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OECD Observer: How concerned are you about the condition of the world economy?
The Federation of Unions of South Africa (FEDUSA) is concerned about the fact that global economy faces significant challenges as the world economic outlook is fragile and uneven, and tampering in the US could shift the flow of funds from emerging economies, thereby creating instability in South Africa. Tampering could see sharper levels of volatility and could even undermine emerging economies like South Africa. The South African economic performance has weakened since the beginning of 2014 and this has compelled, Finance Minister Nhlanhla Musa Nene to reduce the GDP growth outlook to 1.4% in 2014. The South African economy has faced serious headwinds of low economic growth, high unemployment, unstable labour relations, inflationary pressures, and deteriorating fiscal and current account deficits.
The slowdown in GDP growth has underscored the structural weakness and constraints in the South African economy. The structural constraints, such as electricity supply, skills shortages and inadequate transport, but also poor labour relations and the lack of support for collective bargaining, can only be addressed through a new leadership paradigm within government, business, labour and civil society. The central concept of the eradication of poverty, inequality and unemployment needs to be tackled urgently in South Africa. Higher inclusive economic growth and quality job creation are required immediately, and the private sector should play a more proactive role through investment to enhance the labour-intensity of growth.
What impact is it having on South Africans?
With reference to the Statistics South Africa report, a slight decrease in the unemployment rate from 25.5% to 25.4% in the third quarter of 2014. However the unemployment rates alone do not reveal the full picture of the state of the South African labour market. The duration of unemployment also matters, particularly in South Africa where workers only receive limited unemployment benefits as a source of income. In this respect, an increased proportion of long-term unemployed reflects the structural problems in the labour market, and creates a risk that workers may become less committed to the labour market, and therefore suffer from skills erosion and reduced employability.
In South Africa approximately 5.1 million people are unemployed with 1.7 million people classified as short-term unemployed, three months to one year, and 3.3 million people classified as long-term unemployed, one to five years. This, in turn, can have adverse effects on the broader economy in the short run by depleting aggregate demand through reduced consumption, while also reducing trends of inclusive economic growth in the long run.
What priority action do you think must be taken by G20 generally and by South Africa?
It is critical for the social partners in South Africa to jointly address the structural constraints in the economy to generate investment and thereby create quality jobs through the scaling up of apprenticeships, and learning and skills programmes, specifically for the long-term unemployed and women workers. The consultative framework should include a new leadership approach through constructive social dialogue, trust and collaboration to develop sustainable multipliers within the context of a re-negotiated social accord. It is therefore crucial to ensure the formalisation of work through sectorial minimum wages, labour rights and social protection floors, to create a deeper middle class and fair income distribution. Spatial development is critical to create employment where people reside and reduce the transport costs for workers.
South Africa is a country with huge potential to support the green economy and rural development in order to redirect migration from cities to rural areas, and the government should invest in infrastructure to crowd-in private sector investment. The low demand in the European Union, Japan and the US, the traditional export markets of South Africa, puts huge constraints on exports as a driver of economic growth. Therefore it is crucial for South African companies to look to sub-Saharan Africa for new opportunities to increase exports and to strengthen growth. This is in light of recent strong growth in the exports of manufacturing products to the Southern African Development Community. The re-regulation of the financial sector and the banning of transfer pricing could protect the South African tax base, reduce the budget deficit and stabilise public debts.
© OECD Observer No 300, Q3 2014