Bad news about unemployment and poverty in South Africa

Alarm bells are ringing in South Africa’s business community about the country’s stubbornly high unemployment rate and rising absolute poverty. 

Former Goldman Sachs Sub-Saharan Africa CEO Colin Coleman told the SMWX podcast that the lights are flashing red in this regard.

High unemployment and rising absolute poverty create conditions for desperation and the desire for radical change that can destabilise the country. 

Coleman said that while South Africa appears to have hit rock bottom and is turning the corner, it is not happening fast enough to address these issues. 

The country needs significantly more investment, wherever it can get it, to boost economic growth and job creation. 

South Africa’s inability to create jobs and ensure incomes grow has created a situation where people do not trust the government and are increasingly disillusioned with democratic institutions. 

“We are probably at the bottom, and I feel we are bouncing at the bottom. I don’t think one can get much worse than 42% broad unemployment and 33% narrow unemployment,” Coleman said. 

“There are some worrying signs that indicate that things might get worse for South Africa. We are bouncing at the bottom. On the service delivery front, things are flashing red.” 

South Africa has run up against a brick wall on unemployment, with its economy not growing fast enough to absorb a growing workforce. 

Stats SA data shows the country’s population grows at 1% to 1.3% a year, which is faster than the country’s economic growth rate of 1% over the past decade. 

This has resulted in a situation where more people enter the workforce than the economy creates jobs, with 1% GDP growth roughly equating to 100,000 new jobs. 

Stanlib chief economist Kevin Lings pointed out that since 2020, the South African economy has expanded by 3.5% in real terms. Its population has grown by more than 6% over the same period.

“I think a 1.5% growth rate is still nowhere near enough. We need to really get that growth rate above 3% and heading toward 4%,” Lings said. 

“Then, I think, we will be in a position to be adding enough jobs to absorb the number of people entering the labour market.”

“At a growth rate of just over 1%, we are not going to create enough jobs to deal with the growth in the population.”

Absolute poverty on the rise

One of the major warning signs that Coleman and economists point to is the rising rate of absolute poverty in South Africa. 

The same lack of economic growth that prevents the country from creating enough jobs has resulted in South Africans getting poorer every year. 

As economic growth remains below population growth, the economic ‘pie’ has to be sliced among more people, meaning they get poorer on average. 

South Africa has an absolute poverty rate of 66%, meaning that two-thirds of citizens do not have enough money to buy enough food to meet their essential daily energy intake. 

The rise in absolute poverty is concerning because it creates a large cohort of people who are disillusioned with the current state of affairs. 

Coleman said these people have lost trust in the government and refuse to engage in democratic processes because their livelihoods have not improved. 

“There is nothing more that one can say other than: we need a recontracting between the people and the state in South Africa sooner rather than later,” Coleman said. 

“How does one do that in a democracy? One has democratic elections, and the local government elections will be an indication of the breaking of trust between the people and the state.” 

Coleman explained that the government needs a new mandate from the people regarding what they want from the state: service delivery, jobs, and growth. 

Efficient Group chief economist Dawie Roodt said that South Africa’s unemployment rate is much lower than is officially reported, thanks to the informal economy. 

However, this does not mean the country does not face a crisis that needs to be addressed before things break down. 

“Without a doubt, we have very high levels of unemployment. But what really concerns me is the rising level of absolute poverty,” Roodt told State of the Nation. 

“25% of children in South Africa are malnourished. I mean, that is the single worst number of all the different economic statistics.”