Tag: economy

SA sheds 2.2-million jobs in the second quarter

By Lameez Omarjee for News24

South Africa shed 2.2-million jobs during the second quarter, according to Statistics South Africa (Stats SA).

While the employment figures reflected the largest decline in employment between the second and first quarter since 2008, Stats SA on Tuesday said unemployment fell substantially as well, decreasing by 2.8 million to 4.3 million. The official employment rate is now 23.3%, compared to the first quarter’s 30.1%.

Peter Attard Montalto, economist at Intellidex said that it is best to rely on the expanded definition of unemployment – which would see the rate between 42.6% and 52.7%, which is more realistic.

The expanded definition includes persons who were not employed when surveyed and were available to work but did not look for work either because they are discouraged from looking for work or did not look for work for other reasons other than discouragement.

Weighing in on the latest statistics, chief economist at the Bureau for Economic Research Hugo Pienaar explained that while the number of employed people declined by 2.2-million, the size of the labour force declined by much more – that is by 5 million. “This is why the unemployment rate came down.”

As to why the labour force declined, Pienaar explained that during the hard lockdown in April, people were not allowed to leave their homes unless they were considered essential workers or to buy food. “You were not allowed to go out and look for a job if you were unemployed at that stage,” he said. Millions less people were actively searching for a job and this resulted in a large decline in the labour force, he said.

“This is temporary. In the third quarter, with the economy opening up again, people can look for work again. The labour force will increase again, I imagine quite dramatically,” he added.

Economists had anticipated record high unemployment, due to poor economic conditions. Nearly a million job losses were projected for the single quarter – this matches the job losses in the 12 months following the global financial crisis, Fin24 previously reported. Investec had forecasted an unemployment rate of 37.9%.

Government had implemented a nationwide lockdown in March in order to slow the spread of Covid-19. During April, only essential goods and services were operational and economic activity was limited with lockdown restrictions at their highest level. As a result GDP contracted by 51%, on a quarter-on-quarter, annualised basis. Non-annualised, the contraction was 16.4%.

In its September quarterly bulletin, released on Tuesday, the Reserve Bank noted that the lockdown had brought about logistical complications for Stats SA – contributing to the delay of the release of the employment data.

“The number of unemployed South Africans had already increased significantly in the year to the first quarter of 2020 due to a surge in the number of new and re-entrants into the labour market who failed to find employment.

“The official unemployment rate increased to a record high of 30.1% in the first quarter of 2020, reflecting the impact of the economic recession that had already started in the third quarter of 2019,” the bulletin read.

Stats SA said that it had to change the mode of collection of data to adapt to Covid-19 safety protocols.

“Given the change in the survey mode of collection and the fact that Q2: 2020 estimates are not based on a full sample, comparisons with previous quarters should be made with caution,” Stats SA said.

In an emailed response to questions from Fin24, Stats SA said data is usually collected from April to June. But due to a change in data collection from face-to-face to Computer Assisted Telephone Interviewing, it was delayed for planning and the training of field workers between April and mid-May. The data was collected from 14 May to 30 June 2020.

Stats SA noted that the usual sample size for the survey is 30 000 but not all sampled dwelling units had contact numbers and the data for this survey was collected from 17 345 dwelling units.

South Africa is in deep financial trouble

Source: MyBroadband

The South African government is spending nearly R50-billion a month more than what it collects in taxes – and the situation is getting worse.

This is the warning from economist Mike Schussler, who said rapidly-increasing government debt is creating a “very, very deep hole”.

Speaking to eNCA, Schussler said the government’s budget reveals that the country is heading to a deficit of between R60 billion and R65 billion per month.

“This means we are spending R2 billion per day more than what we get in income from taxes,” he said.

Schussler said that while COVID-19 and the lockdown has aggravated the situation, the country was already running at a big deficit before the pandemic hit.

The projected deficit for this year was expected to be around R325 billion, but the pandemic has pushed this up to between R710 billion and R800-billion.

The higher deficit is a result of lower tax collection – which is expected to be down by around R313 billion – and higher spending on grants, hospitals, and other COVID-19 related matters.

Schussler said the lower tax collections are also partly a result of the cigarette and alcohol ban, people driving less, people losing their jobs, and lower consumer spending.

Filling the hole
The combination of lower tax collections and higher government spending is resulting in a big debt burden for South Africa.

