Analysis & Profiles 16.5.2016 03:02 pm

Team SA battling to keep up

Labour, government and business must work together to ensure a vibrant economic future for all South Africans.

The recent credit ratings announcement by Moody’s Investor Service (Moody’s), to maintain South Africa’s Baa2 rating (two above junk) with a negative outlook, has been widely lauded by the Presidency as a sign of the efforts of ‘Team South Africa’.

This newly-coined catchphrase encompasses the joint efforts of government, business and labour in an attempt to address the stagnating economy and to create more jobs. Whilst the vote of confidence by Moody’s is welcome, there is a lot more that needs to be done other than the short-termism of applauding one of the Big Three retaining the Baa2 rating.

Just three days after the announcement by Moody’s, jubilation was brought back to reality with South Africa reporting unemployment data, which stunned the market, at an eight-year high of 26.7%. A Reuter’s poll had predicted a figure of 25.3%, which represents a much more palatable increase from the Q4 2015 number of 24.5%.

SA unemployment rate: 

NFB

Looking into specific sectors, over the past quarter manufacturing shed 100 000 workers, trade lost some 119 000 of its employees and 77 000 construction workers lost their jobs. Surprisingly, the agriculture sector picked up 16 000 jobs, despite being under immense pressure with the worst drought in 30 years.

Unsurprisingly, the social services sector (see public sector) added 51 000 jobs – adding to the ballooning public servant wage bill and directly contradicting efforts by the finance ministry to reduce this area of government over-expenditure. Over the past year, the 225 000 social services jobs added to the economy dwarfs the 204 000 total jobs, which shows leakage in other sectors, notably manufacturing at 141 000 jobs lost. Remember that before we get too excited by an increase of 204 000 jobs, the labour force grew by 383 000 year on year.

This paints a concerning picture. With the economy stagnating at a 0.6% growth rate and employment in the private sector falling at a distressing pace, the economy faces very real long-term economic headwinds.

This, unfortunately, seems to be the nature of the political environment at present. There is an apparent focus on short-term wins at the expense of long-term solutions, in order to secure voter support in an election year.

The creation of ‘Team South Africa’ in response to a potential downgrade to junk seems to have come at a time where the writing may well already be on the wall. As we’ve stressed a number of times lately the actual event of a junk downgrade – still widely expected with 12 out of 13 economists and analysts surveyed by Bloomberg predicting that S&P will issue a junk rating by year end – is not the major issue that should be constantly fretted over in political and economic circles. The real issue at hand is the reinvigoration of economic growth and creation of sustainable long-term job prospects to arrest the acceleration in unemployment.

However, despite arriving a day late, the cooperation of the three pinnacle pillars of the economy may not prove to be a dollar short. Historically, the main hurdles South Africa has faced have been a fractious labour environment; bureaucratic red tape inhibiting small business growth and stifling entrepreneurship; and notoriously wasteful government expenditure. Collaboration between labour; business and government is essential in order to come to a sustainable solution to address the issues outlined above and redirect South Africa to a path of prosperity.

In a country with such a wide disparity of income and a history of segregation, this will prove to be a tougher task than most imagine.

Big business needs to come to the party to support the incubation of entrepreneurship, both financially and by way of allowing competition; labour unions need to take cognisance of the state of the economy when demanding 15% wage increases; and government needs to tighten its belt on wasteful expenditure and allocate much-needed resources into the economy at large and not into the pockets of the politically-connected elite.

The plan set out by ‘Team South Africa’, spearheaded by private sector juggernauts Adrian Gore (Discovery CEO) and Mike Brown (Nedbank CEO), has committed to raise a total of R3 billion to support and invest in small and medium-sized enterprises (SMEs). The initiative is being driven by the private sector, but expects to be funded 50/50 together with government. Companies have already raised two thirds of their share with R1 billion on the table for contribution to the fund, while Deputy President Cyril Ramaphosa affirmed support for the project with an undertaking to increase the size of the fund to R10 billion over time.

Alongside the development of this SME fund, government has, in a formal press statement in response to the Moody’s announcement, reiterated the aims of the National Development Plan and the Nine-Point Plan set about in the budget, which are summarised as follows:

  • Promoting a stable and cooperative labour relations environment;
  • Encouraging development of energy-efficient, job-creating industries;
  • Lowering the cost of doing business, removing regulatory constraints and acting swiftly to remove policy uncertainty;
  • Boosting investment through launching Invest SA; and
  • Implementing reforms to ensure that State-owned companies are financially sound, operate efficiently, are well-managed and properly governed.

Much of these commitments can be conceived by the pessimist as broad-based standardised goals which only act as lip service to the global investor community, as has sometimes been the case in previous undertakings. However, with South Africa currently at a point of inflection, whereby any further misguided policy errors or lack of concerted effort to reignite economic growth may result in a rather daunting future for the country, which serves nobody’s interests, action needs to be taken.

What the nation needs is a combined and resolute drive from all facets of the ‘team’ to create a favourable investment environment for foreigners and locals alike. While constantly reminded by those at the top of the absolutely accurate fact that “South Africa is part of the international economy, which is not isolated from global factors”, there remains opportunity domestically to turn things around.

The stagnant growth and marauding unemployment figures can certainly be influenced through a stable labour environment; promotive SME financial-assisting structures and regulations; and a public sector intent on efficiently allocating the funds it’s afforded through a well-organised tax collection system and (for now) an accessible global debt market.

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