The 2016 UASA South African Employment Report: Employment in the downswing of the super cycle
26 April 2016
Until commodity prices crawl their way back to higher levels there is little hope for South Africa’s older economic sectors – manufacturing, mining, electricity, construction and transport – to create jobs. New sectors and situations will have to be found to solve the country’s economic and unemployment crisis, economist Mike Schüssler of Economists.co.za said today at the presentation of the 2016 UASA South African Employment Report. This is the 15th consecutive annual release of the report.
However, the crisis may also just help us to understand how the country can improve on what needs to be done better, Schüssler said.
“The world finds itself in a lower growth environment, and South Africa, as a major commodity exporter, finds itself in a much slower growth environment as the commodity super cycle has turned down.
“This super cycle shows a peak every 30 or so years with a downturn of about 20 years and an upward phase of about ten years. Over-production gives rise to a fall in prices just as the leading growth engine starts to fade,” Schüssler said.
“South Africa, as a major exporter of mineral and metal commodities, must understand that the long winter for our export prices will bring slower growth. Other commodity producers such as Brazil and Russia are in severe recessions and in the coming years South Africa’s growth is most likely to be very weak, if not negative.”
Commodity prices overall have declined with over 40% from their peak in US dollars, yet there is no long term recovery in sight as over-production still haunts products from steel to oil where the price declines have not yet led to large production cuts.
The impact of the long-term commodity cycle on South Africa comes mainly via the mining industry and also via the five old sectors of the South African economy (as mentioned above), excluding agriculture.
These five sectors and their employment levels are influenced by the commodity cycle. From 1935 to 1982 there was nearly a fivefold increase in the number of people employed in these sectors.
But since reaching 3 million people in 1982 the five sectors have never recovered to this number even during the most recent commodity price upswing. After 20 years the employment levels stabilised to just over 2 million in 2002 and clawed back only one quarter of its losses.
Today the biggest employment sector of the five older industries – manufacturing – is at levels of employment last seen in 1971. That means South Africa now has less people in manufacturing than in any period in the last 45 years! This means that all the talk of reindustrialisation is just that – talk, Schüssler said.
“Mining has fared a little better, but acts as the main transmitter of weaker commodity prices into the South African economy. This impacts not only employees and firms in mining, but also many other sectors like manufacturing since the mining industry brought over R204 billion worth of goods and R188 billion in services to the economy in 2015.”
Schüssler warned that mines would cut back on this expenditure in both real and nominal terms as surely as they are in the process of cutting their wage bill. The impact will mainly be felt in mining towns and in the cities that service the mining industry.
A similar situation is playing out in South Africa’s manufacturing sector’s steel and metals industry.
“A further impact is evident at Transnet Rail and Ports as bulk commodities are not being sold and trains stand idle. Already the decline in bulk volumes via South Africa’s ports has shown a double digit decline,” he said.
The electricity sector is selling less electricity and with its big capital projects it has to increase prices just when cost reductions are needed by its main clients. The electricity sector may well become a much smaller producer than its capital planners forecast.
The full impact on construction will take a little longer as projects first get delayed and then stopped altogether.
Schüssler said South African unemployment will remain and probably become an even bigger problem just when the government can no longer spend money on more civil servants as it has done since 2008.
Strikes, which were very prevalent in the last upswing, are likely to become fewer as employees scramble to keep their jobs. Already the five-year trend shows a downward trajectory.
During these uncertain times, perhaps the most certain thing is that until commodity prices crawl their way back there is little hope for our older sectors to create jobs, meaning that new sectors and situations will have to be found to do so.
The spotlight should therefore be on industries such as tourism, education and food production for future job creation opportunities. A general awareness about how technological development will require different skills should be built while self-employment and entrepreneurship should be promoted at all levels.
Presented by Mike Schüssler of Economists.co.za
Issued by Helen Ueckermann on behalf of UASA, 26 April 2016
