The unemployment rate refuses to come down

The issue of jobs is likely to remain top of the political agenda in South Africa for decades to come.
No amount of goodwill in government and business circles can make a significant dent in the economy's ability to create new jobs on a large-enough scale.
The stakes are indeed high for expectations were driven to a point - justly so - that demands faster delivery.
But the eternal question pops up: how to balance labour needs demanded by a free-market economy with those of society whose political calls have to be heeded too?

The structural imbalances of South African society are only too well known. Pointless then to brush them over every time.
What may work and has perhaps not been tried to full effect yet is an all-out innovative policy generated in-house to specifically employ manpower in large numbers.
Building housing units, fixing decaying infrastruture, improving general conditions in impoverished neighbourhoods, cleaning up roadways, roadsides, trimming excessive vegetation, taking education to every community across the length and breadth of the country, etc.
There would certainly be many more areas to identify and work on that might add to employment at relatively low raises to overall government expenditure.

It is the case that in developed countries unemployment rates remain stubbornly high due to a host of unresolved issues new and old plaguing each economy to different degrees.

The closing paragraphs of the article show there are grounds for guarded optimism.
South Africa scores solidly on a fair number of areas.
These might propel it forward faster provided other factors playing into the context are right as well.

The government's determination is there but will not, as has been evident, produce desired outcomes unless creative measures are designed and implemented.
Calls to the private sector are useless given that it will take on employees only to the extent that its operations demand.

The way forward is for South Africa's economy to grow at ever higher rates driven by a combination of sound government policy, increased public and private investment and a further boost to exports.
None of this seems out of bounds for a country that has against all odds fared rather well.

The idea to go to the private sector for jobs is a start for the ANC, but a better idea would to take up a plan like Thatcher's from the UK. South Africa needs to improve it's government, and fast. The UK is one of the better examples of a stable democracy, and Thatcher's plan in the 80's was a success to stimulate the economy, and South Africa should really look into that. The plan to cut back the foreign labor is also a big step in the right direction. By minimizing the number of foreign workers, more South Africans will be able to have jobs. In addition, the ANC must do whatever it can to provide jobs for people, before they lose all of their legitimacy. By not providing the jobs they promised, the people will soon revolt, and put in new government that has a plan, and more promising results. This process will not fix things over night, and not even in the next five years. But the results will be more prominent in a shorter period of time than through their current plan of action.

South Africa does have a lot of promise, especially for the continent. However the government needs to simplify and create a more merit-based system that includes labour. It's current methods are somewhat confusing in principle. For example, the BBBEE whereby 26% senior managers must be non-white rising to 60% can be rounded by simply paying a set rate according to level acheived. What does that clearly imply as a message from business? It is worth paying extra rather than fill ranks with race-based quotas because my merit-based staff can more than offset in terms of productivity.

South Africa is just another example of a socialistic/communistic government that will never offer good government to its people. It is unable to do so as it has idealogical blinders. It can not see the forest for the socialistic trees. The government will continue to misgovern South Africa until its people get rid of the looney left politicians.

The ruling party - the ANC is losing grip and control over South Africa's problems. Crime remains the world's worst. Unemployment has doubled since apartheid. South Africa was isolated by international sanctions. Now it can trade with the world. Yet the country has gone backwards in almost all human development indicators. It just shows the gross mismanagement of the ANC. SA was the world's 15th largest economy in 1990, it is the 36th largest today. The government collects a large amount of tax - 15 million people are now dependent upon social grants. SA is the world's largest welfare state. What is needed is business tax cuts to encourage economic growth and job creation. But the government doesn't trust the business sector - most businesses are in white hands. Meanwhile black entrepreneurs starting up new businesses are far and few in-between. So instead of cutting business taxes, the ANC maintains very high personal income and business taxes - which it has used so far to provide much of its services for free - electricity, water, housing to millions of black people that once lived in squatter camps. But South Africa's businesses are far from the world's major markets - exporting to Japan is a 15000km trip. Its businesses cannot be taxed at the same rate as those of the developed markets in EU, US, Asia. And the saving rates remain low - government tax also discourages savings. The ANC fails to recognize these realities. These new labor laws are designed not to encourage growth and jobs but to keep the election votes of the country's largest labor union COSATU which has millions of members.... so we will see how much longer the ANC will rule South Africa. People are becoming unhappy.