To fill this hole, the government has to borrow money – which comes at a higher cost because of the country’s recent credit rating downgrades.

“Because of the downgrades our debt is becoming more and more expensive,” said Schussler.

An IMF loan of around R70 billion covers 10% of the expected deficit, which comes at a low interest rate.

This gives the country some breathing room, but big spending cuts and tax increases are still required to make up this deficit.

Even with the loans from the New Development Bank and African Development Bank, the country will still have to raise a lot more money to cover the growing deficit.

“We will have to go back to the IMF, we will have to look at our pension funds, and we most likely have to enter the international markets again,” said Schussler.

“We are in very, very deep financial trouble in the next few years. It is a very difficult hole to get out of.”

The chart below, published by Schussler, shows the government’s monthly budget deficit in recent years.

Source: Supermarket & Retailer 

More than 1 400 staff members at Pick n Pay have taken voluntary severance packages since March, the retailer has said in a trading update.

The Cape Town-based group’s voluntary severance programme (VSP) offers staff 1.5 weeks of pay per completed year of service, plus four weeks of notice pay.

According to the group, its objective is to reduce employee costs.

The group said the cost of the compensation payments to departing employees will be borne in the first half of the current financial year.

Pick n Pay said it expects the programme to be cost neutral for the full financial year, as compensation packages will be fully recouped through cost savings.

“In subsequent years, the reduction in employee numbers will have a positive impact on the operating costs of the group. Alongside other strategic actions designed to improve the Group’s performance, the VSP is a major step forward in making the business more competitive and more sustainable” the update read.

The group is projecting that its headline earnings per share for the 26 weeks to end August 2020 will be down by more than 50% as it grapples with the effects of Covid-19 on its business. This excludes the impact from hyperinflation accounting in Zimbabwe.

“I want shareholders to understand and be reassured that the impact on our first-half earnings that we are announcing today derives solely from the specific circumstances of the pandemic, the impact of measures taken by government and ourselves to mitigate it, and the once-off costs of our VSP which has made the Group leaner and more competitive,”said Richard Brasher, CEO of Pick n Pay, in the statement.

By Carin Smith for Fin24

Two main trends have emerged regarding consumer debt levels in South Africa, according to the latest DebtBusters’ debt index for the second quarter of 2020 released on Monday.

Firstly, the index reveals a real-term decline in net incomes and secondly, consumers are supplementing this by increased unsecured lending.

“As a result of lack of growth in their net incomes, consumers find themselves in a corner and have been borrowing heavily, especially using unsecured loans, to make up the shortfall,” said Benay Sager, DebtBusters’ chief operating officer, in a statement.

Bigger earnings, bigger debt

Higher-income earners in South Africa in particular appear to have come under significant debt pressure, according to the debt index for the second quarter of 2020.

The increase in unsecured debt is, on average, 18% higher than it was four years ago. For consumers earning more than R10 000 per month, unsecured debt is 31% higher – for those earning R20 000 or more per month, unsecured debt levels are 42% higher than 2016 levels.

Consumers earning R20 000 or more a month had an unsustainable debt-to-income ratio of 138%. This is 12% more than during the same period in 2016.

The quarterly analysis by DebtBusters has been tracking client trends over the past four years.

“Although it’s impossible to determine the full impact of the hard lockdown based on just one quarter, the four-year-trend shows that for most consumers, debt levels are steadily increasing,” says Sager.

“This is because nominal incomes have been flat, so in real terms people have less income than in 2016, as inflation over the same period has been around 20% cumulatively.”

According to Berniece Hieckmann, head of GetUp, a new offering from financial services provider Metropolitan that includes debt consolidation and income protection, the backdrop of SA’s existing socio-economic landscape means the Covid-19 pandemic has the potential to financially cripple a generation of young South Africans at the very start of their professional journeys.

She points out that, while Covid-19 has had a devastating impact on the global population, young people, in particular, are anticipated to be one of the most significant casualties of the pandemic.

According to the International Labour Organisation (ILO), past recessions have shown that young individuals are usually first to be laid off work, while three out of four work in the informal economy, with little or no social protection. In addition, youth are over-represented in sectors ravaged by the pandemic, such as hospitality, retail and tourism.

“Our research revealed that debt is the lived reality of many millennials. As the financial burden on them increases, so is debt expected to mount – creating a trap that they may struggle to escape,” says Hieckmann.

