Already facing record unemployment, SA braces for jobs slump after lockdown


South Africa may lose about 370 000 jobs this year as a result of the national lockdown and initiatives to stop the spread of the coronavirus, according to a forecast by the Reserve Bank.

This comes as South Africa is already battling to reduce its record-high unemployment rate of 29.1%, as well as weak business confidence and an ever-increasing sovereign debt burden. 

In its biannual Monetary Policy Review, published Monday, the bank noted that job growth had already stalled in 2019, with the total number of employed people declining from 16.44 million at the end of 2018 to 16.34 million at the end of 2019.

"Preliminary estimates suggest South Africa could lose about 370 000 jobs this year, on a net basis, with business insolvencies increasing by roughly 1 600 firms as the economy contracts," it said. 

The central bank also said that the country's economy was likely to contract by between 2% and 4% this year, with growth unlikely to exceed 1% in 2021. 

The unprecedented 21-day national shutdown, announced by President Cyril Ramaphosa in late March, has taken a heavy economic toll, with only essential businesses permitted to remain open. Operations deemed non-essential, such as restaurants, cinemas, gyms, travel agencies, much of the mining sector, liquor stores, and more, have ground to a near or complete halt.

The shutdown, which government hopes will decrease the spread of the coronavirus to not overwhelm SA's health sector, has also led to several companies announcing salary cuts of top executives or staff.

But while SA's economy has been struggling for some time - it was already in recession in the last half of 2019 - a significant test will be the release of employment statistics following the lockdown, which is expected to come to an end on April 16.

And rising unemployment is likely to add to already low investor confidence, which recently suffered a heavy blow with the downgrading of the country's sovereign debt to junk status by Moody's, and a further downgrade by Fitch, which had already given it a junk rating in 2017. 

How will businesses survive? 

Morne Mostert, Director of Future Studies at Stellenbosch University, is adamant that to limit damage, businesses would have to introduce flexible measures to contain costs following the lockdown period.

Such measures would not be limited to reducing fixed salaries, but also bonus cuts, forced leave, short-time, salary freezes, and eventually retrenchments.

In the mining sector - once the mainstay of the local economy - most companies have put shafts on care and maintenance over the lockdown period, with some operating at reduced capacity.

The mining industry has been shedding jobs in large numbers in recent years, as companies restructure operations in the face of growing operational costs and lower returns.

"Things are looking desperate," says labour economist Andrew Levy, adding that even if the lockdown is not extended, "the effect on jobs is going to be huge".

Levy is of the view that kick-starting the economy won't take place overnight once the lockdown period is lifted.

"Even when we start again, you can’t flick a switch and re-start the economy, it is going to take some time, and jobs will be on the line."

Employment in the construction sector at the end of March was down -2.9% quarter-on-quarter between September 2019 to December 2019. Mining and quarrying dipped -3.2%, while manufacturing and transport contracted by -0.3% and -0.4% respectively.

Labour analyst Terry Bell forecast that mining companies might use the current lull in activity to push for mechanisation, a subject which has been met with heavy resistance from unions. One mechanised mine operated by Anglo American Platinum, Mototolo mine, is one of the producers operating with reduced staff during this period. 

Bell said the lockdown is likely to give miners an "added impetus to mechanise, which means in the long term there will be fewer jobs".

Blow for retailers

While food retailers are essential retailers and can continue to operate during the lockdown, restaurants and clothing stores are shut, leaving operators with rental payments and wages to pay during the period of non-activity.

Levy highlighted that the weak position of the retail sector, which is the third-largest sector of the economy, is likely to be compounded by the fact that consumer spending is set to take a knock after the lockdown, as disposable income levels come under pressure.

Retail trade sales decreased by 0.4% year-on-year in real terms in December 2019, according to data from Statistics SA.

Tourists stay away

As one of the country's mass employers, the tourism sector has seen hotels and restaurants shut doors, leaving thousands of service staff without income. A healthy return to normal is unlikely to happen overnight once the ban is lifted.

Large hotel groups have reported have postponement in tourist bookings, and travellers are likely to stay away until there is assurance that the spread of the virus has been arrested.

"The leisure sector has come to an absolute halt... and tourists are going to be doing less travelling in the future, forcing companies to operate at a loss," said Levy. "The biggest losers would be jobs".

He believes that the only way for the economy to ride out the current jobs slump would be through an annual growth of 5-6% or even more for a decade or so.

We simply don't know yet

However, that is an impossible feat in the face of the Reserve Bank's projections of a fall of between 2% and 4% in GDP. 

Moreover, South Africa's chronic jobless rate does not include the number of those who have given up job hunting, making the official rate not an accurate indication of unemployment, which is said to be hovering around the upper 40% mark.

Bell believes the real assessment of job numbers is likely to be seen in the third quarter, where unemployment rate may rise to well over 30%.

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