Carlos Collaco - I like your view point on the issue. I'd like to share with another view point which, I believe is a simple extension on your view.

In my mind the South African labour economic development is snookered.

I believe that when he have a developing economy in the early stages, the economy goes through various phases, primarily a sort of start-up phase where there is a large poor and cheap labour resource. This labour resource (if done properly) can be put to work making products primarily for export purposes, further that labour resource will tend to favour cheaper and simpler locally made/grown products. In this way the economy starts off being export-growth led and much more inward looking for consumption. Common examples are Malaysia, Singapore, Viet Nam and even China (I'm sure there are many more examples).

As the poor labour become more educated and provide higher value services, they will also start to demand higher wages and start to afford more sophisticated imported products. The economy then transitions from export-growth led to consumption led. Common examples are Singapore, India, most of the West and I'm sure again many more examples. Oh and China seems to be now maturing towards a more consumption led economy.

Now South Africa is a little more unique. They have both types of economies in one. The (for a lack of terms) white based economy went through the export lead growth stage a long time ago and has matured into a relatively well developed consumption led economy. And the (again for a lack of terms) black based economy is in essence still trying to go through the export led growth path.

The conflict occurs when white people, who command the economic buying power, continue to consume a high proportion of the economy and have an insatiable appetite for imports at the detriment of buying locally made products that would foster more employment for the black population.

I'm sure a lot of people are now going to say that Black labour is too expensive to compete against foreign goods and hence the problem lies with the cost of Black labour. I don't see it in that light.

Now I would like to imagine that the serious hurdle in the creations of more jobs is directly connected to the value of the South African Rand.

I was startled to see that the currency that comes from this tiny economy (South Africa) is one of the 12 most traded currencies in the world. Go to www.xe.com and you will see it. Note that the Brazilian Real, Russian Rubel, Mexican Peso along with currencies from Argentina, South Korea, Indonesia, Saudo Arabia and, well of course China are not featured as the most traded currencies. Yet all these countries' economies are much bigger than South Africa.

If South Africa were to some how meddle or fix their currency, they would land up in trouble. Much of their well developed financial sector (which attracts most of the foreign investment) would probably crash and cause a more dire ripple effect than benefit. But the Financial sector benefits the white people first and certainly does not contribute to mass employment.

If South Africa could some how, unhook their currency from being so easily traded on the world market and fall into the category of say Argentina or Chile, even better - some how have the their central bank use the cash reserves to buy foreign government bonds in a way that keep the central bank liquid but forces the value of the rand to go down and stay down (in a slowly phased approach), then and only then will there be a growing tenancy to merge those two economies and lean towards less imported products, more competitive pricing on the world market and hopefully a stronger resurgence towards an export oriented growth.

So far the SA Fiscal and Monetary policies have seen no leaning towards a creative approach to pushing the economy into a more export led, labour intensive mode.

This article points towards a different approach by the SA government to meddle with how business will operate. I fear that all this will bring is more capital intensive led growth at the detriment of labour led.

Wynand Meyering gives a rant that seems to come directly from a conservative playbook - lower taxes - I don't think that lowering taxes will work. On the flip side SA has recently hosted the World Cup and the government funded infrastructure development at unprecedented levels which would fall much in line with the Keynesian principle of government spending to alleviate the situation - it only gave a temporary relief and has also not worked.

There is something structurally flawed and I firmly believe it is directly linked to SA's currency being openly valued on a world market - and most likely well over valued, given that SA's economy is not in the same category as many of the big economic heavy weights whose currency is not being openly traded.

