Rising gas demand in the EU countries, which have been imposing sanctions on their main provider, Russia, on the back of the Ukraine war, has ... prompted Egypt on the other side of the Mediterranean to boost its LNG exports. Yet, its high domestic consumption and possibly insufficient infrastructure remain stumbling blocks.
South African CEOs and businesses are adopting a wait-and-see approach to hiring in the current environment.
The country’s GDP data from the first quarter of 2021 indicates that activity in the construction sector is still moving at a slow pace, which correlates with the sluggish progress in the government’s infrastructure programme. The current administration has listed infrastructure spending as an important pillar of its economic recovery plan.
In terms of the QLFS, South Africa’s jobless rate has risen by 0.1 percentage points to 32.6%. Moreover, the expanded definition, which includes discouraged jobseekers, is at 43.2% – a level last recorded in 2008.
South Africa registered an annualised and seasonally adjusted growth rate of 4.1%, mostly boosted by an increase in mining activity. However, the underlying figures tell a story of an economy suffering the after-effects of prolonged decline and underperformance.
“If we put [the QLFS] in context with the GDP numbers, what concerns me is that South African businesses and CEOs are still waiting to employ people or they’ve made a decision not to at all. That uncertainty still seems to be there. Although I must say, if you look at business confidence, that bodes well for where things might go in future,” said Lullu Krugel, the chief economist at PwC.
However, the relationship between GDP and unemployment was significantly worse in the first quarter of 2021 than in 2020. “It seems like everybody’s waiting to make those employment decisions,” said Krugel.
Although the QLFS lags behind the GDP numbers, she said: “I am concerned about … [whether] our labour market is ready for the levels of automation that we might see in the economy if we want to remain competitive.”
To be flexible or not to be …
Krugel cited the US, whose labour market suffered from severe shocks attributable to Covid-19. However, in recent months, and with an improved vaccine rollout programme, America’s job market has staged a remarkable recovery. What differentiates the US from South Africa is that it has labour market flexibility while the latter does not.
“Labour market flexibility is a very contentious thing. If you look at the US numbers – and I am not saying we should emulate that – but I do think we should think about labour market flexibility, at least, in the next couple of months, year, or two to three [years],” Krugel said.
“They had scary unemployment numbers when Covid-19 happened. They’ve managed to reverse a big portion of that – not all of it. I think what helped is labour market flexibility. If you hire somebody, then that fear of what if I have to let them go, is maybe smaller for them,” said Krugel.
If you look at what had been budgeted last year for this year’s infrastructure – the spending is actually going down.
However, South Africa has a well-established and influential union culture.
The governing African National Congress (ANC) is in partnership with the Congress of South African Trade Unions (Cosatu) – the largest union federation in the country – and the South African Communist Party (SACP). Both Cosatu and the SACP have balked at the idea of labour market flexibility, dismissing the mooted practice as a neoliberal concept and warning that, if adopted as policy, this could be the country’s “downfall”.
The parties to the tripartite alliance have expressed concern over the rise in unemployment rates. Meanwhile, the ANC-led government has cut the budget of the Commission for Conciliation, Mediation and Arbitration, which is South Africa’s labour dispute resolution body.
At their latest meeting, held virtually last weekend (4 to 5 June 2021), the ANC, Cosatu and SACP alliance leaders said slashing the budget of the labour dispute resolution body “created a massive backlog [of cases waiting to be heard] with adverse effects on workers, who continue to face the brunt of retrenchments, loss of wages, unsafe working conditions, and unfair labour practices.”
“The government should make it a priority to solve this problem as a matter of urgency,” said the alliance. The irony is not lost on many in South Africa that the budget cuts were made by the ANC government.
The ANC, Cosatu and SACP are planning an economic summit where the issue will be discussed further.
That elusive infrastructure programme
Meanwhile, the GDP numbers which came out on Tuesday 8 June underscored the fact that the construction sector is not picking up pace. This may indicate the lack of an adequate project pipeline which could lift activity. Furthermore, this could be an indication that the government’s infrastructure programme is still stalling.
“We are watching it [infrastructure programme] and are doing some analysis on it. If this is supposed to be part of the economic recovery plan, it seems to be too slow in terms of what is happening,” Krugel said.
“What is interesting to me, and I am not saying that it is the only route, but if you look at what had been budgeted last year for this year’s infrastructure – the spending is actually going down. It’s not going up. We were, in any event, planning to spend the money that is there in the budget,” said Krugel.
In short, although the budget is not the only means through which the infrastructure programme could be implemented, it is an important avenue. In 2020, the government had re-prioritised spending from other areas and redirected funds for allocation towards infrastructure in the 2021 financial year, to boost its economic recovery plan.
“If you look at the infrastructure plan, there was a massive focus on doing things differently. Not necessarily about spending of the money, but doing things more efficiently and differently. I haven’t seen a lot of that,” Krugel said.
“I know there’s Infrastructure South Africa that’s been put together with people from the private sector being seconded [there]. That is all positive. But … [movement] has been too slow in terms of the rollout in my personal opinion, especially if that was supposed to be the backbone of government’s economic recovery plan,” said the chief economist.
“However, I am heartened by the announcement that we saw around electricity. I think that will bode well for new investment,” she said.
The government announced this week it would lift restrictions on private power generation amid state-owned company Eskom’s struggles to ensure security of supply. For the past two weeks, South Africans have been subjected to rolling blackouts.
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