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South Africa’s economy is recovering – but the jobs aren’t coming back

South Africa continued to lose jobs in Q1 2021 despite four consecutive quarters of real GDP growth, showing that the correlation between growth and jobs in South Africa might not be what it once was, says professional services firm PwC.

By applying simple regression modelling using the latest rebased GDP and employment data, the firm found that since Q4 2019, there has been a diminishing relationship between real GDP growth and job creation in the country.

“By the end of 2019, every one percentage point increase in real GDP would translate to a 1.01 percentage point increase in employment. In addition, real GDP change during a specific quarter would explain 74% of the change,” it said.

“When extending the regression period to Q2 2021, we observe that a one percentage point increase in real GDP now only translates to a 0.91 percentage point change in job creation.”

The calculation also has a reduced model fit of 0.67 – this means that, at present, the change in real GDP can only explain two-thirds of the change in jobs, PwC said.

While this relationship is clearly diminishing, applying the updated model would still suggest that South Africa should add 410,000 jobs this year if the economy grows by our projected 3%, the firm said.

“However, following the jobless recovery in H1 2021, and the adverse impact of July’s unrest on third-quarter job prospects, it makes us wonder whether any formal jobs will be created in 2021.

“The big question is: why are we seeing a jobless recovery?”

Four key problem areas 

The answers might lie in the other third of the drivers behind employment growth that the GDP-only regression model could not explain, PwC said.

The private sector, the global driver of post-pandemic employment recovery, is facing a myriad of local uncertainties that is keeping it from retaining and appointing new workers, it said.  These include, amongst others:

  • Potential higher future tax burden – While the National Treasury is looking at lowering the corporate tax rate, the Department of Social Development published a green paper during August proposing a 10 percentage point increase in personal income tax rates to finance a basic income grant for the unemployed.
  • Vaccine delays and the lingering lockdown – At the current pace of vaccine rollout, we estimate it will take another 10 months (i.e. by July 2022) for 67% of the total population to be fully vaccinated. As such, businesses are expecting lockdowns – and the adverse impact that this has on the economy – to continue into H1 2022.
  • Risk of further social unrest – Following the destructive evens in KwaZulu-Natal and Gauteng during the second week of July, there are no guarantees that the situation cannot repeat itself. The core drivers behind the unrest – poverty and unemployment – are only getting worse.
  • Increased electricity load shedding – Eskom implemented 650 hours of load-shedding during 2021H1 which was a 13% increase versus the first six months of 2020. The power supply outlook is also clouded by, amongst other issues, slow progress under the Renewable Energy Independent Power Producer (REIPP) plan, an accident at Medupi power station removing 720 MW in generating capacity from the grid, and slow progress in unbundling the state power utility.

These four factors all highlight the detrimental effect of uncertainty – specifically over taxes, lockdown restrictions, social stability and electricity security – on business sentiment, PwC said.

There is a clear relationship between policy uncertainty and business confidence in South Africa, where higher uncertainty leads to weaker business sentiment, the firm said.

“In addition to these challenges, there is the obvious impact of Covid-19 on how business operate on a day-to-day basis. For example, companies in South Africa have had to invest in software as a service (SaaS) to ensure business continuity for staff to work from home.

“This has opened the door to new opportunities to digitalise certain business functions – perhaps to the detriment of current and would-be employees – as companies look to control costs and remain competitive.”

The next big question is whether this kind of jobless growth trend will endure, PwC said.

“There are no easy answers. However, in order to avoid a continuation of jobless growth, South Africa needs to address the key uncertainties highlighted here.

“These factors have been around for a varying number of years and associated risks are unlikely to be resolved within the next 12 months. A concerted effort is therefore needed to avoid a jobless growth trend from sticking.”


Read: Top executives are not optimistic about what lies ahead for South Africa

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Author: Staff Writer

J.D. Smith is a Tech Investor, Author, and Economist. He is the Founder of Visionary Creative International, a Tech-Based Consumer Solutions Company. He is also the Publisher for Black Media Daily, a 24/7 media outlet providing a voice for black content creators and a place to control their image throughout the Diaspora. J.D. is also the co-author of the book 100 Questions Black People Should Ask themselves, and a best-selling author of the book Made By Hustle. As a digital nomad, he promotes the importance of black travel and working from anywhere.