The misery of a jobless country

Schalk Louw is a portfolio manager at PSG Wealth. (Picture: Supplied)
Schalk Louw is a portfolio manager at PSG Wealth. (Picture: Supplied)

The recently released latest unemployment figures shocked many, mainly because of the extent to which the situation has worsened. Unemployment figures for the second quarter of 2018 increased to 27.2% from the previous quarter’s 26.7%.

Let’s dig a little deeper to put this in context:

  • Obviously, we are a developing country. South Africa is, effectively, much like a young child that still needs to grow into his shoes. We know this won’t happen overnight, but an increase to 27.2% from an already high unemployment rate of 22.6% a decade ago means that somewhere someone is making huge mistakes.
  • According to Stats SA the current total number of unemployed people in South Africa amounts to roughly 6.08m. To give you some perspective – if we add together all the individuals who currently have jobs in the Eastern Cape, Northern Cape, Free State, North West, Mpumalanga and Limpopo provinces, you would find 6.13m people who have jobs. That means there is almost the same amount of people without jobs in SA as there are people with jobs in those six provinces.

In 1962, well-known economist Arthur Okun found that a one percentage point increase in the US unemployment rate had a negative effect of approximately two percentage points on GDP. He developed a tool called the Misery Index, in which he basically added the US’s unemployment rate to its inflation rate, which in theory should point out the level of misery the country was experiencing. The higher the figure, the more miserable the country.

Why would we measure misery?

1.     It goes without saying that if one country has a higher unemployment rate than another, the former would be more miserable than the latter.

2.     Inflation indicates how sharply prices rise on the goods that we as consumers buy and use. I doubt I have to explain exactly why I feel miserable when I have to pay more than three times more today for electricity than 10 years ago.

How is South Africa doing?

How “happy” are we as South Africans according to Okun’s Misery Index? In short, we are very miserable. According to a Bloomberg survey at the beginning of 2018, South Africa is the fourth-most miserable country in the world as at the end of 2017.

One can understand why the experts were upset when, according to consensus, it was said that things won’t be getting any better, and that further weakening was expected towards the end of 2018, which may even leave SA in second-worst place.

Lagging behind countries like Argentina, Brazil, Greece and even the war-torn Ukraine is disappointing. As a country, we have the people, the intellect, the resources and amazing support from the rest of the world to reach great heights. It is just so disappointing not to see any form of improvement over the last five years.  

Where to now?

The solution to our misery is a two-way street: as an investor, it’s either left or right. If South Africa doesn’t improve its rating on this index, it may mean that investors, both locally and abroad, would be better off finding salvation in other countries. If we want to improve these dire prospects, our “management” (government) has to make two very important changes: urgently create jobs, and pursue economic growth at least three or four times higher than current figures.

The upside to this is that we know what the problems are. It’s just a matter of fixing them. As a country, we love to compete with the best of the best in rugby, cricket and soccer, to name but a few sports. The time has come for us to become just as competitive on an economic level.

Schalk Louw is a portfolio manager at PSG Wealth.

This article originally appeared in the 16 August edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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