The various market and political trends at play in South Africa could sway economic fortunes considerably in the years ahead, says trade union Solidarity.
The trade union on Monday released its Labour Market Index (LMI) for the fourth quarter of 2017, which, at a neutral level just below 50, indicated that both positive and negative forces are impacting on the South African labour market.
The LMI, which forms part of the South African Labour Market Report compiled in collaboration with ETM Macro Advisors, is an indicator of job and wage security in the South African labour market.
The LMI for the fourth quarter was based on data compiled before the major political events – the appointment of Cyril Ramaphosa as President, a Cabinet reshuffle and the controversial Parliamentary motion on land expropriation without compensation – of the first quarter of this year.
According to Solidarity Research Institute’s senior economics researcher Gerhard van Onselen, the fourth-quarter results should be interpreted with caution.
“Over the last number of quarters, the index has been edging toward neutral levels and presently stands at 49, which is still below 50. On our index, a healthy and improving economy should reflect in LMI readings of between 55 and 65,” he explained.
He noted that the index for the first quarter of this year will take into account recent political developments and may give a better reading on how political trends are impacting on job and wage security, as well as business confidence.
Van Onselen added that while business cycle conditions stood somewhat firmer in the fourth quarter of last year compared with 2016, lifted mostly by an offshore driven recovery, improved commodity prices and a stronger rand, recent business cycle scores still indicate tough business conditions.
Meanwhile, of the index’s three subcomponents, a sharp rise in the employee confidence index to 50 in the fourth quarter from 45 in the third quarter contributed most to the overall rise in the index.
Labour affordability rose from 42 in the third quarter to 43 in the fourth quarter, also contributing to the overall rise. However, the Business Cycle Index component fell from 56 in the third quarter to 53 in the fourth quarter, detracting from the overall index.
For employees, the low labour affordability score is especially noteworthy.
“Low labour affordability scores show that substantially improved hiring and wage conditions are unlikely to materialise unless the positive offshore economic momentum is followed up with proper market-led and investor-friendly reforms of government policy,” said Van Onselen.
He added that Solidarity believes many quarters of growth are needed to undo the economic damage and stagnation flowing from the Zuma years.
Solidarity further notes with concern Parliament’s acceptance of the motion for the expropriation of land without compensation because it indicates that the Ramaphosa government is “prepared to flirt with the idea of broad nationalisation policies and a drastic liquidation of private ownership rights in South Africa”.
“Considering the disastrous consequences of land nationalisation in many other countries, it is only reasonable to expect serious reservations about this from local and international investors,” said Van Onselen.