Putting a Lid on Unemployment

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South Africa's government is responding to stubbornly high unemployment figures by announcing a major boost in project spending, though there are warnings the international credit crisis could hamper efforts to create new jobs.

Figures released by Statistics SA on October 28 show 4.12m people, or 23.2% of the workforce, were unemployed in the third quarter of this year - up from 23.1% the previous quarter - while the informal sector of the economy shed 165,000 jobs in the quarter. These results point to harder times for small businesses and make the government's aim of reducing the jobless rate to 14% by 2014 looking somewhat at risk.

Some of the hardest hit sectors were those once seen as driving forces in the South African economy. Employment in the mining industry fell by 9.2% to 314,000, while there was a 3.3% drop in the number of workers in the finance sector, and a 3.2% decline in positions in construction.

"We need to disabuse people of the notion that we will have a mighty developmental state capable of planning and creating all manner of employment," Finance Minister Trevor Manuel told Financial Times the same day the jobless figures were announced.

The Congress of South Africa Trade Unions, the country's labour organisation, echoed these concerns, stating, "Although small, this rise rings alarm bells for workers, as it reverses a succession of small reductions in unemployment."

Though efforts to increase employment appear to have come up against an ill wind from outside - with the jobless rate stubbornly staying above 23%, - the government has already moved to counter the expected effects of the global economic slowdown.

In a bid to boost spending, the government has pledged to inject an additional $15.7bn into the South African economy over the next three years, with a special focus on infrastructure projects.

Announcing the funding increase, which will take state spending from 27.5% of Gross Domestic Product (GDP) to 29%, Manuel said it will push the budget into deficit next year - the shortfall being around 1.6% of GDP. The mid-term budget statement, released on October 21, also revealed that growth forecasts have been reduced to 3%.

The minister was reported as saying that more needed to be done to overcome the shortage of semi-skilled workers. "While it is understandable to have a skills shortage in highly skilled professions, a shortage of artisans is a failure of the country to develop basic skills and constrains economic growth," he said.

According to Efficient Group economist Dawie Roodt, South Africa's existing labour laws, which he says make it difficult to dismiss underperforming workers, make employers reluctant to take on staff unless there is a serious need. He reckons that instead of promoting schemes to create jobs, the government should take steps to support new and small businesses. "The right strategy would be to develop more entrepreneurs and create more wealth by lowering company taxes and improving company registration procedures," he told the Business Times on October 29.

There was some small relief for small businesses on October 29, when Statistics SA announced there had been a fall in the consumer price index for the first time in two years. Inflation in September declined to 13%, down from 13.6% the previous month, mainly thanks to a fall in international fuel prices.

This could ease pressure on the central bank to further raise interest rates, having hiked the cost of borrowing 10 times since mid-2006.

If inflation continues to go down, as has been predicted by Reserve Bank Governor Tito Mboweni, and the state injects capital into the economy, there could be a reversal of the rise in unemployment. That said, businesses are likely to be cautious for the time being, putting off any expansion plans or new hirings until the fallout from the global economic crisis is fully assessed.

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