Concerns with South Africa’s Improved Unemployment Rate

Sources:

Bloomberg:  South African Jobless Rate Falls to 24.9% in Second Quarter

BusinessDay:  Jobless Rate Dip Spoiled by Shocks at Factories

Ventures:  Economists Worry Despite South Africa’s Unemployment Dip in Q2

WSJ:  Growing Pains Strain South Africa

On July 31, 2012, Statistics South Africa—South Africa’s national statistics board—reported that the nation’s unemployment rate fell from 25.2% in the first quarter of 2012 to 24.9% in the second quarter. This drop in South Africa’s unemployment rate is a positive result for the country, which has not reported unemployment rates below 20% since the end of the Apartheid (a system of racial segregation in which the white-minority held all the power) in 1994. South Africa struggled with high unemployment rates since 1994 because its economy failed to grow quick enough to support the influx of workers that the white-minority rule previously prevented from holding employment.

Even though the recent drop in the unemployment rate seems positive for South Africa, independent economist Mike Schussler and STANLIB’s chief economist Kevin Lings—STANLIB is a top investment management firm in South Africa—argue that the drop in the unemployment rate is not as strong of an improvement upon deeper analysis. The first concern these economists have with South Africa’s unemployment rate drop is that the total labor force also dropped. The number of jobless South Africans dropped by 56,000 during the second quarter of 2012. However, the number of employed South Africans increased by only 25,000. Therefore, approximately 31,000 South Africans left the labor force. Economists like Schussler worry that this drop in the labor force hides unemployed South Africans. This is because the unemployment rate only includes South Africans that actively look for employment. If the unemployment rate also included those South Africans that stopped looking for work, then the unemployment rate would likely be even higher.

The second concern with South Africa’s dip in its unemployment rate is that the mining sector of the economy created 21,000 jobs despite increased costs and decreased global demand in such sector this past year. Thus, Schussler characterizes the new job creation in the mining sector as unusual. Moreover, Statistics South Africa admitted that it is possible their survey did not accurately depict the mining sector’s unemployment rate because the mining industry in South Africa is clustered—an industry cluster is a group of interconnected firms in the same geographic location with similar markets, customers, and value chains. Due to this interconnectedness and overlap among businesses, South African mining businesses could likely report some workers twice, which would result in a more optimistic unemployment rate.

The third concern is that South Africa’s unemployment rate will not continue to improve in the coming months because of a slowing economy. The loss of jobs in both the manufacturing and trade sectors of South Africa’s economy reflect the slowing economy. The South African manufacturing sector’s total jobs fell by 2.6% or 44,000 jobs, while the trade sector’s total jobs fell by 3.0% or 91,000 jobs. South Africa remains susceptible to further job losses in these sectors as Europe and China—South Africa’s main trading partners—will likely demand fewer exports due to a continuing debt crisis in Europe and slower growth in China. The World Bank also acknowledged the slowing South African economy when it adjusted its annual growth forecast for South Africa from a 2.7% increase in GDP to a 2.5% increase in GDP.

South African leaders such as the deputy director-general of social and population statistics of Statistics South Africa, Kefilo Masiteng, recognize that the unemployment rate in South Africa is a national crisis and that the country is far off reaching its goal of reducing unemployment to 14% by 2020. However, although the drop in the nation’s unemployment rate raises concerns, South African leaders also believe that the drop in the unemployment rate signifies hope for improving South African unemployment in the future. 

South African Dlamini-Zuma Chosen to Lead African Commission

Sources:

Bloomberg: South African Wins Top African Union Post in Divisive Vote

Mail & Guardian: Dlamini-Zuma Elected To Head AU Commission

Mail & Guardian: The Dummies’ Guide to the African Union

NPR: Pan-African Group Elects First Female Leader

WSJ: African Union Elects New Leader

On July 15, 2012, the African Union’s (AU) 51 voting member-states chose Nkosazana Dlamini-Zuma, Home Affairs Minister of South Africa, to lead the African Commission for the next four years. The AU countries initially voted in January, but neither Dlamini-Zuma nor incumbent Jean Ping of Gabon were able to garner the 60% of the votes necessary to chair the Commission.

Member-states of the Southern African Development Community (SADC), including Botswana, Zimbabwe, and Tanzania, supported Dlamini-Zuma, while member states of the Economic Community of West African States (ECOWAS), including Ghana, Cote D’Ivoire, and Nigeria, supported Ping.

