The South African Public Sector Now Consumes 40.6 % of Gross National Revenue in Public Sector Wage Bill.

2015-06-09 07:44

Johannesburg – Sunburst Africa –The south African public sector now employs 23.3 percent ( 2, 161,000) people out of the close to 9,000,000 non-farm formal sector employees- according to  Statistics South Africa (Stats SA) annual report. This is more than double what it was in 2005- a decade ago. One may argue that the government is creating jobs by expanding the public sector. In fact one may even asset that the public sector is booming compared to the private sector that has lost just over 4 percent of the jobs it offered a decade ago. The message is clear: if you are in the hunt for a job, you are better off in the public than the private sector.

However, looking beyond the jobs numbers- one may argue that the public sector employment boom has caused more harm to the poor in South Africa than good. You may be wondering why I say so.

The increase in public sector jobs has meant a consumption of 40.6% of gross national revenue in public sector wage bill, compared with 31% a decade ago. It now gorges more than 12% of the country’s GDP. National Treasury’s 2015 Budget Review highlighted the fact that public servants were in the top 30% of wage earners in South Africa.

This is problematic for various reasons. The public sector in its very nature should enable job creation in the private sector by putting in place the right policies, ensuring the rule of law, protecting rights of ordinary citizens as enshrined in the Bill of Rights and constitutions.  When the public sector deviates from its core role, the impact on the poor is devastating. It is not surprising that there has been a lot more service delivery strikes in the recent past than it was a decade ago despite the growth in public sector employees and wage bill.

When government wage bill increases within a given financial year- it means wealth has to be transferred from other government priorities to fund the wage bill. This may mean, less construction of houses for the poor, less hospital beds, less infrastructure expansion, less education for the poor etc.

Large public sector wage bill is also a huge transfer from the wealth creating to the wealth consuming sector. Several economists have pointed out that this is unsustainable and will not advance the National Development Plan’s target of creating 11 million new jobs by 2030. If job creation targets are to be met, more new jobs must come from private sector and not the public sector as has been the case in recent history.

Evidence of the private sector’s rebellion against the State leviathan is the steady diversification into new markets abroad, and the scaling back of new projects in South Africa. It’s not that South Africa does not have great business opportunities; it’s just that businesses see brighter prospects in countries where they do not have to tangle with the government at every turn.

Just 15 South African companies account for one million private sector jobs, but in most cases the number is stagnant or declining.

A company that employs 150 000 makes a huge contribution to national welfare in terms of direct job creation, not to mention the security these jobs provide for the employees’ families, tax contributions, private healthcare, and indirect job creation. None of these represents a burden on the State. Contrast this with the 2.1 million public sector employees whose livelihoods depend on the health of private tax-paying citizens and companies.

Just three companies – Anglo American, Bidvest and Shoprite – account for roughly half a million employees. The top 15 companies on the JSE account for one million. Perhaps most astonishing of all is Bidvest’s growth as an employer from its humble beginnings three decades ago. The same is true for Shoprite, which started off with eight stores in 1979 and now operates 1 200 company-owned and more than 240 franchise outlets across Africa. Bidvest’s growth in employment numbers is largely the result of acquisitions, while Shoprite’s is a blend of acquisition and organic expansion.

Public Sector employment
Public sector2,161,000
National455,701
Provincial1,118,748
Local311,361
Other275,851
Total Pub. Sector and Top 40 employment3,560,387
Total formal sector employment

(non-farm)

8,989,000

A general observation to be made from the study of the annual reports of the Top 40 companies is the fact that employment numbers in SA are stagnating or falling as margins come under pressure. Few companies attempt to explain this declining trend, other than to make obligatory references to a moribund economy rather than the heavy hand of government. Their silence is due in part to their reliance on State contracts, which to some extent makes them part of the problem.

Still, these 40 companies employ nearly 1.4 million people out of a total formal sector employment of nearly 9 million.

It’s not that government is unaware of the Frankenstein it has created. It recently acceded to a 7% wage increase plus allowances for 1.3 million public sector workers, in what is rated as one of the most prickly negotiations in years. But this will add a further R66 billion to the State’s annual wage bill, while the economy is expected to limp along at 2% growth for the next couple of years. The government has signalled its intention to freeze public sector employment growth by not filling jobs already vacant, though it remains to be seen whether or not it delivers on this.

The decline in Private sector employment is concerning as South Africa continues to grapple with huge unemployment rates and the country has huge growth opportunities. While there are no clear cut solutions to growing private sector employment given the global economic circumstances, one of the ways to do so may be to relook at the role of the State in enabling private sector employment. The role of organized labour has not only reducing union membership in the recent years but also preventing employers from expanding employment due to above inflation wage demands needs to be looked at. Labour laws among others need to be looked at including polices like BEE and affirmative action in their current forms.

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