The Jobs Drought
By Patrice Rassou, Head of Equities at Sanlam Investment Management
At the last Richemont results announcement, Johann Rupert stated, ‘It’s a terrible thing capping students when you know many of their careers will not exist in the future.’ Unemployment in South Africa is at a fourteen-year high and the economy is in recession. I find that similar questions are being posed in investment circles and by young South African job seekers: How do we grow the pie in order to reduce poverty and inequality?
Globally, we have witnessed a steady decline in the labour share of GDP but a closer look at the data reveals that low skilled jobs are being replaced by automation as companies seek to extract efficiencies. In addition, there is a trend to outsource support services, further weakening the bargaining power of less skilled workers compared to those permanently employed. On the other hand, highly skilled jobs are becoming more sought after as the demand for services increase across the economy. The bottom line is that if a task can be mechanised – be it in mining, manufacturing or administration, it probably will!
Already the Tech revolution has claimed some famous scalps. The market cap of Amazon, the online retailer, now outstrips that of the aggregate size of the seven largest traditional US retailers, including the global giant Walmart, owner of SA’s Massmart. That said, Walmart employs four times more people in US alone than Amazon does globally. In South Africa jobs in the primary sectors of mining and agriculture have been in steady decline with manufacturing employment being stagnant. The only bright light remains the services sector, which has grown from 50% to 75% of our economy in just over a decade. Our proprietary research at SIM shows a steady rise in productivity in the services economy while the mining & manufacturing sectors have found it hard to improve productivity, leading to continuous job shedding. The bad news for us is that the robots are already amongst us, with several financial services companies having introduced robotisation to digitise and automate tasks which would have traditionally been the domain of so-called support services. Robots work 24 hours a day, including week-ends, don’t get sick, don’t ask for raises and don’t go on strike… As long as you have back-up electricity, I should add!
In the South African context, we have also witnessed the trend of successful companies which are scaling up at a rapid pace to grab market share in their specific service niches. These are the companies experiencing high growth and creating jobs. One example is Curro, which has added 127 schools and plans to grow to 200 schools within three years to service 80 000 learners. Another is Dischem, which listed on the JSE last year and has grown to 108 stores from a single pharmacy in the south of Johannesburg in the late 1970s. They are planning to add 21 new stores next year and are testing new formats. Instead of adding to the unproductive civil service wage bill, policies should be focused on incentivising entrepreneurs who display the ability to grow businesses in order to avoid a jobless dystopian future.
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