Chief executive of FNB Easy, Philani Potwana, says to alleviate financial pressures, consumers should fully utilise the free benefits they receive from their banks. These benefits could free up much needed cash in consumers’ wallets, if taken advantage of.

These free benefits could include free cash withdrawals; prepaid airtime for free; free “send money” transactions; free card swipes; free app usage; free data, voice minutes and SMSs; free medical, legal and financial advice.

“Despite the prevailing challenges, we believe there’s an opportunity for all customers to get maximum value from their banking relationship,” says Potwana.

According to Investec chief economist Annabel Bishop, the lagged effect of the very severe lockdown the SA economy has experienced this year has started to come through in the data. The number of individuals losing their salaries over June fell by -20.7% year-on-year, according to the latest BankservAfrica data, while May saw a figure closer to -14% y/y and April around only -1.0% y/y.

The BankservAfrica Take-home Index (BTPI) records the majority of payments from large corporates and a fair number of medium-sized firms that are served by payroll service providers and firm-owned payroll administrators. Bishop points out that the recent decrease of the index may, therefore, not reflect the full impact of salary declines on small firms.

“In South Africa, state subsidies to low income earners have assisted households, and many high income earners and savers have managed to subsist on savings, but the middle income band has been severely affected, with many sliding into poverty, in turn contributing to further severe weakening in economic activity as demand has reduced,” says Bishop.

“The private sector is seeing markedly lower levels of renumeration overall this year compared to last year, while civil servants do not see this collapse, managing to avoid their salaries being reduced by and large, and instead even having agitated via unions for higher levels of renumeration despite the collapse in government’s tax revenues this year.”

Covid-19 peak expected late August

By Khulekani Magubane for News24

Business for South Africa says it expects the national Covid-19 infection rate to peak during August 2020.

The business lobby group says South African businesses are likely to face additional job losses of about 1.5 million by the end of the year.

The group says it will take a minimum of two years for the South African economy to recover to pre-Covid-19 levels.

Business lobby group, Business for South Africa, has urged South Africans and businesses to continue with precautions in work and public life as the economic devastation wrought by the Covid-19 pandemic rages on.

In a statement released on Tuesday morning, B4SA said it expected the national Covid-19 infection rate to peak during August 2020, while daily mortalities will peak by late-August or early September.

B4SA said South African businesses were already in distress and it now expects about 1.5 million further job losses by the end of the year.

“The steep and dramatic surge in new infections indicates that we are now well along the upward trajectory of the infection curve, with South Africa recording the fifth highest number of confirmed Covid-19 cases in the world,” the group said.

The head of B4SA’s economic working group, Martin Kingston, said the organisation expected the infection rate to have “a long tail-off” and for the virus to remain a reality of daily life for up to two more years.

“Against our latest modelling scenarios, we expect that it will take a minimum of two years for the South African economy to recover to pre-Covid-19 levels, keeping in mind that South Africa’s economy was already weak at the start of 2020,” said Kingston.

Leadership and workplace culture could be “powerful factors” in ensuring employee and customer protection, said the group.

By Prinesha Naidoo and Monique Vanek for Bloomberg

South Africa’s economy probably contracted more than 30% in the second quarter when restrictions to curb the spread of the coronavirus shuttered almost all activity for five weeks, according to central bank forecasts.

The annualised drop in gross domestic product is forecast at 32.6% for the three months through June from the previous quarter, the Pretoria-based Reserve Bank said in an emailed response to a query. That would be the deepest quarterly decline since at least 1990. The central bank’s projection in its annual report that was released on June 29 shows the economy will expand on a quarterly basis in the three months through September, which means the technical recession will be over.

The economy contracted an annualised 2% in the three months through March, the first time since 2009 that a South African recession has lasted longer than two quarters. The slump was less than projected and economists including Kevin Lings of Stanlib Asset Management warned that the fall-off in the second quarter will be severe.

South Africa implemented a strict lockdown from March 27 to limit the spread of the pandemic. For five weeks, almost all activity except essential services was halted and most citizens were only allowed to leave their homes to buy food, seek medical care and collect welfare grants.

The restrictions were eased from May 1, allowing the phased reopening of some businesses and industries. Still, many companies have closed down permanently and some of those that have resumed operations are still limited as to which services they may offer.

