SA Remains a Continental Leader despite Labour Unrest & Unemployment

Labour unrest, slow growth in developed countries, high levels of youth unemployment and low levels of consumer and business confidence all pose challenges for the South African economy, but the country remains an important regional hub for mining, the automotive sector and financial markets.

The latest Africa Economic Outlook report for 2014 paints a picture of a country that leads the continent in some areas (namely financial services and retail), is important in others (mining and automotive) but is falling far short in some (labour absorption and a poor skills base).

The report predicts that South Africa will grow at a far slower rate than the continental average – 2.7% this year compared to 4.8% – but that, despite this, South Africa remains one of the most conducive to business on the continent and is still the economic powerhouse of the region.

The report, which covers all 54 African countries, is compiled by the Organisation for Economic Cooperation and Development (OECD) Development Centre, the United Nations Development Programme (UNDP) and the African Development Bank (AfDB). It says continental growth will be driven by domestic demand, infrastructure and increased continental trade in manufactured goods.

Compiled before South Africa’s recent elections but released afterwards, the report says ongoing improvements in the global economy and the completion of  some major government projects, such as the Medupi power station, will paint a better growth picture for this year.

However, structurally high unemployment and a poor labour relations environment will continue to be a drag despite the introduction last year of the youth wage incentive.

The report notes that while gross employment numbers have returned to its pre-recession levels of 14 million full time employees, nearly two-thirds of people aged between 15 and 24 are unemployed. Remember that to be considered unemployed in terms of South Africa’s classification rules, you have to be actively looking for work so this will exclude full-time students.

It highlighted the role played by the private sector, saying that business was responsible for two-thirds of fixed capital formation but that this was targeting mechanisation and efficiency gains rather than new employment creating opportunities.

It added that South African firms had a lot of cash in reserve but “report low confidence in both the current business cycle and political environment”.

The report points to South Africa’s membership of several economic groupings – it belongs to the Common Monetary Area, Southern African Customs Union, Southern African Development Community (SADC), African Union and Brics – and levels of sophistication as being behind its economic dominance of the region. South Africa accounts for 41% of the 15 country SADC region’s trade and about 63% of its combined GDP.

Looking more broadly, the report says that African countries need to tap global markets more effectively to strengthen their economies and invest in skills and technology needed to boost development.

Mthuli Ncube, Chief Economist and Vice-President of the African Development Bank, said that in the medium- to long-term, “the opportunity for participating in global value chains, should be viewed as part as part of the strategy for achieving strong, sustained and inclusive growth”.

It adds that Africa’s exports to the rest of the world grew faster than those of any other region in 2012, but that they remain dominated by primary commodities and accounted for only 3.5% of world merchandise exports in 2012.

To get around this requires investment in new and more productive sectors, building skills, creating jobs and acquiring new technology, knowledge and market information.

The African Economic Outlook also showed that there had been remarkable progress in human development, with lower poverty levels, rising incomes and improving rates of school enrolment and health coverage.

For full South Africa report go to: www.africaneconomicoutlook.org