Unemployment stays high, exacerbated by rolling blackouts

Unemployment increased in the first quarter of the year and the already dire situation is exacerbated by the rolling blackouts which will get even worse over the winter months. A total of 7.9 million people in South Africa are unemployed, of which 4.9 million were young people between the ages of 15 and 34.

According to the Quarterly Labour Force Survey issued by Statistics SA, the country’s unemployment rate increased by 0.2% to 32.9%, at least somewhat lower than the 34.5% of the first quarter of 2022.

Compared to a year ago, total employment rose by 8.6%, while the number of unemployed people increased by 0.9% and the number of people who were not economically active dropped by 4.5%, but according to economic research group, Oxford Economics Africa, the current power crisis is weighing on job creation, with the domestic economy expected to hardly grow at all this year.

The group says the new unemployment rate is slightly higher than its forecast of 32.7%. “Still, a sizeable number of people moved from the ‘not economically active’ category to ‘employed’ and ‘unemployed’ statuses on a quarterly basis, which resulted in a higher unemployment rate.”

The country’s working-age population increased by 141 000 on a quarterly basis and the number of unemployed people increased by 179 000 to 7.9 million people. There was an increase of 258 000 jobs, which means that 16.2 million people were employed in the first quarter. According to the expanded definition of unemployment, the rate decreased by 0.2% to reach 42.4%.

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High unemployment and rolling blackouts

Oxford Economics Africa warns that South Africa’s unemployment rate is expected to remain at the current high levels for as long as the electricity crisis persists. “Businesses are unable or disinclined to expand operations in the current economic climate and the business mood has soured notably since the start of 2023.”

The group says shortcomings in logistics infrastructure and load shedding have a negative effect on industry, while fixed investment intended to expand existing production capacity is undermined by weaker demand and unforeseen capital expenditure to source alternative energy generation.

“The economy’s weakened growth outlook also bodes ill for future employment growth. In addition, the unemployment crisis is characterised by high youth unemployment, where young people aged between 15 recorded the highest unemployment rate of 62.1%, while 40.7% of people between the ages of 25 and 34 had no work.

The Nedbank Group Economic Unit also points out that the unemployment rate increased slightly as the labour force expanded faster than unemployment. The labour force expanded by 438 000 or 1.8% as new graduates and matriculants entered the job market and more discouraged work-seekers returned to the jobs market as well.

“Encouragingly, employment increased, with a total of 258 000 jobs created despite poor economic prospects amid acute rolling blackouts. Since the labour force increased by more than employment, the number of unemployed also rose by a sizable 179 000.”

What is concerning is that private households retrenched 86 000 workers, which the bank says probably reflects the strain on household incomes given elevated inflation and rising interest rates.

Domestic trade also shed 28 000 jobs as these industries grapple with falling production, heavily inflated by rolling blackouts against the backdrop of weaker sales. “Similarly, the power-intensive mining sector cut 23 800 jobs due to the tougher economic environment, characterised by regular disruptions to operations due to power outages, persistent logistical constraints, weaker global demand and falling commodity prices.”

This was mirrored by the manufacturing sector that cut 1 700 jobs after two consecutive quarters of job creation.

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Bleak economic outlook

The bank says although growth in total employment remained firm at 8.6%, the growth rate has moderated from 10.4% in the third and 9.6% in the fourth quarters of last year.

However, Nedbank says the outlook for the quarters ahead is still bleak as the economy faces significant headwinds, which does not bode well for the job market. “Slower demand in most major economies, hurt by the high cost of living, will exert downward pressure on commodity prices and weigh on export-orientated industries such as mining and manufacturing.”

Unfortunately, mining and manufacturing are also power intensive and will therefore suffer the most pain from the electricity crisis. “Other industries are also facing the same fate, with business activities affected by the intense rolling blackouts.”

Nedbank says at the same time, higher interest rates and fragile consumer confidence will contain consumer spending and hurt corporate profits. While the government is accelerating efforts to deal with issues at Eskom, it will take years to resolve this challenge completely and therefore the cost of doing business will remain high.

“Business confidence will remain depressed and the private sector will most likely limit investment spending and employment growth. Public service employment will be limited by the fiscal consolidation path, which, among other key objectives, prioritises the reduction of the wage bill.”

Nedbank says even if employment were to increase, the unemployment rate is likely to remain structurally high over the medium term as the number of unemployed and discouraged work seekers who can enter the job market remains high.