Mass retrenchments to hurt limping economy even more

Less than a month into 2020, South African companies have already announced thousands of job cuts. In a country where a third of the labour force is already unemployed, this will put even more strain on demand and economic growth.

Almost 8 000 jobs are at risk as companies including Telkom, the country’s largest fixed-line operator, and Walmart’s local unit Massmart plan to reduce their headcount after slumps in earnings. That’s after Sibanye Gold cut positions at its Marikana operations as part of restructuring plans and Glencore issued a notice of possible reductions at its Rustenburg ferrochrome smelter.

If realised, these job losses will add to an unemployment rate that is the highest in at least 11 years, and place a further damper on demand and consumption spending in an economy stuck in the longest downward cycle since World War 2. Growth in household expenditure, which makes up 60% of economic activity, slowed to 0.2% in the third quarter despite a reduction in the benchmark interest rate.

“Labour market dynamics — job growth, income growth — are the most important drivers of consumption expenditure,” said Miyelani Maluleke, a senior economist at Absa. “I worry that if we see more of these kinds of announcements it could further depress household consumption expenditure.”

An economic blueprint that President Cyril Ramaphosa co-authored a decade ago aims to reduce joblessness to as little as 6% by 2030, but the government’s actions are not helping. In addition to a lack of urgency in implementing policies that’ll boost growth and convince businesses to invest and expand, the state and its companies are also reducing workers.

Finance minister Tito Mboweni has made it clear the state wage bill has to be trimmed, and that means a government that employs fewer people. Despite opposition from labour unions, the restructuring of power utility Eskom, which has billions of dollars of debt and a bloated workforce, will lead to job cuts when it eventually happens. The national carrier, South African Airways, is in bankruptcy protection and started cancelling flights on Tuesday to save cash, a step that could usher in a reduction in staff.

Outpacing GDP

South Africa’s unemployment rate has remained above 20% for at least two decades, largely due to insufficient economic growth. Since 2015, population growth has outpaced that in GDP every year.

That means the economy “doesn’t even begin to scratch the surface of what is required in terms of jobs for new entrants in the labour market”, Maluleke said. “As a result I think you’re going to see the employment rate grow.”

South Africa’s economy hasn’t expanded by more than 2%/year since 2013 and neither the central bank nor national treasury see it reaching that level by 2022.

The economy needs sustained GDP growth of 2.5-3% to stabilise and to reduce the unemployment rate, Maluleke said.  — Reported by Prinesha Naidoo, with assistance from Renee Bonorchis, (c) 2020 Bloomberg LP