South African unemployment disaster

South Africa’s unemployment crisis is steadily deepening, and private-sector employment has not returned to pre-pandemic levels. 

In the second quarter of 2024, South Africa’s unemployment rate unexpectedly rose to its highest level since 2022. 

This is despite an expected bump from election-related activity, particularly the hiring of part-time workers. 

Stats SA revealed that the unemployment rate advanced to 33.5% in the three months through June, compared with 32.9% in the previous quarter. 

Although South Africa’s unemployment problem is well-known, just how deeply it runs is often overlooked. 

The Reserve Bank’s latest Quarterly Bulletin showed that South Africa’s unemployment problem is far worse than previously thought. 

The expanded unemployment rate, which includes discouraged work seekers, increased further from 41.9% in the first quarter of 2024 to 42.6% in the second quarter, following nine consecutive quarterly decreases up to the fourth quarter of 2023. 

The labour force participation rate remained broadly unchanged at 60.6% in the second quarter of 2024. However, the labour absorption rate – the percentage of the working-age population (15 to 64 years) who are employed – decreased to 40.3%. 

This effectively means that the South African economy is unable to absorb a growing number of people looking for work. As the working-age population increases, employment has declined. 

Particularly worrying for South Africa is that much of its employment crisis has been masked by a strong performance from the agricultural sector in recent years. 

This sector is vital for the country’s employment dynamics as it is rapidly able to absorb a large number of unskilled workers. 

It has performed remarkably well in recent years, offsetting declines in manufacturing and mining. 

However, just as quickly as this sector can absorb workers, it can also lose them, making it an unreliable source of employment for an economy. 

This is why the Reserve Bank and other financial institutions look at formal, non-agricultural employment data as a more reliable metric of the country’s economic performance. 

This data does not paint a pretty picture. Formal employment is still well below pre-pandemic levels, emblematic of the country’s economic struggles.

The Reserve Bank displayed this in the graph below. 

The major reason formal employment has not bounced back in the post-pandemic years has been a reluctance from private sector companies to invest in growing their operations and hiring more people. 

Standard Bank chief economist Goolam Ballim refers to the type of capital allocation from private companies over the past few years as ‘subsistence investing’.

This is an investment merely to keep the company operating and not to grow its operations or expand its employee headcount. 

South Africa’s poor economic performance has driven this dynamic, with businesses hesitant to invest in a country that has had an average GDP growth rate of less than 1% over the past decade. 

As a result, private sector employment has remained far below its pre-pandemic levels, and the jobs shed in 2020 have not been recovered. 

The Reserve Bank said private sector employment remained broadly unchanged at 8.33 million in the first quarter of 2024, close to the pandemic-induced low of 8.29 million in the second quarter of 2020. 

This was the result of firms struggling to generate meaningful employment opportunities amid weak economic growth, ongoing operational and logistical challenges, and subdued consumer demand. 

The mining sector, in particular, has been a source of widespread job cuts and restructuring as these companies have come under immense pressure from lower commodity prices and rising costs. 

Manufacturing, another historic source of employment for relatively low-skilled South Africans, has also come under pressure in recent years. 

However, the Reserve Bank said this may be set to change as confidence within the sector continues to rise, and load-shedding appears to have come to an end. 

The decline of private sector jobs in South Africa is shown in the graph below.