SIMON BROWN: I’m chatting now with Lullu Krugel, PwC South Africa chief economist. Lullu, I appreciate the early morning time. You put out your quarterly South Africa Economic Outlook just yesterday, and you make [the] point [that] despite job growth in the second quarter of this year, employment is still some 5% below pre-pandemic levels, and that’s 833 000-odd jobs. We are trying to chip away at our unemployment rate, but frankly we seem to be in a bit of a losing battle here.
LULLU KRUGEL: Yes, Simon, that is unfortunate. We’ve been tracking the trend for some time now and, as you’ve said, there was some recovery. But unfortunately we still have some ground to make up. I know there’s been some controversy around the correctness of these job numbers, but if you look at the employment survey that was published earlier this week which looked at formal sector employment, that also supports the same trend. So unfortunately we are not where were pre-Covid, and it’s going to be very tough to make that up.
The bottom line is, [as] we’ve been saying to each other for the longest time now, there are at least half a million people joining the ranks of the labour force every year. So just to keep us where we are, we need to create half a million jobs and we cannot even do that at this point in time.
SIMON BROWN: I take your point on that. One of the key things is that the folks coming into the labour force are in many cases educated. Your report makes a point that almost 742 000 unemployed people actually have a tertiary education. Is this our universities teaching the wrong stuff, or is this just a case of if we’re not getting significant real GDP growth, we just can’t absorb the influx of new people?
LULLU KRUGEL: It’s a little bit of both. But I want to say at this point in time that we should look at the survey that PwC did about a month ago among students as well, looking at their employment prospects.
It seemed to point to the fact that what we are producing, or the students we are producing or [what] the universities are producing does not fit what the labour market needs.
It’s not necessarily a case of you have engineers, [but] they don’t fit what is needed. That is one point.
But the bigger question is that the people who are currently going through the tertiary system are focusing on the types of jobs and education where there’s not massive growth at this point in time.
We seem to have the belief that university education is the panacea and it’s not that; it’s about further education in the right area.
SIMON BROWN: Yes. It’s getting that right school. That may be university – but it may not necessarily be university.
Turning to some of the economic data that comes through your forecast for the year for inflation, 6.7%, this is your probable weighted average. That kind of seems to be in line. You’re expecting it to come back within the band next year. Albeit rates still rising, I imagine the rate increases probably [will be] front-loaded earlier into the year.
LULLU KRUGEL: The Reserve Bank, the Monetary Policy Committee, always in their decisions [tries to] look at what they think inflation expectations are going to do, so that will drive their decision. Unfortunately up to now we thought that we were at a turning point, but we seem not to have got there yet. So they need to be fairly aggressive in the rate increases also, to keep up with what is happening in the rest of the market because we’ve seen the rand going completely crazy and, if we don’t keep up with rate increases, that might be even worse.
So the improvement that we see next year is unfortunately, I must say, the statistical base effect. So it’s slower growth, but it’s slower growth off very high prices already. But it is a bit of reprieve and it will hopefully give the Reserve Bank the confidence, once we get there, to take the foot off the [pedal] or the accelerator in terms of rate increases.
SIMON BROWN: That is perhaps the issue. You mentioned slower growth in there – your 2022 forecast 1.7% for real GDP, 1.5% for next year. That in many senses is the crux of the problem. I appreciate the floods and global inflation and of course load shedding, which is an own-goal, but our growth is just not anywhere near where it needs to be.
LULLU KRUGEL: No, we are kind of stuck. That’s the problem. Even if things go really well, we are probably only able to grow 1.5% to 2%. That is the challenge that we are sitting with. We have some serious fundamental issues in the economy. I don’t even have to start with electricity, we all know that. But skills, investment.
In our opinion between those three: between having the right skills for what the economy needs, getting investment going again, and sorting our electricity issues out, if you look [purely] at growth – I’m not talking necessarily about social issues, that’s another thing – … that would probably solve 70% or 80% of the issues that we are sitting with, if we get those right.
SIMON BROWN: I take your point. We are stuck in that mid-1% growth and it’s just not enough.
Lullu Krugel, PwC South Africa’s chief economist, I always appreciate the early morning insights.
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