Unemployment continues to rise, dumping households into debt

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29 September 2021, Johannesburg, South Africa – The news that jobs in the formal non-agricultural sector decreased by 86 000 in the second quarter of 2021 is yet another blow to punch-drunk South Africans. The latest Quarterly Employment Statistics from Statistics South Africa (Stats SA) points towards the continued impact of Covid-19 on South Africa’s stagnant economy.

Total employment decreased from 9 652 000 in March 2021 to 9 566 000 in June 2021, with the community services industry (-65 000 or -2,3%) and manufacturing (-15 000 or -1,4%) the main sectors taking a knock.

While formal sector jobs increased by 60 000 compared to the same period last year, it must be noted that April through to June 2020 saw the largest job losses in recent years, with President Cyril Ramaphosa starting the lockdown on 26 March 2020. Unfortunately, full-time employment decreased by 27 000 or (-0,3%) quarter-on-quarter, with a decline of 17 000 (-0,2%) year-on-year between June 2020 and June 2021.

Chief Economist of the Efficient Group, Dawie Roodt believes the job losses do not come as much of a surprise. “Although the economy is growing quite fast, there are many technical reasons for this. One is that 2020 was such a horrible year, and the other being that we’re seeing a huge growth in primarily the mining sector. But the rest of the economy is pretty much in the doldrums and will remain like that for some time,” Roodt notes.  

Households struggling to cope

According to Neil Roets, CEO of Debt Rescue, the 86 000 quarterly job losses could have devastating consequences for many households. “Very few households in South Africa have the savings to tap into to deal with unemployment, often borrowing money simply to survive. As can be expected, families will cut back on expenses, foregoing life or car insurance, or cancelling retirement annuities to cover the basics. Vehicle loan repayments also suffer as the focus quickly narrows down to avoid defaulting on a home loan, or to simply have the money to pay for rent,” states Roets.

The job losses also have broader implications for the economy. For the government this could mean a fall in tax revenue as unemployment increases, while decreased household spending also means less VAT. An increase in consumers borrowing money can be expected, but Roodt believes going forward financial institutions will be more reserved when lending money to consumers.

This, however, will not stop many consumers succumbing to increased debt. “Many households find themselves in a debt spiral, as they max out credit cards or stretch store credit to the limit. They borrow money from banks through personal loans, and when this avenue is not available less scrupulous sources such as mashonisa loans with particularly high interest rates are tried. The compounding financial and mental implications of household debt are simply too much to deal with for some, notes Roets.

Future insights

Roodt is concerned about future economic growth. “South Africa’s economy might be growing this year, but I believe we will see economic growth well below 2% from next year onwards. This simply means that unemployment levels will remain elevated until we change a number of macroeconomic policies,” Roodt concludes.

The economic forecasts are not looking good and South Africans will be required to pull the belt even tighter. “The next quarterly result from Stats SA will reflect the devastating impact of the July riots on the broader employment rate. With many businesses destroyed or looted, increased job losses will be inevitable as companies had to be closed and employees let go. This will see even more consumers succumbing to debt,” Roets notes.

Luckily South Africa makes provision for debt counselling, offering a way out for those who are over indebted. “By talking to a debt counsellor, consumers can see if they qualify for debt counselling. This allows for the negotiation with creditors to allow for an extension of the repayment period alongside smaller payments, providing a much-needed relief from the debt spiral,” Roets concludes. 

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