Dlamini-Zuma is the first woman elected to lead the AU Commission—a position exercising power over the executive and administrative branch of the AU. The Women’s League of African hailed Dlamini-Zuma’s election a victory for women across Africa, who have historically been victims of prejudice and oppression in many parts of Africa.

The election of South African Dlamini-Zuma is also noteworthy because such a position is typically held by a representative from a smaller African government. The reason that representatives from smaller governments have typically held the position is to ensure that African powerhouses—Egypt, South Africa, Nigeria, Libya, and Algeria—do not have too much influence over African politics. However, many leaders in Africa thought a change was necessary to give the AU more global influence; analysts and some Western diplomats have criticized the AU for allowing Western countries to take the lead in recent conflicts in Africa.

South African leaders, including President Jacob Zuma, Dlamini-Zuma’s former husband, have been lobbying for Dlamini-Zuma to chair the Commission for months. They believed that leadership of the AU would cement its status as an emerging global power. Last year, South Africa increased its global status by beginning a two-year term on the United Nations Security Council. A temporary seat on the Security Council gave South Africa authority to vote on Security Council resolutions. South Africa is now seeking to gain permanent-member status, which would give it veto power over Security Council resolutions. South Africa has also been active with Brazil, Russia, India, and China—together, the BRICS—to increase the influence of emerging economies. They have acted together in deciding whether to bailout Europe, and they have plans to set up a development bank for emerging countries, similar to the International Monetary Fund.

There are many ongoing conflicts in Africa: South Sudan’s dispute over oil rights, military coups in Mali and Guinea-Bissau, and a dispute between Rwanda and the Democratic Republic of the Congo. If Dlamini-Zuma wants to increase the AU’s and South Africa’s economic and political power, she must gain the support of the nations that supported Jean Ping and begin to solve these problems. For example, ECOWAS member-states, who predominantly supported Ping, are seeking Security Council support for a military intervention to unite a divided Mali, an intervention that SADC member-states, who supported Dlamini-Zuma, have shown scant support. If Dlamini-Zuma can use her influence to garner Security Council and SADC support for this intervention, countries that were opposed to her candidacy may view her more favorably, which will further increase the AU’s power.

A united Africa could show Western nations that the African Union is a serious player in global politics. For a continent in conflict and mired in indecision for the last six months, this would certainly be a welcome development.

The "BRICS" Propose a New Multilateral Bank

Sources:
BRICS Joint Statistical Report: Economic and Social Indicators Comparison of BRICS Countries
International News, The: World Bank Chief Backs BRICS Idea
Macau Daily Times: Rising Powers Mull Bank for Developing Nations
Telegraph, The: Robert Zoellick Calls for BRICS Bank

Brazil, Russia, India, China, and South Africa, collectively known as the “BRICS,” are five of the most important emerging economies. At their joint financial summit in New Delhi during the week of March 27, 2012, the BRICS officially proposed a new developmental bank, which would serve as an alternative to other development banks such as the World Bank. The outgoing World Bank president, Robert Zoellick, said that he would support a World Bank program to work with the BRICS to make their plan for a new bank a reality. Such a move would not be unprecedented, as the World Bank has previously assisted in the creation of the Islamic Development Bank and the OPEC Fund.

Zoellick does not believe that ignoring the BRICS is a good economic decision, as the countries are already serious players in the world economy. Collectively they account for 18% of the world’s GDP, 40% of the world’s population, 15% of global trade, and 40% of global currency reserves. Many financial experts expect the BRICS’s economies and political influence to continue growing in the future.

Some political experts view President Obama’s nomination of an American to lead the World Bank (instead of a person from the BRICS or another emerging economy) as adding momentum to a BRICS bank. The BRICS believe that the World Bank does not effectively address the unique needs of developing countries. They believe that a World Bank president from an emerging market economy could help address this issues. However, Obama’s nomination of an American is in line with past practice, as an American has always been the leader of the World Bank. The BRICS bank would focus on middle-income countries and be largely free from the political influences of advanced economies.

However, political experts are concerned that because the BRICS do not have one coherent foreign policy, it will be difficult for the countries to pool their economic resources and settle on an aid strategy. The lack of agreement was recently demonstrated when the BRICS failed to unite behind one nominee for World Bank president. Political experts are also concerned about the vast difference in economic power between the BRICS. For example, Brazil’s GDP was $2,090 billion in 2010, while China’s was $5,879 billion, India’s was $1,293 billion, Russia’s was $1,465 billion, and South Africa’s was $363 billion. China also has $3.2 billion in foreign currency reserves, an amount much higher than any of the other BRICS. Because China has the largest economy and currency reserves, it will likely want to permanently lead the bank—a proposal that India and Russia would likely reject. Additionally, unlike the World Bank, where the leadership generally consists of democracies, the BRICS bank would represent an authoritarian government (China), a quasi-democratic government (Russia), and several democracies (India, Brazil, and South Africa).

