BLSA CEO’s letter 5 October 2020

POSTED ON: October 5, 2020 IN by Admin

By Busi Mavuso

SA lost 2.2-million jobs in the Covid-hit second quarter and big companies have warned of thousands of retrenchments to come. It’s time to talk about labour legislation.

The Covid-19 crisis was always going to cause an employment crisis. The challenge has been to limit its depth and ensure we can recover quickly. But the problem we face, to my mind, is a lack of original thinking and political courage to make radical changes to how employment works in this country.

Last week’s unemployment data was bleak. We lost 2.2-million jobs in the second quarter of the year, leaving us with just 14.4-million employed people in both the formal and informal sectors. Of course, this figure was already far too low for our economy. Due to the lockdown, the official unemployment rate was reported as having improved to 23.3%, but that was only because of the anomaly of fewer people actively seeking work because they were in lockdown. It is the 2.2-million lost jobs we should be focused on.

Limiting the depth of the employment crisis was partially successful. The UIF TERS scheme supported employers to keep furloughed workers in their jobs. It paid out R45bn to cover a portion of wage bills. It came late and has been bedevilled by administrative challenges, but it has certainly helped many employers to keep workers in their jobs. Those businesses, however, need the economy to recover so that jobs remain after TERS ends, which is now. But there is little reason to believe that the economy has sufficient vigour. The structural reforms we all know we need remain very slow in coming. Different dynamics are in play, with some jobs coming back following the reopening of the economy, but other jobs will be lost as the TERS scheme concludes.

Last week Bloomberg reported a list of large companies that have warned of retrenchments. Sun International has warned of 2,300 layoffs and Bidvest said 1,200 jobs could be affected by the sale of its car rental unit. Industrial group Barloworld has warned of retrenchments that could affect 3,750 workers and Cell C expects to close 128 retail stores around the country, putting 546 positions at risk.

We have always had an unemployment crisis. Our lowest unemployment rate was in 2008 when it fell to 22%, a figure that would still be considered a crisis in many other countries. However you look at it, our economy simply doesn’t employ enough people. We can use social grants to limit the poverty this causes, but we cannot substitute for bad policy that leads to unemployment in the first place.

In my experience, the instinct of businesspeople is to employ more people where they can. Every business wants to grow and more people are a key way to do it. Yet our economy has seen a structural shift out of employment-intensive sectors like mining and industry and into highly skilled and capital-intensive sectors like financial services. Mining itself has become more automated, obviously affected by difficult labour relations that have seen investors spending money on machines rather than people.

I have read arguments that our stringent labour regulations don’t contribute to unemployment. I find the logic of these tortuous. It is unarguable that the higher the cost of an input in production, the less of it will be used, especially when there are substitutes. And there are substitutes for labour – work with fewer people and give them more machines to increase their productivity. The figures show this has clearly been happening over the past few decades. I am not talking about wages here – those are certainly part of the cost, but not the only part. A great deal of cost is created by regulation. Employers spend a great deal on labour disputes that end up in the CCMA or in court. A lot of production is lost to strikes. Many employers sit with unproductive or even destructive staff members because it is too difficult to fire them. With millions of unemployed, our labour regulation is incredibly biased toward the already employed. An economy that is able to quickly replace unproductive workers at minimal cost will be one that employs many more workers, both because on average they will be more productive, and because the all-in cost of hiring them would be lower. That’s even while wages are high.

We seem, though, to lack the political courage for an honest conversation about this. The employed are a powerful political bloc while the unemployed don’t have the resources to advocate for their interests. At least, not yet. As their numbers grow relative to the numbers of employed, they become more politically important. The time cannot come fast enough for us to talk openly about the kind of radical changes we need to really get the economy growing and hiring more people.

Finance Minister Tito Mboweni’s medium-term budget speech coming up later this month is another seminal moment for SA. I wrote in Business Report that I hope it shows tangible signs of progress in following National Treasury’s “Operation Vulindlela” proposals for economic growth, which Cabinet has endorsed. It focuses on investments and social capital, which has multiplier effects into the wider economy. This is imperative if we are to win back investor confidence.

medium term budget

From business’ perspective, it’s evident that President Cyril Ramaphosa’s administration is more open to engaging in matters relating to the economy, which marks a clear shift from the past decade. This is important and, when criticising the slow rate of progress in fixing our economy, we must remember the legacy of the Zuma administration, which placed SA on a dangerous path. We’ve forgotten just how close we were to the cliff edge, I wrote in Business Day.

Our progress

This is a weekly newsletter from BLSA CEO Busi Mavuso.

BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. In 2017, BLSA signed a contract with South Africa, committing business to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.

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