone created 538,000 — but this was not nearly enough to absorb a workforce growing at 1.7% a year, and more people actively looking for jobs.
The detailed breakdowns are shocking: only 43% of adults have jobs, and for people in the 15-24 age group, fewer than 13 in 100 are in employment. While many in this age group are studying, millions are neither studying nor working — the youth unemployment rate is 54.3% in the first quarter of 2017.
Even more disturbing is the prospect that we may not have seen the worst yet. President Jacob Zuma’s late-night cabinet reshuffle came at the very end of the first quarter, triggering April’s ratings downgrades by S&P and Fitch, with Moody’s also expected to downgrade imminently.
S&P and Fitch have trimmed their forecasts of economic growth for 2017 and 2018 — both now expect growth to improve from 2016’s pathetic 0.3% to 1% in 2017, in line with forecasts from the Reserve Bank and IMF, but 2018 is not projected to be better. Some economists would say that even 1% is still too optimistic.
Agriculture will come to the rescue as the drought ends, and exports should help, but there is no broad-based or robust economic recovery on the horizon.
Nor is there the political coherence necessary to
effect growth-friendly or employment-friendly reforms.
Both ratings agencies have emphasised that 2017 will be one of political infighting and strife ahead of the ANC’s December elective conference and this is likely to mean that there is, in effect, policy paralysis. That’s even without all the other risks to the ratings outlook, including the possibility that the government will be unable to deliver the fiscal consolidation it has promised, and/or that the position of financially ailing state-owned enterprises could get a lot worse, putting more pressure on government finances.
The ratings downgrades have an effect on investor and consumer confidence, but so too do the political strife and the mixed messages about policy. The full effect will probably be evident only after second-quarter employment and growth data are published later in 2017.
However, there is already anecdotal evidence that employers are starting to consider retrenchments and restructuring to enable them to cope in an economy that isn’t expected to turn around soon, in a policy environment fraught with uncertainty – with policy makers focused on a version of "transformation" that translates as creating opportunities for rent-seeking rather than on raising the growth rate and ensuring growth is job-rich and inclusive.
Few businesses are investing in new capacity in the domestic market and investment declined in real terms in 2016 by almost 4%. S&P’s latest update projects a further almost 1% decline in 2017. Low levels of investment will constrain the economy’s ability to sustain a higher rate of growth and create jobs at a faster pace in future years.
Without a completely different politics and a different policy mind-set, SA’s unemployment crisis won’t be going away anytime soon.
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