South Africa has suffered huge job losses since the beginning of 2008. Many of these job losses may be due to the global financial crisis.
However, many may be due to the misallocation of credit in the South African economy that led to too much growth in the services sectors, which grew because of increased debt-driven consumption and speculation in the financial and residential asset markets. These sectors had the biggest growth in investment and employment over the past few years. Many of these jobs have been lost since 2008. Therefore, the South African economy would have suffered big job losses even if there had not been a global financial crisis.
Part of the proof of this statement is that the National Credit Act was introduced in 2007 because of concerns that the banks may have been lending irresponsibly. In fact, I have been warning in this column since 2006 that the misallocation of capital in the economy could lead to huge job losses. The banks were to blame for increasingly poor lending practices and misallocation of capital. However, government should take responsibility
because its macroeconomic policy choices and approach to the financial sector allowed, and may even have promoted, the misallocation of capital.
The actual unemployment data does not provide a true sense of the extent of job losses. One has to go beyond looking at unemployment numbers. For example, Statistics South Africa (StatsSA) says in the Quarterly Labour Force Survey for the second quarter of 2009: “While employment fell by a substantial 267 000 from Q1 2009, this decline did not translate into an increase in the number of unemployed persons but rather translated into [an] increase in the number of persons who are not economically active (419 000), with the majority of them being discouraged work seekers (302 000); the number of unemployed persons decreased by 59 000. “As a result, there was virtually no change in the unemployment rate between the two quarters.”
We see that 302 000 more people became discouraged and gave up looking for work from the first to second quarters of this year. The growth of the number of people classified as unemployed from the first to the second quarter of 2009 was pegged at only 59 000 in the official definition of unemployment put out by StatsSA. Those counted as unemployed are people who are still looking for jobs. However, it is abundantly clear in countries with huge levels of unemployment, such as South Africa, that most people who are not working but want jobs would be discouraged and have given up looking for work. The growth in discouraged work seekers seems to be worse news than the growth in unemployment.
Another element of the fallout of the misallocation of capital in South Africa and the job losses is the number of people who are in financial distress. A huge problem is the level of debt and the number of people who face losing their homes, cars and other possessions. The National Credit Regulator (NCR) recently reported that it expected 150 000 consumers to be under debt review by Christmas this year. It said that there are about 100 000 consumers now undergoing debt counseling. The NCR said that these 100 000 consumers owed R20-billion, of which R12-billion was in home mortgages.
Therefore, the average debt for consumers currently under review is R200 000. Clearly, most of the people entering financial distresses are middle class. Remember, these figures are only for people undergoing debt counselling.
South Africa is a country with huge unemployment and a large share of the population are poor and live in financial distress. It is poor economic policy to allow the economy to lose so many jobs and to watch so many more middle class people facing financial distress. It is time that government explained to us how it will improve its macroeconomic policies and its approach to the allocation of finance in South Africa.