Despite having suffered great economic setbacks during the COVID-19 Pandemic, South Africa’s unemployment rate has dropped for the first time in two years.
The national statistics agency, Statistics South Africa reported a drop of nearly a full percentage point between the national unemployment rate reported in the last quarter of 2021, 35.3 percent, and the rate reported following the first quarter of this year, standing at 34.5 percent. Approximately 370,000 jobs were created during this time period, as the South African workforce has grown to almost 15 million.
The national economy shrank by seven percent in 2020, hit hard by intermittent COVID-19 restrictions, reacting to developments such as the late-2021 advent of the highly contagious “Omicron” variant of the coronavirus. Al Jazeera reported in August 2021 that unemployment had remained above 20 percent for the previous two decades, bolstered by an inadequate education system and rigorous hiring and firing legislation supported by the ruling party, the African National Congress (ANC). Indeed, International Monetary Fund (IMF) researchers Romain Duval, Ippei Shibata, and Yi Ji published a working paper in June 2021 that called for the streamlining of the South African labour market through regulatory reforms aimed at affording increased autonomy and heterogeneity to firms in adjusting wages and employment practices to economic contexts. A note released by credit ratings giant Moody’s in May 2022 considered that “The ruling African National Congress’s strong links with worker’s unions make such reforms particularly unlikely.”
The Economic Reconstruction and Recovery Plan (ERRP) was published by the South African government during the first quarter of 2021, holding the elimination of unemployment as a key target for policy initiatives. These included public investment in infrastructure, social assistance, and “green” projects estimated to encourage the creation of hundreds of thousands of relatively low-skilled jobs. A low-interest World Bank Development Policy Loan (DPL) of USD $750 million was approved in January of this year to support the aims of the ERRP and other financings from international agencies such as the IMF, the African Development Bank, and the New Development Bank. In a press release, World Bank representatives pointed out that “As the second-largest economy in Africa, South Africa’s economic performance has spillover effects on other countries in the region. Its recovery and successful economic development will provide an economic boost to the whole region.”
Also read: South Africa Q1 economic growth beats forecasts
Notably, ERRP incentives afforded to domestic business and nascent self-employment sectors are in line with the IMF’s policy recommendations, which affirm the historical links between supply-side shortcomings in education, and demand-side stringency of collective wage bargaining to the painful legacy of Apartheid governance. Young South Africans are most seriously affected by the country’s seemingly endemic unemployment rate; in the first quarter of 2022, unemployment between the ages of 15 and 24 years old remained at a staggering 64.9 percent; regardless, youth employment grew by 5 percent during the same period.
Manufacturing, trade, and social services were among the industries most benefited by this early “post-pandemic” labour market recovery; nevertheless, Africa News reported that labour sectors such as construction, finance, and agriculture continued to experience a decrease in jobs. South Africa has a “skills mismatch” rate of 50 percent, defined by the Boston Consulting Group as a phenomenon in which employers struggle to find suitable candidates for particular roles, and candidates find their skillset to be outdated or otherwise unwanted. Digital reskilling and upskilling are declared aims of the ERRP, seeking to rectify shortages of high-skilled workers and the persistent growth of low-skill industries outlined in a February 2021 investigation by the Brookings Institution.
Moody’s projects that unemployment will only dip below the 30 percent mark by the end of 2023, calling the South African government’s ambitious goal of reducing national unemployment to merely six percent by 2030 into question. Minister in the Presidency Mondli Gungubele stated in September 2021: “The ERRP is at the heart of the government’s efforts to rebuild and transform the economy so as to create more jobs, especially for young people.” Popular South African bank, Nedbank, reacted cautiously to the positive turnaround in unemployment in research published in early June, highlighting that global constraints to demand brought about by the Russo-Ukrainian War and a long-term slowdown in Chinese economic output would continue to challenge the return of foreign investments to South Africa, but that tourism and hospitality sectors would benefit from “post-pandemic” normalization of travel and working conditions.
Also read: IMF staff completes staff visit to South Africa
Unemployment in the country still ranks as the highest in the world and among emerging economies, and will certainly remain a policy headache for administrations to come, but this recent news may indicate that the South African economy, one of the wealthiest and most industrialized on the continent, may be trending towards a resurgence that renders the country a renewed potential recipient of foreign investment. This trend, if continued, is expected to further contribute to the easing of tensions towards foreign workers, disincentivized from joining the African continent’s third most valuable economy due to outbreaks of xenophobic violence. It may also encourage foreign investors as to the capacity of the South African economy to recover from the COVID-19 Pandemic’s aftershocks, which aggravated a dire scenario of unemployment, three straight financial quarters of recession, and damaging downgrades by major credit rating agencies on the government’s enterprises.
Optimism remains particularly tenuous in light of the aforementioned global economic stagflation and the government’s hesitancy to fully adopt the liberalizing policies of international development agencies, but still welcomes the beginning of the South African economy’s apparent recovery and turnaround of a historically persistent issue in high structural unemployment.
