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Good News / Bad News Unemployment -Our Country’s Greatest Economic Challenge

By Dr Dirk A Prinsloo

Urban Studies

As might be expected all the political parties for the forthcoming election in April have focused on some aspect of unemployment and job creation. This clearly indicates that job creation is by far the single most important challenge for the South African economy. The country is losing more and more jobs in the formal sector in the market. Where is future growth going to come from? What role does the informal sector play and what entrepreneurial prospects exist? What is the role that might be played by property developers in creating more jobs?

The level of poverty is thus higher than officially calculated based on estimated figures by the UN. The Human Poverty Index developed by the UN suggests that less than 20 per cent of the population in South Africa is poor (i.e. earning less than R800 per month). According to StatsSA Census 2001 some 31 per cent of the total population earned less than R800 per month.

Based on current employment in the formal sector, the official rate of unemployment is 32 per cent (Table 1). This, however, depends on the definition of unemployment. According to the extended definition of unemployment a figure of 42 per cent is suggested (all job opportunities, formal and informal)

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More than 71 per cent of the total number of workers (±11,5 million) are employed in the formal sector of the South African economy whereas 19,6 per cent are employed in the informal sector (Stats SA June 2003). The total number of formal workers in the economy is ±8 million with 2,3 million in the informal sector. Domestic workers represent almost 9 per cent of the total workforce (1 million workers).

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According to the 2001 Census there are 28,4 million people in South Africa between the ages of 15 and 64 years (i.e. what is usually termed the economically active population). There are 6,8 million unemployed while 12 million are not economically active.

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The 31 per cent unemployed workers compares very unfavourably with neighbouring countries such as Namibia and Botswana where the current rate of unemployment is less than 20 per cent. The unemployment rates in countries such as Brazil, Chile, China, and Russia are all approximately 10 per cent.

This is a very clear indication of how serious the unemployment rate is in South Africa. Furthermore it has an impact on higher mobility to the metro cities where people move in the hope of getting a job of one sort or another. It also affects the affordability levels for housing, and the day-to-day living.

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According to official Employment Statistics (Stats SA, 2003) more than 57 000 jobs in the formal sectors were lost between March 2003 and June 2003. Sectors of the economy losing most jobs during this period were manufacturing (20 000 jobs), construction (37 000 jobs), and financial and business services. These losses correspond with reactions and indicators in the property industry during the same period. Office vacancies were at a high and industrial rentals had not yet started a recovery phase. The construction sector reflected a decrease of 11 per cent mainly because of the completion of large building contracts. Since the last half of 2003 conditions in the property economy have improved dramatically with lower office vacancies, higher office take-up rates, improved industrial rentals and more building plans approved and completed. Stats SA data for 2003, related to non-residential buildings completed, show an increase of 17,4 per cent improvement over the previous year with respect to the completed amount of office floor space.

The construction sector of the economy only represents 5 per cent of the total number of employees. Other sectors where property development and owners are involved form the backbone of the South African economy. The single highest employer in the country is the wholesale and retail trade sector (20,5%) followed by community, social and personal services (18,9%), with the financial sector (mainly offices) representing 9 per cent of the total employment market.

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How is the government or anybody else going to create a million jobs in the next 5 years?
In the late 1980s a popular slogan was “small is ugly”, while in the late 1990s it was “small is beautiful”, and, especially over the last 10 years, the emphasis worldwide has been on small business development.

Uganda is the world’s most entrepreneurial country. This was the conclusion of the 5th Annual Global Entrepreneurship Monitor Report. According to the author of this report he concluded that: “If you don’t do something in a country where there is no real social or economic programme, you’re not going to eat”. (Fortune 2004, February 9, p.11).

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South Africa’s entrepreneurial position relative to a range of other countries is shown in Graph 4. This is one of the areas where large opportunities exist for South Africa.

There is a clear difference between a small business operator (e.g. a hawker) and an entrepreneur. The latter is responsible for growth and development. It is in this field that a large number of opportunities exist; for example wheelbarrow/kiosk operators in our malls finally moving into formal business and becoming a formal tenant in a shopping centre. The past few years have seen a significant shift in consumer expectations. The focus is more on customised products and personalised services. This creates wonderful opportunities for entrepreneurs. SMMEs will probably be one of the major job creators in future. New ideas could include new retail formats (food e.g. Primi Piatti, Mugg & Bean, Woolworths Food, Starbucks Coffee etc., homeware e.g. @ Home, Home etc., home décor), life style products, outdoor living, franchise opportunities, garden and home, production and manufacturing, African art, wire products, computers, technology, internet and cell phone. The list is almost endless.

In the words of Donald Trump: “In the end, you are measured not by how much you undertake, but by what you finally accomplish.” This is where the challenge lies. The formal sector is faced with decreasing numbers while small business development should become a major focus to achieve growth in order to create 1 million new jobs. The challenge for the property industry is to identify and develop new retail concepts (other than convenience and ordinary shopping centres), to carefully evaluate the residential property market for specific gaps, to address the needs of specific communities and to be in the right place at the right time. Unemployment is a serious problem and job creation should therefore be a priority.

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