Bleak outlook for South Africa’s unemployment rate − Schussler

28th August 2020

By: Tasneem Bulbulia

Senior Contributing Editor Online

     

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The Covid-19 pandemic and the months of lockdown have had an immense negative impact on economies worldwide, with entire industries forced to close their doors, affecting millions of  workers who either lost their income for weeks on end or lost their jobs altogether, economist Mike Schussler noted during a webinar on August 28.

Presenting trade union UASA’s nineteenth South African Employment Report (SAER), he said the latest forecasts for this year’s global gross domestic product (GDP) show the worst decline since the Great Depression in the late 1920s to early 1930s, while the average projected growth for 2021 indicates the best growth since 2011 and possibly even 2007.

Only three of the larger economies are expected to show positive growth this year, namely China (1.7%), Egypt (0.6%) and Indonesia (0.2%).

Schussler, who is the founder of economists.co.za, said South Africa can expect one of the worst GDP per capita declines in the world. The country’s per capita GDP for the second quarter will be similar to the level seen in 2000, he noted.

He added that the country would bounce back, but that a full recovery would take years – about six to nine years to reach 2019 levels and 11 to 14 years to reach 2014 levels.

“The problem is that our government does not have the capacity to be of much assistance. Total government expenditure as a percentage of GDP is at around 37% while the expected and received tax revenue for 2020/21 is only about 21% of GDP.

"Since government cannot stop spending, it needs ever more revenue which is not forthcoming. We can therefore expect a larger government deficit (16% of GDP) as a result.

"South Africa’s gross government debt will reach 100% by 2024,” he said.

EMPLOYMENT

When looking at the unemployment numbers, Schussler said he believes South Africa is in a depression and he painted a bleak picture of the situation in the country, as well as the future outlook for employment.

He noted that the country’s unemployment rate has been at about 20% or higher for about two decades, which has not happened ever in another country in the world for such a prolonged period.

He pointed out that Covid-19 had hit South Africa while the country was carrying double the unemployment load of any large economy, and the highest the country had ever seen at 30.1% for the first quarter of this year.

‘’The year up to the first quarter saw the largest increase in the number of the unemployed since the global crisis of 2009. As a result, it is likely that more people will die from the broader unemployment crisis than Covid-19 over time,” Schussler said.

Of all the major economies of the world, South Africa had the highest unemployment rate going into the lockdown.

“We were the only country with an unemployment rate above 15% and that means South Africa had double the rate of any major economy (Greece is the next highest of the major economies at 14.5%) even before the Covid-19-lockdown started.

“It seems clear that South Africa should have tried to find the least disruptive solution for the Covid-19 crisis. We will have to learn to live and thrive with it as it is not going to disappear soon,” said Schussler.

Schussler expects unemployment to increase owing to the Covid-19 crisis and lockdown, with an estimated 1.3-million to 3.3-million jobs lost on a permanent basis by March 2021.

He indicated that, with the addition of new entrants to the labour force next year, the best case for the country’s unemployment rate would be about 36.2%, while the worst case would be about 44.6%.

The most probable case, he noted, would be about 40.6% in March 2021.

However, the unemployment rate is expected to ease to 34% to 37% within 15 months after March 2021.

Looking at expanded unemployment rate forecasts, Schussler said it is not unthinkable that the country could become the first modern economy in the world with a 50% broad unemployment rate. The expanded unemployment rate takes into account those who are working age but who have given up on seeking employment.

WORKPLACE SHIFT

Meanwhile, Schussler expects more people to work from home, especially those in the knowledge and services industries, going forward.

With fewer manned office buildings, manual and unskilled labour may lose work opportunities, he added.

In South Africa, more than 80% of workers are employed in the services sector already.

Remote work will also mean that people will need less fuel and will buy fewer cars. There will be a shift in where people shop, from places that were close to work to places that are closer to their home offices.

This will hurt city centres and commercial districts and will lead to a drop in retail rental income, he posited.

He noted that higher education could also experience major changes in the years to come as online classes have been established all over the world. Students' choices are increasing while universities will have to become more competitive than ever, Schussler said.

“South Africa, like many other countries, needs to understand that manufacturing is robotising and needs more fixed capital than ever per job.

"Agriculture could offer some hope in the total supply chain but we need to be realistic that it is not ever going to help much,” he commented.

Schussler said that online employment growing globally presents opportunities for the country to open up new areas of work.

However, there is also a negative aspect, with general higher inequality as unskilled workers would face retrenchments, and higher skilled employees would pursue services with a more international angle.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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