Picture: 123RF/MOOV STOCK
Picture: 123RF/MOOV STOCK

The quarterly employment statistics (QES) data released on Thursday by Statistics SA runs counter to the government’s economic recovery plan, which needs all productive hands on deck to ensure success.

According to the QES data, the broader manufacturing sector, of which the metals and engineering (M&E) sector forms an integral part, lost 8.2% of total employment, comprising an alarming 100,000 jobs in June 2020 compared to June 2019.

There was also a corresponding decrease on a quarterly basis, with manufacturing employment decreasing by 85,000 jobs or -7.1% in quarter two when compared with quarter one.

This shows the M&E cluster of industries has felt the double whammy of the coronavirus-induced economic lockdown and a stagnant economy, as its subcomponents recorded the biggest decrease in job numbers. There were also decreases in employment in the basic metals, fabricated metal products, general machinery and equipment, and transport equipment subsectors.

The worrying trend was compounded by contemporaneous decreases in employment and business activity in important industrial sectors with high interlinkage, such as the mining and construction sectors, which recorded job losses of 12,000 employees and 111,000 employees, respectively, in June 2020 compared to June 2019.

The decline in job numbers was expected for a number of reasons. These include the GDP figure published earlier last month for the second quarter of 2020 revealing weaker-than-expected domestic growth relative to quarter one, as local manufacturing production and sales dipped amid a generally poor business expectation following the Covid-19 storm.

Given the slack in economic activity and poor inventory turnover for businesses in manufacturing, the decrease in employment for the same period was anticipated and highlights the negative effects of subdued domestic demand conditions on jobs.

A distortion in supply chains and an increase in operational expenses and intermediate input costs for businesses has made it even more difficult to sustain jobs. As a result, companies have been forced to retrench workers and offer voluntary severance packages. The situation was compounded by the lingering of the coronavirus pandemic regionally and globally, with extended implications for the intensity of domestic business activity and greenfield investment decisions by foreign and anchor investors.

The concern is that as companies continue to struggle with cash flow challenges, with no delineated implementation plan regarding the novel economic recovery plan in sight and amid the ongoing pandemic, it is hard to forestall an immediate end to the trend of poor employment numbers in the short term.

The galloping unemployment scourge will, no doubt, have extended socio-economic consequences as the increasing number of unemployed expend their severance packages and unemployment stipends from the Unemployment Insurance Fund.

While commendable efforts are being made by policymakers on paper to curb unemployment and reduce difficult business conditions, there is invariably a gap in co-ordinating the activities of the relevant government departments or agencies, resulting in delays in implementation. The anticipated lag effects are compounded by unforeseen costs to businesses, also negatively affecting confidence levels.

Despite these challenges, there remains a need to continually improve business expectation and business confidence by engaging with key stakeholders, including ratings agencies, on how to map a sustainable turnaround strategy.

Michael Ade
Chief Economist, Steel and Engineering Industries Federation of Southern Africa

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