Pali Lehohla. Picture: GCIS

Pali Lehohla. Picture: GCIS

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FM Edition:

SA’s formal sector, the biggest employer in the country, is losing jobs and its prospects look gloomy.

With the economy forecast to grow by 0.4% in 2016 and improve to just 1% in 2017, job creation is likely to be scarce.

The formal sector employed 9.2m people in the second quarter of the year, 67,000 less than in the first quarter, according to the Statistics SA (Stats SA) Quarterly Employment Statistics report, which surveys employers.

Most job losses in the April to June period were in the community services, manufacturing, transport, trade, finance and mining sectors. The construction sector added jobs.

The jobs situation in SA is dire, says statistician-general Pali Lehohla. The 30,000 jobs created by the formal sector year on year, or between June 2015 and June 2016, were simply not enough to absorb the large number of people entering the labour market, he says.

The jobs outlook remains discouraging, says ETM Analytics economist Manisha Morar. Meaningful reforms need to be implemented, especially in assisting small to medium-sized enterprises, loosening regulation and addressing the skills gap, she says.

Unemployment could also deepen if student protests result in a reduction of higher-skilled graduates entering the workforce next year, Morar adds.

Job losses were most pronounced in the community, social & personal services industry, which includes government jobs. The 48,000 jobs lost in the industry were as a result of temporary Electoral Commission contract jobs coming to an end and national government departments cutting jobs. National departments shed 7,000 jobs, according to the Stats SA survey.

Government has already indicated it will no longer create as many jobs as before. This is part of its fiscal consolidation plan, aimed at reducing the large gap in the budget deficit to prevent credit ratings falling to sub-investment grade or junk status. It also entails reining in public-sector compensation or the wage bill, which comprises about 40% of non interest government spending.

Wage bill developments over the past year have been somewhat encouraging, says BNP Paribas Securities economist Jeffrey Schultz. Calculations of real employment costs in the community, social & personal services sector show that government has managed to lower employment costs by more than 28% from their peak in the second quarter of 2015, he says.

"In nominal terms, this equates to about R8.5bn in employee cost-related savings in [the first half of] 2016 from a year ago — a significant achievement despite a higher inflation environment, in our view."

Despite these improvements, Schultz says much remains to be done, given that public-sector unit labour costs are still about 60% higher than 2009 levels.

One of the most worrying developments in the Stats SA survey is in the mining sector. It lost 1,000 jobs in the second quarter — the seventh consecutive quarter of employment declines — and reported an annual decrease of 32,000 jobs in the second quarter, compared with the second quarter of 2015.

Lehohla says the decline may partly be attributed to mechanisation in the industry, where mining bosses minimise costs by substituting machines for labour.

"Even though production started improving, the jobs have been declining. I think that mining companies are mechanising across the board, including in manufacturing. So there will be a bloodbath in terms of jobs," he says.

The "very elevated" levels of unit labour costs in the embattled sector, which have more than doubled since 2009, are concerning, says Schultz.

Though sectors such as mining and manufacturing may struggle to significantly increase jobs, sectors linked to services and trade are expected to add jobs. The trade sector particularly tends to add jobs in the third and fourth quarters to prepare for the busy festive season .

While some workers lost jobs, those who were still employed received more compensation. Gross earnings paid to employees in the formal sector rose by R32m to R523bn in the second quarter due to base effects that arose as a result of cost-of-living adjustments, bonuses and overtime payments, Stats SA says.