Level 3 restrictions will cost one in 12 South Africans their job

An analysis of the impact of lockdown in South Africa, by Mike Schüssler and Phumlani Majozi

Nearly 1,4 million formal and informal jobs are at risk in the South African economy with the present level 3 restrictions directly impacting at least seven sectors.

These include sectors such as travel, tourism, entertainment, leisure, manufacturing, agriculture and service rendering not elsewhere classified.

The total number of people employed across these sectors equates to one in 12 jobs being directly at risk of destruction. If one includes family and dependents as a reflection of the normal size of households, the level 3 restrictions could impact millions more as they rely on the income of the breadwinner.

Because many breadwinners also support dependants outside the immediate family financially, the overall number of people impacted could be as much as 10% of the South African population.

Furthermore, it should be noted that South Africa is often credited with the highest unemployment rate in the world. The impact will thus be felt even if only half of the jobs at risk are destroyed.

Some provinces such as the Western and Northern Cape have even higher numbers: one in six jobs in the Western Cape and one in five in the Northern Cape are at risk.

While the Eastern Cape has only one in 13 jobs at risk, the impact could be greater, as the provincial extended unemployment rate could increase to close to 60%. Measured differently, the risk for the Eastern Cape is that only one in four adults will have a job if the jobs at risk are destroyed.

While metropolitan unemployment rates are generally lower than rural unemployment rates, all eight metros in the country could end up with extended unemployment rates above 40%. Nelson Mandela Bay for example, would have an unemployment rate of over 50%. Two other metros, namely Mangaung and Ekurhuleni, could have unemployment rates of close to 50%.

Employment Impact of current level 3 restrictions by province

Note: The base source was the QLFS with added data for barley, hops, wine/grape farming as well as annual reports for airports, railway services and data on Uber and Bolt from desktop research. Provincial split from QLFS and commercial survey of agriculture.

Limpopo and the Eastern Cape already have the highest unemployment rates in the country, so any, no matter how small, increase would have a devastating impact.

Overall, South African unemployment could rise from 43,1% to 51,6% within a year, driven by the potential level 3 job losses and increasing job seekers.

In addition to these unacceptable job losses, the level 3 restrictions are having detrimental repercussions for the turnover of industries as well.

The formal private sector turnover of industries impacted by the restrictions was R69 billion a month in 2019. According to annual financial statistics, the formal private sector is at risk of losing 8,1% of its turnover for every month that the restrictions remain. The estimated impact across these sectors is a reduction of at least 60% in turnover. This means that R41,4 billion is lost every month that the restrictions remain.

The formal salaries paid to employees in these sectors amount to R9,6 billion per month. Personal income tax is estimated at R1,5 billion per month. Adding agriculture and informal employee income would be close to R10,5 million.

The knock-on impact can be seen in the fact that these industries buy R38,7 billion worth of goods from other sectors every month, spend R1,5 million on advertising as well as fixed costs such as rent, leases and interest of R4,6 billion per month.

Moreover, these sectors pay R7,6 billion in taxes every month (excluding employees’ PAYE mentioned above). These taxes are made up of VAT, excise duties and company taxes.

The total taxes combined amount to well over R9 billion per month for the formal sector alone. Adding things like passenger taxes and tourism spent along with the informal sector VAT spent, the impact of the level 3 restrictions on the fiscus is certainly well over R10 billion per month.

The fact that the government extracts over R10 billion per month from these industries during normal times but cannot seem to find any funds to support them when they are in trouble, is economically short-sighted.

Keeping these businesses alive and operating as far as possible, while they take precautions against the COVID-19 pandemic, will help pay for the now bigger deficit, even in the short-term.

Over a maximum period of six years, a relief package that helps the whole industry for three months at a rate of just over R10 billion will have been more than paid back. Government relief on that scale will also mean that banks will be more likely to assist with restructuring of repayments and suppliers would also be able to assist with more finance.

Moreover, paying employees extra via TERS would also help a lot.

No one can go 10 months with restrictive earnings as a result of harsh restrictions without any government relief.

Government has a moral duty to not cause business failure, as well as to avoid mass hunger. It must immediately restore the economy and allow businesses to take the necessary hygienic precautions, without undue interference.