Pen states “That the black based economy is in essence still trying to go through the export led growth path.”
Comment: you don’t need exports to create jobs. Southern Africa is one of the most underdeveloped regions in the world. You can create low cost jobs just providing services to Botswana, Mozambique, Zimbabwe, Nambia, Angola, Euquitorial Guinia, Kenya etc. Installing electricity, building roads, highways, supermarkets, telephones, ports, airports… for 180 million people that don’t have it. You don’t need to export to the US or EU or Japan or Asia to create jobs in Southern Africa. It is a highly natural resource rich region. Angola has oil, diamonds, gold and the same can be said most other countries in Southern Africa. The domestic economy of the countries in Southern Africa is highly underdeveloped. So the main driver of jobs in the next decade should be …. Not exporting to Europe or the US – but to the fast growing economies of BRIC and to the developing economies of Southern African, East Africa and West Africa. There’s your export opportunities. So what is required for South Africa to make the most of its economic situation: low labor costs. foreign investment. Loans for small, medium and large businesses. Stock market investment. Devaluing the currency won’t help investment. Have you ever tried repaying foreign debt if your currency is worthless? Have you ever tried importing products when your currency is worthless? Can you see that limiting whites and businesses from imports, forcing them to use expensive unproductive labor is not the solution to South Africa’s problems. See the opportunities. See the problems. See the solutions. China has realized the potential of Africa. Walmart is buying a South African company that has expanded into the rest of Africa for $15bn. SA can create many such businesses that have expanded into to the rest of Africa. Setting up new shops and factories in the rest of Africa is the fastest way to grow the South African economy. Africa is now becoming one of the fastest growing regions in the world due to its natural resources. Agriculture, mining, fishing, retailing, electricity, water, transport …. Africa is underdeveloped. SA businesses can provide those services to the rest of Africa. If you think South Africans can compete with Chinese labor to produce an export miracle in the US and EU - the Chinese are 10x more productive and have far better production facilities. SA cannot afford to support unproductive labor by devaluing its currency. It needs to import technology, machinery so it can develop Southern Africa. The key is more investment. More finance. The white community make up a tiny part of the imports of South Africa. Most are and should be machinery, cars, cell phones, bulldozers – things that drive productivity. And that is the current situation in S Africa. There’s no trade imbalance in the economy. Exports are roughly imports. Therefore in my view: boost the currency, investment and develop your strengths. Don’t try to protect unproductive labor with a weak currency. Labor is not our strength. It is far too unproductive and militant.

And installing the electricity, building the roads, highways, mines, supermarkets, telephones, ports, airports of other countries in Southern Africa will create a lot of job opportunities for South Africans. Their expertise in those fields will be needed as they help out in those countries. Not only will the SA companies get revenue when they do the work in other countries, job openings will occur in South Africa because those experts are working in other African countries. That is the advantage of developing the rest of Africa. Those countries export and will to import products. SA can help them then by exporting what it is good at, such as cars, wines, fruit and vegetables, electronics and electrical equipment, machinery. So by using common sense and developing their export potential, SA can create jobs in its own country. If a holiday resort opens in Mozambique ( and a Saudi company recently announced a $100m investment in their tourist sector ), then SA business also benefits. Growth in the rest of Africa means growth in SA. You don't need to devalue yourself to create jobs. These is plenty of jobs with a stable currency, one that makes investment in the rest of Africa easy.

@ Wynand Meyering - there are a few contradictions in what you state. On the one hand you talk about preventing the devaluation of the Rand and then reason the devaluation with expensive labour. In fact the devaluation will create cheap labour. You state that you don't need to 'export' to create jobs and then speak of how Angola has oil (as an example) - well oil has to be exported.

You speak of SA's expansion into Africa through shopping centres as one of many examples but that does not create jobs inside South Africa, those shopping centres are probably selling products made in China.

To the best of my knowledge South Africa is doing an amazing job selling into Africa. In a very short period of time Africa (if it was a single country) has becomes South Africa's biggest trading partner, but simply put - it is not enough to make a dent in the unemployment rate. In fact if one had to study South Africa's phenomenal growth and economic dominance in the region and the impact on unemployment over the same time period - you may notice that impact has been insignificant. In essence all the impressive work by the educated elite of South Africa has done very little to improve the plight of the poor.

