2016-08-25Staff Report 2 A study carried out by the Development Policy Research Unit at the University of Cape Town indicates that South Africa has experienced strong declines in multidimensional poverty since 1993 as well as significant improvements in ownership or access to private assets such as a stove, a fridge, a television, a vehicle and so on. Many of these gains have been thanks to the ANC’s commitment to roll out various services, and, until recently, steady economic growth. Since 1994, the response of the South African government to underdevelopment, poverty and inequality of the majority black workforce with higher education almost doubled between 1995 and 2011, and the number of blacks graduating from higher education institutions every year now exceeds that of whites. Still, the poorest four income deciles (i.e. the bottom 40 percent of income earners) are unemployed, and the majority are based in rural areas, areas previously designated as homelands or informal settlements around towns and cities, and are predominantly black. Youth unemployment in South Africa is particularly high. The International Labour Organization (ILO) estimates that youth unemployment (those aged between 15 and 24) in South Africa is 52 percent - more than four times the rate for the rest of sub-Saharan Africa. Recent publications by Stats SA confirm these alarming findings. Inequality in the middle 40 percent of the income distribution reveals ‘a startling cliff between higher and lower earners’18 that is significantly worse than that of comparable countries such as Turkey, Brazil, Mexico and Thailand. In the words of Levy et al. (2015) ‘the rate at which opportunities for entering the economic elite have opened up has lagged the pace of political change.’19 While the public media emphasise attention on defining income in racial terms, where the majority of the white population continues to maintain substantial economic privilege, much less attention is focused on the large wage disparities within the lower income groups. Additionally, because there is a correlation between lower average per capita incomes and larger households, the low income of earners at the bottom of the income curve are shared with more people. Relative to other middle-income countries, South African households are thus either (relatively) affluent or poor, with a limited stepladder for moving incrementally from one economic stratum to another. Among many other subsequent afflictions, these developments have set the stage for increased levels of local-level patronage and for so-called tenderpreneurs (individuals skilled at obtaining government contracts through political contacts) that work their way around the procurement processes and the law to access economic opportunity. These tendencies have become rife within the ANC at every level but are most pronounced in local government. While the public media emphasise defining income in racial terms, there is less attention on the large wage disparities within the lower income groups The patterns of distance and exclusion are also evident in the distinction between unskilled and formal labour. The South African labour market is increasingly segmented between insider and outsider groups, probably best reflected in the change in composition of the Congress of South African Trade Unions (COSATU), now dominated by skilled, white-collar rather than poorer workers. The majority of COSATU members are in public service, therefore dependent upon the ANC government, who readily buckles under demands for above-inflation wage increases for the burgeoning number of civil servants. In response, newly emerging rival unions (in this case, the Association of Miners and Construction Union), which are generally more radical and populist, represent unskilled labour (such as in the mining sector). Highly-skilled workers, public servants and professionals in South Africa make good money (on a comparative basis), while there are very few jobs in the middle range of earnings. This missing mid-range of earnings is linked to, according to Levy et al. (2015), ‘low labour productivity per unit of capital (which is, in turn, a consequence of chronic and historical underinvestment in human capital in the country’s black population); path dependence of a capital-intensive industrial structure (another legacy of apartheid); and conflict-ridden industrial relations, which enable some unionised workers to lift themselves up from the lower parts of the distributional cliff – but raise the cost (in terms of both earnings and conflict) of employing workers, and thereby contribute to undercutting economic dynamism in the mid-range of the labour market. In sum, relative to other middle-income countries, ‘South Africa has an unusually small fraction of the population that gains directly from sustained economic growth.’The result is huge pressure from those at the bottom of the distributional cliff to improve their economic circumstances through informal income, political connections and collective action within the fold of the governing tripartite alliance. Despite government claims to the contrary, the benefits of growth are not trickling down sufficiently, even when South Africa was growing rapidly. The absolute number of unemployed is growing – although it is important to recognise that employment is also growing in absolute numbers. In addition, South Africa is experiencing a demographic dividend, i.e. the size of its working age population (aged 15 to 64 years of age) is expanding as a proportion of its total population. Thus, in 2015, the labour force grew by 20 000 more South Africans from the previous year.26 South Africa has an unusually small fraction of the population that gains directly from sustained economic growth At an estimated GDP growth rate of 0.8% for 2016, the Quarterly Labour Force Survey from Stats SA (to December 2015) presents a clear picture of a labour market under pressure. Instead of creating employment in the formal sector, job creation has shifted to the informal sector. Of a notable 505 000 jobs created in 2015, almost half (236 000) were in the informal sector, where the compensation wage levels are typically survivalist. Next came 269 000 jobs created in the formal sector, 118 000 agricultural jobs and 75 000 in private households. Most jobs were lost in the manufacturing, utilities and construction industries in the last quarter of 2015. 27 Low growth facilitates job creation in the less productive informal sector, as job seekers struggle to survive and make ends meet. Adding to the labour and unemployment challenge are on-going electricity supply inefficiencies, a minimum wage debate (that could, if implemented at too high a level, constrain employment) and the threat of a full downgrade to so-called junk or sub-investment status that would increase borrowing costs and limit access to international finance. Source: Institute for Security Studies (ISS) 2016-08-25Staff Report 2