The Reserve Bank sees the economy contracting by 7% this year and the National Treasury projects a 7.2% decline in output. That would be the most since the Great Depression, when GDP fell by 6.2% in 1931. The near-term economic outlook is highly dependent on the development of the coronavirus pandemic and the extent of restrictions on business activity to limit the spread, the central bank said in an annual report.

Tax increases are coming

According to a recent article by Business Tech,  Finance Minister Tito Mboweni has said that the National Treasury has no plans to boost certain taxes – even as the coronavirus decimates the nation’s finances.

  • Income tax – with a top tax rate of 45% – will not be hiked, as earners are already strained
  • Corporate taxes will likely not be hiked, as they already sit at 28%
  • VAT (currently 15%) will not be hiked as this move is unpopular within the ruling ANC, because it affects the country’s poorest people
  • There is the possibility of an inheritance tax
  • There is also the possibility of a so-called solidarity tax as a bid to raise additional finances, but this would be limited in duration
  • Mboweni said that government expects to miss its tax revenue target by over R300-billion this year

SA’s unemployment rate breaks 30%

Source: EWN

South Africa’s unemployment rate for the first quarter of this year rose by a percentage point to 30.1%.

The number of employed persons decreased by 38,000 to 16,4 million between January and March 2020, while the number of unemployed persons increased by 344,000 to 7,1 million compared to the fourth quarter of 2019.

South Africa’s unemployment rate increase by 1,0 percentage point to 30,1% in Q1:2020 compared to Q4:2019. The unemployment rate usually increases between Q4 and Q1 each year.

Chief economist at Stanlib, Kevin Lings, said that these numbers were exceptional.

“The unemployment rate from my perspective jumped quite substantially, it’s now at about 30%. What’s stood out in particular, is that in the past year, almost 900,000 more people have become unemployed and I think that is exceptional and it speaks to our inability to create jobs in a very low-growth environment.”

It’s important to note that these figures capture data from the first quarter of this year.

The rand stages a remarkable come-back

The rand has staged a remarkable recovery, gaining almost 200c against the dollar. It has bounced back from R19/$ in April to R16,61 as of Tuesday.

Here are five drivers pushing the rand from Covid-19 doldrums:

  • Quantitative easing – this occurs where central banks introduce new money into the money supply chain to support an economy. There has been a large volume of QE pumped into the system, which has seen financial markets increasingly look to invest into higher yielding assets, and with emerging market portfolio assets gaining from this investment flow, so emerging market currencies continue to strengthen substantially, she said.
  • US dollar weakness – the greenback is on the back foot currently and emerging market currencies like the rand are benefiting from the weakness.
  • Attractive yields – the rand is still attractive to yield-seekers. Many developed markets in the world have interest rates at zero or close to zero, investors worldwide are seeking yield. Despite our recent interest rate cuts, South Africa still offers some yield, which has helped the ZAR as the risk sentiment returned.
  • Positive moves on all the major equity indices – markets priced in a post-Covid-19 recovery have spurred on emerging market currencies, including the rand. As a commodity currency, the rand also benefited from strong metals prices. Commodity currencies are up by around 4% month-on-month, which show greater gains over June to date than in May.
  • Improving global financial market sentiment – the market is positive on prospects for global economic recovery.

Although the South African government has put a number of relief measures in place to help those adversely affected by the Covid-19 lockdown, the structures seem to be overwhelmed or not functioning at all.

The week before last, it was reported that not one of the channels for the application to the Covid-19 Social Relief of Distress (SRD) grant of R350 was functional. More than 4,9-million people have applied for the new grant but on Friday 22 May SASSA’s CEO, Busisiwe Memela-Khambula, confirmed that just ten people had been paid.

The TERS UIF application process caused headaches for many business owners in April. However, applications for the month of May have still not been opened, and the following message is displayed on the website:

A business contacted My Office News with the information that they had received an e-mail stating that:

Companies that are no longer in full lockdown from 1 May cannot apply for this relief fund. This option is only available if your company is still in full lockdown with no operations taking place.

This means that, although many companies will need financial assistance due to a lost of customers or rule changes during Level 4, they will not be able to access it.

The Reserve Bank partnered with National Treasury and large private banks to launch a R200-billion loan guarantee scheme, which aimed to extend loans to businesses with an annual turnover of less than R300-million for operational expenses.

However, businesses have to apply within a number of metrics set forth by the bank in question, and many are finding that the other available relief funds such as SAFT do not cover the salaries of employers, only employees.

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