South Africa faces hard choices to solve jobs crisis

But reforming labour markets, one obvious way to help narrow the gap with other emerging economies, will not be easy given the political clout of a union movement that was instrumental in bringing an end to white-minority rule in the 1990s.

“You need a much more flexible labour force but the unions are still very powerful,” Mthuli Ncube, chief economist at the African Development Bank, said.

“How do you tell the unions, ‘Don't ask for more wages, don't unionise?' They're such a big political and social force. I don't know how you deal with that.”

Similarly, boosting the export sector by weakening the rand, a proposal endorsed by the OECD, risks stoking and scaring off the foreign capital needed to pay for much-needed infrastructure.

It is a hard choice, but there is a growing realisation in the upper echelons of the African National Congress (ANC) that something has to be done.

Since a spike in in the six years that followed the end of apartheid in 1994, the number of jobs in Africa's biggest economy has plateaued, despite annual growth of around five percent from 2002-2007.

Now, after the first recession in 17 years, the official and narrowly defined rate of unemployment stands at 25 percent, a source of much newspaper comment and ANC hand-wringing.

It is, however, the least worrying set of jobs data.

As a simple percentage of its 17 million-strong workforce, South Africa's unemployment is actually around 45 percent, and has never been below 40 percent since 2000.

Such stagnation points to its workforce being one of the world's least productive, and a principle reason the economy struggles to grow faster than between four to five percent a year – speedy when compared to Europe but anaemic alongside Asia or more dynamic African ‘frontier' markets such as Nigeria, Ghana or Uganda.

Of rich and emerging economies in 2008, only Turkey fared worse in terms of labour usage, with one in two of its workforce idle, according to the OECD.

Brazil and Russia, two ‘BRIC' economies that South Africa likes to regard as its emerging market peers, have broad unemployment of only 25 percent, the Paris think-tank says.

More exports
So what can be done to drag the millions of jobless South Africans, most of them young, poorly educated and black, into work and, ultimately, tackle crime and yawning inequality?

The ANC is already pumping a whopping 20 percent of its budget into education, and large amounts into job training, to address a shortage of skills, but it also knows the economy must provide jobs for people once they do leave school.

One solution is to refocus the economy on exports, especially in labour intensive sectors like clothes and electronics, rather than the coal and gold shipments that have been South Africa's staples for decades.

The ANC has also seen the sense of selling to the faster growing economies of Asia, South America and Africa, rather than the traditional markets of Europe and the US that will see only weak growth in the next few years.

“South Africa needs to look for alternative export markets, such as Africa, and other fast-growing emerging economies, where our comparative advantage is good,” Finance Minister Pravin Gordhan told reporters.

To this end, Gordhan wrote of the need to reform “network industries”, basically the underinvested and overstaffed state firms running South Africa's ports and railways.

But more trade with the likes of, say, China and India, the other two members of the BRIC quartet, means more competition, and in terms of labour costs South Africa fares poorly.

The average monthly salary, including overtime and benefits, is 6,400 rand ($830), according to Statistics SA.

By contrast, this year the official average monthly wage for a city worker in China has been 1,783 yuan ($263) and a menial entry-level factory worker could be on a third of that, albeit with food and dormitory accommodation thrown in.

Weaker rand or lower wages?
Such comparisons throw the spotlight on arguments from South Africa's unions to boost exports by weakening the rand, whose value has been underpinned in the last year by foreigners buying up local stocks and bonds.

COSATU, the union federation that forms part of an official ANC-led government alliance, wants an end to the rand's free float in favour of a fixed rate of 10 to the dollar, compared to its current 7.6.

Yet even at this level the improvement in raw labour costs against China would be marginal, and the central bank is wary of the inflation that would inevitably result.

All of which points to the labour market as one of the few avenues left open to reform, essentially by making it easier for employers to hire and fire workers.

Yet it is a brave president who takes on unions who still wield huge social and political clout due to their prominence in the struggle against apartheid, and during his first year in office Jacob Zuma has tended to favour consensus over conflict.

Gordhan avoided the issue of labour reform, but in a major report the OECD made clear its belief that the ANC and unions' perfectly laudable desire for “decent work” was at the expense of wider job creation.

Such comments, alongside an avalanche of research on South Africa during and after its successful hosting of the World Cup, may yet provide the impetus for long-term and radical change.

The alternative is a South Africa stuck on a “spluttering trajectory” well below emerging market rivals, political analyst Alec Russell wrote recently.

“South Africa's economy has been utterly outstripped by the ‘southern' giants of China, India and Brazil,” he said.

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