SA missed golden opportunity in unemployment fight

October 11, 2018

JOHANNESBURG – The latest research conducted by the Bureau for Economic Research (BER) showed that the country missed out on a golden opportunity to reduce unemployment in the past eight years, with most of the economic stagnation self-inflicted.

The BER Research looked back at the performance of the South Africa economy between 2010 and 2017.

The study found that since the 2009 financial crisis, domestic real gross domestic product (GDP) growth has underperformed relative to both emerging market peers and average global growth.

The organisation said the underperformance hurt job prospects and tax collection.

The research showed that, under different assumptions regarding post-crisis growth and the elasticity of employment, the economy could have created between 500000 and 2.5million more job opportunities over the eight-year period.

South Africa’s unemployment rate currently stands at 27.2 percent, according to the most recent data from Statistics South Africa.

BER also said total tax receipts over the period under review would probably have been higher by between R500million and R1trillion

Harri Kemp, BER economist, said domestic factors, rather than external factors, explained the lion’s share of the underperformance.

“These include falling confidence, widespread policy uncertainty, mismanagement of state resources, and various other structural constraints which conspired to weigh on domestic economic activity,” Kemp said.

BER further assumed that had the domestic growth trajectory matched that of the country’s emerging market peers, real gross domestic product would have been 29.3 percent, or R915bn higher.

Fitch Solutions, a subsidiary of the Fitch Group, in a research note yesterday also said that, with limited scope to apply further monetary stimulus, South Africa was likely to resort to fiscal policy to help offset slowing growth.

“Room for supportive macro- economic policy is significantly constrained as policymakers in South Africa face a tough choice between managing inflation and foreign exchange volatility on one hand, and supporting sluggish economic growth on the other hand,” Fitch Solutions said.

Meanwhile, the South African Chamber of Commerce and Industry (Sacci) business confidence index for September printed at a four-month high, registering 93.3 points from 90.5 points in August.

The organisation said the higher business sentiment was mainly driven by a spike in merchandise export volumes in the period, while new vehicle sales and lower inflation also boosted confidence.

Richard Downing, an economist at Sacci, said business confidence should benefit from the upcoming Medium Term Budget Policy Statement and the Investment and Jobs Summit this month.

“These should provide direction and policy clarity. Hopefully, these can shift South Africa out of the current technical recession and away from stagflation, which may be very costly and difficult to eradicate once it starts, both in social terms and on the budget deficit,” Downing said.

iol