High unemployment figures make for a miserable country

In 1962, well-known American economist, Arthur Orkun, found that a 1% rise in unemployment figures had an approximate 2% adverse effect on the country’s GDP. He developed the Misery Index by adding the US unemployment rate to the inflation rate, the result of which should point out just how miserable the country is. The higher the figure, the more miserable the country. In the late 2000s, economist Prof. Steven Hanke refined this index for use outside of the US by adding the country’s prime lending rate to Orkun’s calculation and then subtracting the year-on-year-capita GDP growth percentage.

Why measure misery, though?

  1. It goes without saying that a country with a higher unemployment rate would be more miserable in general.
  2. Inflation indicates how sharply the prices rise on goods that consumers buy and use. I, therefore, don’t have to explain why I feel miserable for paying 350% more for electricity today than I did 10 years ago.
  3. SA personal debt levels as a percentage of personal income still stands at around 72%. The higher the Reserve Bank pushes the prime rate, the more miserable we will become.
  4. GDP indicates the country’s economic growth as a whole. The lower this rate, the bigger the struggle the country is facing (mainly influenced by points 1-3 above). Our current year-on-year GDP growth rate is 1.1%, while the African continent has grown by roughly 3.7% over the same period and the top 10 emerging countries have grown by an average of 3.6%. Judging by these figures, the reason for South Africa’s miserable situation is clear.

How is South Africa doing?

According to Hanke’s Misery Index then, just how “happy” is South Africa exactly?  At the end of 2014, we were in 10th position out of 108 countries and even countries like Sudan and Greece performed better. The most recent report, unfortunately, paints an even grimmer picture as South Africa now finds itself in 7th place out of 95 countries on the Misery Index.

To add to Prof. Hanke’s report, I decided to compare the top 10 largest African countries (based on GDP size) and the top 10 emerging countries’ misery figures to one another in order to gain more perspective.

Table 1: Misery Index – top 10 largest African countries (source: @SchalkLouw &

The results delivered no good news. Out of these 10 countries, South Africa is the 3rd most miserable, and the main reason for this misery is our high unemployment rate. South Africa has the highest unemployment rate of all 10 countries. In fact, at 27.1%, our unemployment rate is more than double the average of the remaining 10 countries’ unemployment rate (13%).

Graph 1: SA Misery Index vs. rand/US$ (source: PSG Old Oak & Iress)

It is also very interesting to see that when we compare the SA Misery Index to our currency, there is a massive correlation between the weakening of the rand and the weakening of our position on the Misery Index.

What do we do now?

The solution to our misery problem is a two-way street: as an investor, you can either go left of right. If our position on this index does not improve over the long term, both local and offshore investors would likely be better of finding salvation in other countries. In order to improve these dire prospects, our government will have to focus intently on two aspects: job creation as a matter of urgency and pursuing economic growth close to three times our current growth figures.

On the upside, we have identified these problems already, it’s now just a matter of solving them. After all, South Africa loves to compete with the best of the best on the rugby, cricket and soccer fields. The time has come to do the same 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 actions taken based on the information contained in this blog. 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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