Economic recovery hinges on slowing SA’s population growth rate
Changing population reproductive behaviour is a long-term endeavour facing many obstacles, such as cultural and religious hurdles
Unemployment has reached a record high in SA. At the end of the first quarter of 2020, the official unemployment rate was 30.1%. While it did decline to 23.3% in the second quarter, this was due to the increase in the expanded unemployment rate, which rose by 2.3 percentage points compared with the first quarter of 2020.
This was due to the significant increase in the number of people who were available for work but who were no longer actively seeking it. In terms of the expanded definition of unemployment, the rate soared from 39.7% to 42%. Of particular concern is the extreme unemployment among SA’s youth. Unemployment in the 15-24 age group stood at 55.97% for 2020.
Since the end of 2019, GDP has also been falling. According to Stats SA, the economy registered three consecutive quarter-on-quarter declines. GDP (seasonally adjusted and annualised) in the first quarter of 2020 fell 2%, and it contracted 1.4% and 0.8% in the fourth and third quarters of 2019 respectively. Much emphasis has been placed on the need for material GDP growth to arrest the spiralling unemployment. To reduce unemployment to about 10%, the SA economy will have to register growth of about 5%-6% per annum for the next 20 years. This when average GDP growth over the 10-year period between 2009 and 2018 averaged a mere 1.5%.
Mainstream arguments advanced by the government about the root causes of growing unemployment include the legacy of apartheid and poor education and training, a labour demand supply match discrepancy, the hangover effect of the 2008/2009 global recession, the role of trade union federations in the government, a general lack of interest in entrepreneurship, and slow economic growth. Little mention is made about the effect relatively high population growth has on the economy’s ability to generate sufficient numbers of jobs to satisfy demand.
At a sustained 2% GDP growth, the number of workers per job will only reduce marginally to about 2.51 workers per available job
This while empirical evidence confirms the link between population growth and the economy’s ability to generate sufficient jobs. It furthermore suggests that reducing population growth in middle-income countries seems to benefit mainly young workers aged 15-19, which is of great importance in the SA context of extreme youth unemployment.
Over the nine-year period from 2011 to 2019, the SA population grew an average 1.65% a year. In hard numbers, the population has over the period grown by an average of 898,000 per annum. On average, there are 600,000 new entrants into the labour market each year. It is evident that should the population grow faster than the number of new jobs in the economy, unemployment will rise. The average number of jobs created in the economy in the same period averaged about 278,222. On average, new jobs are thus created for only about half of new entrants into the labour market.
The Inclusive Society Institute will soon be releasing its report on the effect of the country’s high population growth on unemployment. This considers three GDP growth scenarios (2%, 3% and 4% sustained over a 10-year period). The findings of the report are worrying.
There are about 2.56 potential workers on average for every available job in the country. Should the current population growth trend of 1.48% per annum (based on the last five years) not be arrested, unemployment will remain stubbornly high under all three scenarios. At a sustained 2% GDP growth, the number of workers per job will only reduce marginally to about 2.51 workers per available job. At 3%, it will come down to 2.3 workers per available job, and at 4%, 2.12 workers per available job. That means should SA be unable to sustain GDP growth of 2% or more, unemployment will continue to grow. The average GDP growth rate over the 10-year period from 2009 to 2018 was a mere 1.5%.
Measuring the unemployment rate under the three scenarios reveals similar trends. As at the end of 2019, about 37% of the active labour force was unemployed. At a 2% sustained GDP growth over the next 10 years, active labour force unemployment (at 37%) will continue to reflect the current trend. At 3% GDP growth rate, unemployment will reduce to 32% by 2029, and at 4% GDP growth, to 26%. Once again, should the country be unable to sustain a GDP growth rate of more than 2%, unemployment will continue to grow.
The aforementioned does not take into account the aggravating effect of the Covid-19 pandemic on the economy, and thus the projections are somewhat overstated.
There are only two ways to reverse these fortunes: higher GDP growth, which is highly unlikely given the country’s historical GDP trajectory and within the context of healthy GDP growth in middle-income developing countries being considered to be between 2% and 3%; or reducing the population growth rate.
Our report imagines a comparative scenario in 2029 based on a 0.5% population growth rate. The National Development Plan sets this as the target for 2030. Under such a scenario, unemployment will, at a sustained 2% GDP growth rate over the next 10 years, be reduced from the current 37% to 31%. At 3% GDP growth, it will reduce to 25%, and at 4% GDP growth, to 18%. This paints a far more encouraging picture. However, expectations must be tempered, since as can be learnt from the transitions in other societies, a reversal of the current trend will take some time to effect.
Changing population reproductive behaviour is a long-term endeavour facing many obstacles, such as cultural and religious hurdles. It will require a concerted national campaign and short-term dividends should not be expected
Avoiding the issue will be at the country’s peril, in that it will serve only to prolong and deepen the economic defects. If left unaddressed, it could very well push the economy over the proverbial fiscal cliff.
Any future economic recovery plan will have to place as much importance on the reduction of the population growth rate as it does on interventions to spur GDP growth. The two concepts are joined at the hip.
• Swanepoel is CEO of the Inclusive Society Institute. This article draws on the content of the institute’s soon-to-be-released report, ‘Slowing the Population Growth Rate is Vital for SA’s Economic Recovery’.
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