Misery: What do the numbers say?

It came as a great shock this week to find out that our local labour market is not just struggling, but that the situation has also worsened, with our unemployment rate having risen from 29.1% at the end of 2019 to 32.6% in the first quarter of 2021. Let’s put this into context:

  • Of course, we are still an emerging country. In other words, South Africa is a lot like a young child that still needs to grow into its shoes. We know that this won’t happen overnight, but to go from an already high rate of 24.8% 10 years ago to the current 32.6% means that something somewhere has gone very wrong.
  • According to Stats SA the current number of unemployed people amounts to 7.242 million in South Africa. In context – if we add together all employed people currently living in the Eastern Cape, Northern Cape, Free State, North West province, Mpumalanga and Limpopo, only 5.631 million people have jobs. This means that there are more people without jobs currently living in South Africa than people who have jobs in all six of these provinces combined.

In 1962 well-known economist, Arthur Okun, found that a 1% increase in the US unemployment rate had an approximate 2% negative effect on GDP. He developed the Misery Index, through which he added the US unemployment rate to the country’s inflation rate, which in theory showed that the higher this figure, the greater the level of misery the country found itself in.

Why would we measure misery?

  1. It makes sense that a country that has a higher unemployment rate would be more miserable.
  2. Inflation represents the rate at which prices increase on goods that we as consumers buy and use. There’s no need to explain why we as electricity consumers feel more miserable than ever for paying more than three times the price of electricity 10 years ago.

How is South Africa doing?

Just how ‘happy’ is South Africa according to Okun’s Misery Index? In short, we’re extremely miserable. In fact, based on the most recent unemployment and inflation rates, South Africa’s misery levels are the highest they’ve been since 2003 (i.e., 18 years). According to well-known economist, Steve H. Hanke, we have been the 12th most miserable country in the world (of 156 countries) up until the end of 2020.

Graph 1: Misery Index South Africa (source: Refinitiv Eikon & @SchalkLouw)

As a country, we have the people, the intellect, the resources and the rest of the world behind us to make this South Africa a roaring success.

Where to now?

The solution to our misery is a two-way street. As an investor, it’s either left of right. If South Africa’s rating on this index is not going to improve over the long term, investors (both local and abroad) may not have much of a choice other than to find salvation in other countries. To prevent this or at least improve on this forecast, our “management” (government) has to do two things: firstly, they need to create jobs urgently and secondly, they need to pursue economic growth of at least three to four times our current growth rate.

It’s important to mention that we have been here in the past. Back then in 2003, it was a lot like the environment we currently find ourselves in. We made it through a very difficult five-year period (1998-2003) where we saw unemployment figures rise from levels of around 25% to more than 31%. We also found ourselves at the beginning of a commodity cycle that turned positive, and that helped the SA unemployment rate to decline by 21.5% five years later. Make no mistake – I’m not saying that history will repeat itself, but it does show us how much and how quickly things actually can improve.

We have the benefit of knowing exactly what the problems are. Now it’s just a matter of fixing them. This is a country that, amongst other sports, shines on the rugby and cricket fields by competing and winning against the best of the best. The time has come to implement the same on an economic front.

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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