SA may face unrest over jobs, poverty anger: Reuters

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Gugu Rambau has yet to see the benefits of South Africa’s oft-touted economic recovery from last year’s recession, and she is losing patience fast. “What recovery?” demands the 37-year old advertising executive. “This year is even harder. I want to get out of debt but I’m forced to dip into my credit card again and again for basics.”

Yet to the millions without jobs — officially one-in-four, in reality many more — Rambau is one of the lucky ones, Reuters reports. Leading economists say that South Africa, currently underperforming its potential with around 3 percent growth, needs to at least double that to solve its economic misery and avoid it spilling into serious social unrest.

The central bank has done its bit by cutting the repo rate by 550 basis points since December 2008 to a three-decade low of 6.5 percent to spur growth in the manufacturing and commodity dependent economy, one of the world’s key gold and platinum producers.

Partly on the back of easier rates and a recovery in the global economy, South Africa exited its first recession in almost two decades in the third quarter of 2009 and quickened the pace of the recovery with a 4.6 percent rise in Q1 2010. But the faster rate growth did not stop the job haemorrhage, with 171 000 jobs disappearing, pushing the jobless rate to a 6-year high of 25.2 percent of the labour force. Unofficially it may be as high as 40 percent.

The next three years won’t bring relief either as growth is seen averaging 3-3.5 percent, a far cry from the average five percent growth between 2004 and 2007. A possible slowdown in the euro zone, a major trading partner, also clouds the outlook. NKC Independent Economists’ Christie Viljoen predicted more job losses before the end-2010.

Finance Minister Pravin Gordhan has said any GDP growth below potential — which the central bank has put at 4.5 percent — will not make a dent on unemployment. Higher wages, compared to other emerging markets, rigid labour laws that make it difficult to hire and fire and influential labour unions will further constrain job creation. “There are no alternatives to taking a hard look at some of the structural factors that have impeded more rapid growth in employment,” said Razia Khan, head of Africa research at Standard Chartered in London. “That means looking at factors that get in the way of a more flexible labour market …. And one is still seeing wage increases far greater than the rate of inflation.”

President Jacob Zuma’s administration might however be reluctant to implement sweeping changes to relax the labour market and risk straining relations further between the ruling African National Congress and labour ally COSATU. COSATU is already rankling at not getting its way with economic policy reforms despite helping Zuma clinch the party post with hopes of changing investor-friendly policies. Even a massive infrastructure spend in the past three years — which helped to push the deficit to 6.7 percent of GDP in 2009/10 after 2 years of surplus prior to the recession — failed to create sustainable jobs anyway, Khan said.

With Gordhan planning to cut that gap to about 4 percent of GDP by 2013, there are a few fiscal options on the table. At least on the monetary policy front, the central bank may be able to keep rates lower for longer given a somewhat-benign inflation outlook. Even if rates start rising it’s unlikely to be a total reversal of the easing seen since 2008, said Khan.

But a better standard of living eludes most of South Africa’s 50 million people since the fall of apartheid in 1994. Social protests have highlighted frustrations at living with poverty 16 years into democracy and the chronically high unemployment rate will stoke further unrest. “In all honesty I think we have to get used to living with high unemployment,” said Ian Cruickshanks, head of treasury strategic research at Nedbank. “You are going to get more hungry people and hungry people become angry people so one can expect social demonstrations to persist,” he added.

Illegal immigrants from even poorer parts of Africa are already worried after threats to drive them out when the soccer World Cup tournament ends in July. Locals blame them for stealing jobs and say they are willing to work for paltry wages. Riots against foreign nationals killed 62 people two years ago and displaced more than 100 000.



For Rambau the future promises further financial scrimping: “Sure my car and bond payments have gone down because of (lower) interest rates, but my electricity bill is so heavy. I’ve got a child going to university next year and I don’t know how I’m going to make ends meet.”