There has been a slew of economic data out of SA in last few days. Other than the usual macro prints, the most relevant and topical would be the unemployment stats as well as the ‘New and Improved’ GDP data.
The timing on the latter is rather unfortunate as what could have been used to try to squeeze a little juice from the positivity narrative is lost in the gargantuan proportions of what is a record setting unemployment number.
I have been known to be someone who does not mince his words and particularly vocal, even when in SA, about the dire macrotrends I saw at the time. Let’s not waste your time going through a blow by blow account of the statistical releases. You can find that here at StatsSA. I will spend some time explaining how the data behaves and some interesting nuggets beneath the headline data.
Lets dig in.
Firstly, unemployment at 34.4% and 44.4% according to the expanded definition which includes discouraged workers. Geographically, the Western Cape has the lowest unemployment at 25.8% (29.1% expanded) and the Eastern Cape the highest at 47.1% (53% expanded).
As is normal following any recession, unemployment rises not just due to the number of jobs lost (SA lost 54 000), but also due to an increased number of people who start to look for work as the economy limps toward a recovery.
This is where a concept call the Absorption rate becomes important. This rate signifies the ‘health’ of an economy in that it represents the ability of the economy to absorb new job seekers. In most global economies, the absorption rate is around 65%. Tragically, in South Africa, the rate is currently at 37.7% and in fact has not ticked about 45% in over a decade.
What does this mean? It means that the overall health of the SA economy is not strong enough to absorb the new entrants into the job market. This is a combination of high population growth but a deteriorating picture when it come to productivity and commensurately, in GDP per capita.
Youth unemployment trends remain the most dire. The world average is 15% and is in itself sitting at highs. But at current rates, 44% officially and 57% by World Bank measures, South Africa has the highest youth unemployment in the world. I wrote on this in this piece : Aluta Continua … or a Looter Continua?
I have said it many times. If this continues, the Centre cannot hold! Something is going to have to give. As such, do not expect the social temperature check to improve materially. There is a lot of desperation on the ground and it will manifest in a combination of visible despair and/or criminality.
But GDP is better!
Against this backdrop its almost comical to have a statistical discussion about how the economy is actually larger than we previously estimated. The simple retort would be ‘so what’. It hasn’t resulted in jobs. And that is fair.
However, it is worth noting that as part of StatsSA’s regular review exercise, that GDP data has been reviewed, revised and rebased (new base year is now 2015). This is part of keeping up with international best practice and I must laud StatsSA for maintaining a well respected and reliable data set. Emerging markets are usually quite patchy on data and in a world where investors (and many others) are data obsessed, it keeps SA on the radar.
You can find the official story on StatsSA’s new and improved GDP here. Key takeaways for me as follows:
SA, even after the data revision, is still only the number 3 economy on the continent. I remember SA being touted as the largest African economy not that long ago. It lost that prize to Nigeria when the Nigerians aligned their data to global norms around 2007. But more recently, on a purchasing power basis, Egypt has surpassed both as the largest economy in Africa.
Why is this important? For years, the narrative had been that SA was the most sophisticated and advanced economy on the continent. Perhaps that is still true in some respects. However, the rationale to use SA as a ‘springboard’ to investment on the continent has waned.
OK Bigger but maybe not better?
The rise of East African and West African nodes to challenge SA’s dominance has become par for the course. Even regional contenders like Rwanda that is eyeing being the Singapore of the South, premised on good governance and a tech centric focus, are all stealing SA’s shine. Falling off investors’ radars is a risk that SA faces albeit buffered by its well developed capital markets and massive resource endowment. These are mitigants but not fool proof and policy makers would be wise to step up. (Cough cough).
Also of importance is the changing mix in the SA economy. The GDP revision exercise has seen the importance of finance, real estate and business services rise even further, extending its lead as the largest sector, followed by personal services and others. I have long lamented the decline in SA’s manufacturing sector and believe that the premature deindustrialization of the SA economy is an Achilles Heel. This however is a topic for another day.
Interestingly, general government services has shrunk. A lot of this is due to recategorization of sectors like education and health activities, etc from government into the personal services sector. Again, for more detail, you can check out the release on the StatsSA website.
Either way you slice it, this revision will likely mean that current metrics on Debt/GDP and on the size of government in the economy, etc will look instantly better but this does not change or detract from the trend, which has been negative.
Jail time – Rule of Law?….Leaves me raw
Ok, so now I will hop on my soapbox again. The reason is that despite the economic backdrop, economic problems usually have solutions which are well established in the empirical research. It merely falls flat on poor implementation by policy makers… and sometimes criminality and corruption.
But when it comes to the last data points I would like to discuss, it’s a sore point. Crime stats in SA are WAAAAY beyond any bad news you could give me on the economy. It represents an existential risk to South Africans and in my view, over the long term, to South Africa as a whole!
If there was one set of data and circumstance that fill me with dread and despair, it’s the crime situation in SA. From the excerpt above, the one which jumped out at me was the fact that in 3 months from April to June 2021, that over 10 000 women were raped! That’s more than one woman, raped, defiled and destroyed every 15 minutes, for every hour and every day. These are mothers, sisters and daughters.
It is so unbelievable that I had to double check my arithmetic to make sure I wasn’t going nuts….SA cannot talk about human rights and gender equality when this most egregious of crimes is worn its albatross. Shame…
That for me, ladies and gents, is the deal breaker. Until the crime situation is sorted, the discussions on economy and social cohesion are all moot. I understand the cross-linkages between a poor economy, lack of jobs and criminality. In fact, I touched on it in this piece I wrote for Finweek (Insurrection or inflection?) a little while back.
But until there is accountability for criminals, ranging from the lowly scum who murder and rape to the sophisticated white-collar criminals, there is no changing trajectory in SA. I see it as simple as that.
With this backdrop, confidence is sapped, skills leave or are demoralized. SA cannot be a broken society. There will always be an investor and maybe speculators. But SA owes itself and its citizens more. That is why I think that when we discuss jobs and GDP, that such a discussion cannot be had without understanding that its about more than the numbers and that there’s a lot of jail time needed to rebuild SA.
Sources: StatsSA, EWN, SAPS