from Africa in Transition

Better Economic News from South Africa

July 30, 2015

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South Africa’s general malaise owes much to its very slow recovery from the international economic crisis that began in the United States in 2008. The country’s gross domestic product growth rate has declined from a usual 3 percent to 1.5 percent in 2014. Weaker commodities prices have also slowed an economy that still includes a large mineral export sector.

Unemployment is a major cause of South African poverty. It peaked in the first quarter of 2015 at 26.4 percent, according to Statistics South Africa, the national statistical service of South Africa. The rate is even higher among blacks, who constitute about 80 percent of the population. It is estimated that unemployment among black youth in the townships is around 50 percent. It is also high in rural areas.

Hence it is good news that in the second quarter of 2015, unemployment dropped to 25 percent, according to the latest reports by Statistics South Africa. Very high levels of unemployment are a characteristic of the South African economy. According to Bloomberg, South Africa has the second highest jobless rate of the 62 countries that it tracks. There are now 5.23 million South Africans without jobs, which marks a healthy decline of about 305,000. The South African government estimates that economic growth will be 2 percent in 2015. This is better than 2014, but still not at pre-2008 recession levels. The South African government’s aspirational National Development Plan looks to cut unemployment to 14 percent by 2020 and 6 percent by 2030.

While slow economic growth certainly contributes to high unemployment, there are also important structural issues. Trade unions, allied to the governing African National Congress, keep wages high. Government policy has not promoted the creation of low-skilled, low-paying jobs. Yet, in part because of the shortcomings of the educational system, a large percentage of the population is unskilled. In many African countries, the informal sector of the economy absorbs unemployment. South Africa, however, appears to have the smallest informal sector of any large African country. This, in part, is the baleful heritage of apartheid, which restricted black enterprise and mobility. Moreover, there are numerous other structural and technical drivers of high unemployment.

Measuring levels of poverty in South Africa (and elsewhere) is difficult given the variety of technical and definitional issues. However, the Daily Maverick, a respected South African publication, concludes that 21.7 percent of the population lives in extreme poverty. That means they do not have enough money to pay for the food necessary to meet their nutritional requirements. An additional 37 percent are unable the purchase both food and meet other necessities, such as transport and fuel. So, more than half of the country’s population is poor, and a high percentage of the poor are unemployed.

Over the past decade, the percentage who are unemployed in South Africa has fluctuated in the mid-twenties. The most recent drop in unemployment is a welcome sign, but is unlikely to be the harbinger of long-term trends. Until the structural roots of high unemployment are addressed in South Africa, serious progress on reducing poverty cannot be made.

More on:

Sub-Saharan Africa

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South Africa

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