You talk about how SA should focus on the BRIC countries, which is good and understandable. But unfortunately the export market is a US Dollar based market. If SA sells to, say, Brazil or China SA is at an automatic disadvantage, simply because the transaction will be made in US Dollars and both Brazil and China do not have their currencies on the open money market and can under price SA. In essence your currency is over valued by the whims of the international money traders.

You make the statement that Chinese workers are 10x more productive than SA workers. How do you measure that? Production per hour or production per $? If your measurement is production per $ then currency value can change that. If you measure it by production per hour, I'd say there is some exaggeration in that figure given that SA does export to the US and Europe, at 10x there would be zero exports.

I'm impressed that you believe SA Business can provide services related to Agriculture, mining, fishing, retailing, electricity, water, transport …. I believe there is a market, primarily in consulting work. But again building a road in, say, Angola does not give the necessary jobs required by the poor in SA (but rather the intellectual elite). Besides, in case you haven't noticed, the Chinese are taking advantage of their undervalued currency and doing all the construction in Africa.

But your last statement is probably best fits an admission of defeat, "Labor is not our strength. It is far too unproductive and militant."

I leave you with these few words of wisdom from a great South African business visionary, "Go unto the 3rd world, for if you don't the third world will come unto you." I don't mean to insult you, but Qadaffi is learning this lesson right now.

Plen the moment you devalue the Rand, petrol prices increase - petrol is $120 per barrel. Once petrol prices increase, transport prices increase, food prices increase. The price of everything that uses petrol increases - that is basically about every product. Our labor force demands inflation + 5% on average in wage demands. Are you even aware that oil prices are $120 per barrel? You need a strong currency to offset increases in petrol costs, products costs, inflation etc. etc. You will devalue, inflation will increase, labor will strike and demand higher than inflation wages. This will occur time and time again. You will never reach a point where labor is cheap by depreciating the currency. SA wage demands are outrageous - some labor wage demands that accepted are 40% above inflation.

SA doesn't need to export to Europe and the US to create jobs. Investing in Africa and the rest of the world provides better business opportunities.

Demand in China is great. You don't need a cheap currency to export. Exporting to another country involves advertising costs ( which is in $ ) and transport costs ( which is in $ ). If you want to sell a BWM made in South Africa to Hong Kong, you need to transport by sea to the retail shop that sells it in Hong Kong ( a stronger currency helps with transport costs ) and then you need to advertise it ( market it and sell it ) - both those costs are cheaper if you have a strong currency. You only focus on labor. Labor is just one part of manufacturing. And labor should gain productivity naturally - by receiving training, using better equipment and machines that allow a higher output of products. Labor productivity isn't enhanced by currency devaluations.

When you invest in another country, buy land, equipment, machinery, labor, the stronger your currency the more you can buy. So China would have been able to invest and buy even more with a stronger currency. China is not gaining as much as in terms of investment as it could with its weaker Yuan.

You state South Africans do not really benefit from construction work overseas. But nothing could be further from the truth. Lets take an example. The world's only 7 star hotel. Burj Al Arab, Dubai. When Murray and Roberts, a construction company from South Africa built that hotel, it received billions for the construction done. Murray and Roberts is located in South Africa, listed on the JSE stock exchange. The billions made in profit, 28% of that goes to the South African government. The government then uses that profit to provide services to poor people: hospitals, schools, police stations, road constructions, highways, stadiums. You see the profit companies make throughout Africa, comes back to the SA government in the form of 28% business tax. MTN expanded into Africa, its overseas operations is bringing in tens of billions. There is more money to be made outside South Africa than inside. Not only does the value of the Stock Exchange increase, because there is more money in South Africa, lower interest rates can be charged, because Murray and Roberts keeps its savings / profit in South African banks. South African banks then lend that money out to entrepreneurs to build businesses and to ordinary working people to buy homes.

The key issue here is when should a country devalue its currency to gain through trade and when should it allow its currency to appreciate to gain from technology and investment. All I know is that with an oil price of $120 it is not wise to devalue a currency because inflation and labor wage demands will increase very quickly.