Although the Covid-19 crisis was always going to cause an unemployment crisis, Business Leadership South Africa (BLSA) CEO Busi Mavuso says, to her mind, the problem is a lack of “original thinking and political courage” to make radical changes to address unemployment in South Africa.
She explains that the most recent unemployment data was “bleak”, showing that South Africa lost 2.2-million jobs in the second quarter of the year, leaving the country with just 14.4-million employed people in both the formal and informal sectors.
“Of course, this figure was already far too low for our economy,” states Mavuso, adding that as a result of lockdown, the official unemployment rate was reported as having improved to 23.3%. However, she clarifies this was only because of the anomaly of fewer people actively seeking work because they were in lockdown. “It is the 2.2-million lost jobs we should be focused on.”
Efforts taken to limit the depth of the employment crisis were partially successful, says Mavuso, pointing out that the Unemployment Insurance Fund’s Temporary Employer/Employee Relief Scheme (TERS) supported employers to keep furloughed workers in their jobs.
“It paid out R45-billion to cover a portion of wage bills. It came late and has been bedevilled by administrative challenges, but it has certainly helped many employers to keep workers in their jobs.”
However, to keep employees in their jobs once TERS ends requires the economy to self-sustain existing jobs, she says. “But there is little reason to believe that the economy has sufficient vigour. The structural reforms we all know we need remain very slow in coming.” Mavuso says different dynamics are in play, with some jobs coming back following the reopening of the economy, but that other jobs will be lost as the TERS scheme concludes.
As an example, she highlights that, towards the end of September, Bloomberg reported a list of large companies that have warned of retrenchments, with Sun International warning of 2 300 layoffs and Bidvest reporting 1 200 jobs could be affected by the sale of its car rental unit.
Further, industrial group Barloworld has warned of retrenchments that could affect 3 750 workers and Cell C expects to close 128 retail stores around South Africa, putting 546 positions at risk.
Unemployment has always been an issue in the country, to the point that she labels it a crisis. “Our lowest unemployment rate was in 2008 when it fell to 22%, a figure that would still be considered a crisis in many other countries. However you look at it, our economy simply does not employ enough people. We can use social grants to limit the poverty this causes, but we cannot substitute for bad policy that leads to unemployment in the first place.”
In her experience, she adds, the instinct of businesspeople is to employ more people where they can. “Every business wants to grow and more people are a key way to do it. Yet our economy has seen a structural shift out of employment-intensive sectors like mining and industry and into highly skilled and capital-intensive sectors like financial services.”
Meanwhile, Mavuso says the logic behind arguments positing that South Africa’s stringent labour regulations do not contribute to unemployment are “tortuous” and that it is unarguable that the higher the cost of an input in production, the less of it will be used, especially when there are substitutes.
“There are substitutes for labour – work with fewer people and give them more machines to increase their productivity. The figures show this has clearly been happening over the past few decades.”
In this regard, she notes that wages are certainly part of the cost, but not the only part. “A great deal of cost is created by regulation. Employers spend a great deal on labour disputes that end up in the Commission for Conciliation, Mediation and Arbitration or in court. A lot of production is lost to strikes. Many employers sit with unproductive or even destructive staff members because it is too difficult to fire them.”
In addition, with millions of unemployed, South Africa’s labour regulation is incredibly biased toward the already employed, says Mavuso, adding that an economy that is able to quickly replace unproductive workers at minimal cost will be one that employs many more workers. This would be because, on average, they will be more productive, and because the all-in cost of hiring them would be lower.
However, she states that there is a lack of “political courage” in South Africa for an honest conversation about this.
“The employed are a powerful political bloc while the unemployed do not have the resources to advocate for their interests. At least, not yet. As their numbers grow relative to the numbers of employed, they become more politically important. The time cannot come fast enough for us to talk openly about the kind of radical changes we need to really get the economy growing and hiring more people.”