Economic conditions in South Africa
AS MOST of Africa begins to prosper, the continent’s biggest economy is faltering. Figures released on May 28th showed that GDP in South Africa rose at an annualised rate of just 0.9% in the first quarter. A new report from the African Development Bank (ADB) and the OECD, a rich-country think-tank, trumpeting Africa’s economic prospects, ranks South Africa a lowly 48th out of 52 countries in terms of its economic outlook. Yet South Africa’s forecast of 2.8% GDP growth for 2013 already looks too optimistic. The sustained 5% rate that the government says is needed to cut unemployment and poverty seems a world away.
One of the few bright spots in the first-quarter GDP figures was mining, but its output is falling again and the threat of strikes clouds its immediate prospects. Around a quarter of South Africa’s total exports are to Europe, which is mired in recession. Spending at home is also weak. Massmart, a supermarket chain part-owned by Walmart, is only the latest big retailer to report poor sales. Consumer confidence is at a nine-year low. Banks are cutting back on the unsecured credit that until recently had helped keep retail sales afloat.
A cut in interest rates might ginger up the economy but the Reserve Bank kept its benchmark rate at 5% on May 23d, in part because of an alarming decline in the rand. The weaker currency will push up inflation, which is already close to the top of the central bank’s target range of 3-6%. The rand’s slide in part reflects external developments. Growing confidence in America’s economy has pushed up the dollar against emerging-market currencies. Prices of commodities have fallen because China is not quite as greedy for them as before.
Yet there are plenty of hazards at home. South Africa has a current-account deficit of more than 6% of GDP. It relies on foreign capital to bridge the gap between what it spends and what it earns. That makes it vulnerable to shifts in investors’ mood. And recent labour unrest has scared many off. Foreigners were net sellers of bonds and stocks in the ten days to May 27th, according to the Johannesburg Stock Exchange’s figures compiled by Citibank.
Rivalry between unions sparked a recent wildcat strike at Lonmin’s platinum mines in Marikana, where dozens of strikers were killed by police last August. Miners there have deserted the National Union of Mineworkers (NUM), whose top brass was seen as too cosy with mine bosses, for the Association of Mineworkers and Construction Union (AMCU), an upstart rival. Now AMCU wants the NUM kicked out of its offices at Lonmin’s platinum mine, as it no longer represents most miners there. The fatal shooting of Mawethu Steven, an AMCU organiser, in a tavern on May 12th gave a sinister twist to the unions’ rivalry.
The NUM is part of the establishment: it is affiliated to the Congress of South African Trade Unions (COSATU), a federation allied to the African National Congress (ANC), which governs South Africa. Yet it now faces a battle for relevance. Its response has been to bid for pay increases of 60% for entry-level workers and 15% for the rest. Other unions have joined in. The National Union of Metalworkers (NUMSA) wants a 20% pay increase for all its members, many of whom work in the car industry. Such steep demands are unlikely to be readily met by employers. If they were, they would offset any cost advantage that exporters would gain from a cheaper rand. So further strikes seem likely.
The wonder is that unions can ask for such pay rises when so many South Africans are out of work. Unemployment rose above 25% of the workforce at the end of last year. Include those who want work but are too discouraged to look for it and the rate rises to 37%. Laws that make it costly to fire workers mean that the bargaining power of those with jobs is unaffected by the mass of jobless who might accept work that pays lower wages. Those with jobs often have out-of-work dependants to support, so feel justified in their wage demands. Poor labour relations make businesses still more loth to hire.
Joblessness is a particular problem for the young. The unemployment rate for those under 25 is 53%. Many are ill-prepared for work. Only 60% pass the matric, the high-school graduation certificate. One legacy of apartheid is that many blacks live far from where the jobs are. Even travelling to a job interview is costly because of poor public transport.
This polarised jobs market, with its sharp division between the protected and excluded, has its mirror in business. Regulations in South Africa are among the most burdensome of the 40-odd countries tracked by the OECD. It is hard for job-creating new enterprises to emerge because of red tape, so big businesses are unchallenged. Wage deals struck by big firms with big unions are imposed on others by bargaining councils. They put small firms at a disadvantage and are a barrier to start-ups. A recent academic study concluded that sectoral pay deals cut the number of jobs by 8-13% in affected industries.
These structural problems holding back South Africa’s economy are hardly unknown to the government. The ANC has endorsed a sweeping National Development Plan (NDP), which identifies blockages to growth and sets out a strategy to deal with them. Its main sponsors are Trevor Manuel, who had a long and successful stint as finance minister, and Cyril Ramaphosa, a union-boss-turned-tycoon who is now the ANC’s number two (and therefore perhaps South Africa’s next president). Mr Manuel’s successor, Pravin Gordhan, is also behind it.
Progress towards putting the plan into practice has been pitifully slow. The president, Jacob Zuma, pays no more than lip service to the document. And not everyone has signed up to it. The NDP is stuck in an ideological cleft within the ANC between economic liberals in favour of it and left-leaning ministers allied to the unions who favour a statist approach. The statists, who include the trade minister, Rob Davies, and the economic-development minister, Ebrahim Patel, both members of the Communist Party (and of the ANC), look to China but seem not to accept that creating the conditions for foreign investment was a big part of its success.
A failure to deal with youth unemployment has become an emblem of this division. The liberals favour a tax break for employers who hire young, untried workers. The unions have so far blocked the initiative by arguing (with scant evidence) that it will cause older workers to be displaced by the subsidised young. Instead what has emerged, with the blessing of unions and business, is a feeble package of measures, including set-asides of jobs for the young and the creation of youth brigades.