With the fast-growing economies of the BRICS, the countries have the funds and political will necessary to create their own development bank. However, the exact structure of that bank and the World Bank’s potential role in its creation remain unclear. While the BRICS have numerous differences, both political and economic, a developmental bank backed by the five countries’ immense economic power would have the ability do much good in the world.

Can South Africa Meet its Development Goals?

Sources:

AllAfrica: South Africa: Partnerships and Implementation Capacity Are Pre-Requisites to a Successful South African Development Path
BusinessDay: SA Needs to Raise Growth to 10% to Create 5-Million Jobs, Says DBSA
IOL: Political Leaders Key to Success, Says Bank

The Development Bank of South Africa (DBSA) released a report recently to provide South Africa a perspective on what steps it needs to take to achieve its proposed development goals. The goals aim to positively affect areas like reindustrialization, climate change, and skill development. The report found that the most difficult goal to achieve would be lowering the unemployment rate from 25% to 15% by the end of 2020. The South African government hopes to meet the goal by increasing employment by 7% each year through investing in development projects (possibly infrastructure) that require the most workers.

The steady economic growth the country has experienced in recent years is not sufficient to sustain an annual 7% increase in employment. The DBSA report states that the country will need 10% annual gross domestic product (GDP) growth to support the spending necessary to meet the goal of 7% employment growth. However, the report stresses that the South African government must resist the temptation to dismiss the goal as a failure—as it has done with past development goals—and suggests lowering the 7% target to a more feasible level. The report also contains suggestions on how to bolster employment, which mainly consist of seeking more labor-intensive government investments that will create a need for more workers.

If South Africa can successfully reduce unemployment, it stands to become a more stable country economically. Economic stability will encourage investment by reducing the risk of loss due to dramatic changes in the economic climate. It will also show that the government is committed to realizing its development goals. This commitment should entice foreign investors to provide capital investments for the development goals because they would no longer fear losing government support prior to completing a project.

Gold Miners' Strike in South Africa

Sources:
BBC: South Africa's Gold Miners Begin Strike Over Pay
Bloomberg: Mine Nationalization in South Africa is a Concern
Financial Times: South African Gold Miners Strike
Financial Times: Strikes Spread in South Africa's Mining Sector
Main & Guardian: Talks Aim to End SA Coal, Gold Sector
MarketWatch: Miners End South Africa Gold Strikes with Wage Deal

South Africa, Africa’s largest economy, has recently faced a series of strikes in its mining sector. In late July, gold miners began a strike after the National Union of Mineworkers (NUM) rejected an offer of a seven to nine percent wage increase from mining companies, including AngloGold Ashanti, Gold Fields, and Harmony. Though the national inflation rate is around five percent, the NUM had been asking for a fourteen percent increase in wages. The NUM justified the high demand by arguing that workers should have “something to show” for the dangerous work they do.

Strikes have plagued South Africa’s mining sector lately, with coal and diamond miners staging separate strikes as well. While admitting that workers deserve decent wages to support themselves and their families, mining companies are concerned about their own ability to compete globally. Increased labor costs, along with rising energy prices, and threats of nationalization have dented the mining sector’s profits in recent months by increasing production costs and scaring off investors. However, mining companies understand that retaining an already-trained workforce is important to maintaining high productivity levels. Large wage increases could, therefore, be in the companies’ best interests in the long run.

Many observers believe the root cause of the strikes is much deeper than a simple desire for higher wages in the face of a higher cost-of-living. Some believe that mounting frustrations about social and economic inequality are pushing the working class to demand a larger share of national wealth. Racial undertones accentuate South Africa’s inequality. Only seventeen years removed from government-approved segregation, whites still own most mines, while the vast majority of mine workers are black.

After almost a month of striking, the NUM and the gold-mining companies reached a two-year agreement to get the miners back to work. The agreement includes an eight percent increase each year. The NUM also successfully lobbied for a provision guaranteeing it the right to re-negotiate a higher wage increase if the rate of inflation rises. Economists estimate that the gold miners’ strike alone resulted in $200 million in lost revenue for the mining sector, which will likely have a negative impact on South African economic growth for the year. South Africa can only hope that such costly strikes become less common as it continues to develop.