Economy Politics

Measuring misery – what the numbers say

It is with shock that we learnt recently that not only is our local labour market still struggling, but that the situation has also worsened, with unemployment figures for the second quarter of 2018 showing an increase to 27.2% from last quarter’s 26.7%. But let’s dig a little deeper to place this in context:

  • Obviously, we are a developing country. South Africa is, effectively, much like a young child that still needs to grow into his/her shoes. We know this won’t happen overnight, but an increase to 27.2% from an already high unemployment rate of 22.6% 10 years ago, means someone somewhere is making huge mistakes.
  • According to Statistics SA, the current total number of unemployed people in South Africa amounts to roughly 6.08 million. To give you some perspective – if we add all individuals who currently have jobs together in the Eastern Cape, Northern Cape, Freestate, North West, Mpumalanga and Limpopo provinces, you would find that only 6.13 million people have jobs. That means that there is almost the same amount of people without jobs in South Africa, as there are people with jobs in all six of these provinces.

In 1962, well-known economist, Arthur Okun, found that a 1% increase in the US unemployment rate had an approximately 2% negative effect on GDP.  He developed the Misery Index, in which he basically added the USA’s unemployment rate to its inflation rate, and which, in theory should point out the amount of misery the country was experiencing. The higher the figure, the more miserable the country.

Why would we measure misery?

  1. It goes without saying that if one country has a higher unemployment rate than another, that that country would be more miserable than the latter.
  2. Inflation indicates how sharply prices rise on the goods that we as consumers buy and use. I doubt whether I have to explain exactly why I feel miserable when today I have to pay more than three times the price of electricity of 10 years ago.

How is South Africa doing?

How “happy” are we as South Africans according to Okun’s Misery Index? In short, very miserable. According to a Bloomberg survey at the beginning of 2018, we were the fourth most miserable country in the world as at the end of 2017. One can understand why experts were upset when according to consensus, it was said that things won’t be getting any better, and that further weakening was expected towards the end of 2018, which may even leave South Africa in second place.

Table 1: Expected Misery Indices for 2018 (source: Bloomberg News Surveys)

Lagging behind countries like Argentina, Brazil, Greece and even the war-torn Ukraine, is disappointing. As a country, we have the people, the intellect, the resources and amazing support from the rest of the world to reach great heights. It is just so disappointing to not see any form of improvement over the last five years.

Grafiek 1: SA Ellende Indeks oor laaste 5 jaar (bron: PSG Old Oak & I-net)

Where to now?

The solution to our misery is a two-way street: as an investor, it’s either left or right. If South Africa doesn’t improve its rating on this index, it may mean that investors, both locally and abroad, would be better off finding salvation in other countries. If we want to improve these dire prospects, our “management” (government) have to make two very important changes: to urgently create jobs and to pursue economic growth at least three or four times higher than current figures.

The upside to this is that we know what the problems are, its just a matter of fixing them. As a country, we love to compete with the best of the best in rugby, cricket and soccer matches, to name but a few sports. The time has come for us to become just as competitive on an economic level.


The opinions expressed in this blog are the opinions of the writer and not necessarily those of PSG. These opinions do not constitute advice.  This is intended as general information and does not form part of any financial, tax, legal or investment related advice. Although the utmost care has been taken in the research and preparation of this blog, no responsibility can be taken for any actions taken based on the information contained herein. Since individual needs and risk profiles differ, it is always advisable to consult a qualified financial adviser before taking action.

Schalk Louw
As Portfolio Manager at PSG Wealth Old Oak and with over 20 years’ experience in the investment industry, Schalk has consistently delivered solid returns to his clients and has certainly become one of South Africa’s most well-known strategists. He started his career in 1994 at the stockbroking company, Huysamer Stals (later ABN Amro). He joined SMK Securities in 1997, (later became BoE Personal Stockbrokers) and was later appointed as director and branch manager. In 2001 he co-founded Contego Asset Management and managed the company as CEO up to March 2014, after which he joined PSG Wealth Old Oak. Schalk has also become a regular household name with investors, with his reports being published in many of the national press. He completed his MBA in 2008.

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