Jobs, short-term profits on the line as regulatory pressure mounts
In October 2010 government announced details of an ambitious plan to bolster the domestic economy and create five million jobs over the next decade. But government’s New Growth Plan (NGP) is riddled with contradictions. It calls for stronger production and manufacturing on the back of a weaker rand and lower interest rates. That’s the first contradiction, because a weak currency drives inflation higher, taking interest rates along with it. The NGP also calls for a clampdown on government expenditure... Unfortunately the recent ‘improvements’ in labour statistics stem from massive public sector hiring. The wage ‘bill’ has doubled over the past five years – and with workers set to strike for more we cannot see how government expenditure can be ‘cut’ without cutting their already bloated workforce.
Despite government’s efforts the Labour Force Survey Q1 2011 confirms that reveals South Africa’s unemployment rate is once again above 25%! According to Statistics SA there were 32.314 million people aged between 15 and 64 years in the country. Among these people: 17.482 million were economically active, 13.118 million were employed, and 4.364 million were unemployed. The number of discouraged jobseekers, those capable of working but no longer actively seeking an employment outcome, surged by another 73 000, “Worryingly, the number of discouraged work seekers continues to rise, increasing by 353 000 over the past year… And the labour absorption rate (percentage of people at working age with jobs) remains extremely low at 40.6% in Q1 2011,” observes Kevin Lings, chief economist at Stanlib.
Unpacking the jobs dilemma
Lings says the NGP is a worthy but ambitious project. Does it address the major contributors to rising unemployment? The labour survey trends established over the past few periods show that formal jobs are being created by the public rather than private sector. Economists will tell you that government’s role is to create conditions conducive to employment rather than offer jobs. “Government policy will [have to] increasingly focus on how to create these jobs in the private sector, and not merely look to add jobs in an already bloated public sector,” he says.
Lings questions whether the growth plan offers the “broad and holistic” solution the country needs to address the problem. “The country has experienced positive economic growth for seven consecutive quarters (including a gain in Q1 2011), is benefiting from 37-year low interest rates and recently hosted one of the greatest sporting events in the world; all of which should ideally have led to a better employment outcome,” he says. “Clearly, job creation is not merely a function of interest rates or the cost of capital…” A total solution requires significant changes in fiscal policy, labour policy, education policy, competition policy, industrial policy, trade policy, exchange rate policy etc.
Government needs to pay closer attention to rumblings from the private sector. The country’s small and emerging entities have long complained of compliance red tape and restrictive labour polices… And more recently the country’s major short-term insurers raised concerns over the impact of legislation on the domestic business environment too. The South Africa Market Watch, one of Alexander Forbes’ signature insurance industry publications, records the views of chief executives and managing directors at some of the country’s leading short-term insurers.
Fewer new hires because companies are too busy with compliance
Ian Kirk, chief executive of Santam, indicated that growing a business during slow economic times was made more difficult by operating in one of the most regulated industries in the world. The global banking crisis “has seen the insurance industry become even more regulated in response to consumer demands for financial market stability” said Kirk. In recent times local insurers have had to accommodate the Insurance Laws Amendment Act (ILAA), the FAIS General Code of Conduct (plus Conflict of Interest), SAM/Solvency II and the Consumer Protection Act, among others.
According to Peter Todd, MD of Mutual & Federal, these legislative changes would see a shift in the relationship between insurance companies, customers and brokers. The ILAA makes insurers accountable for the activities that they outsource to brokers and other third parties. “This will force insurers to disclose whether the broker is independent or acting as the agent for the insurer,” said Todd. Conflict of Interest regulation will put a stop to prejudicial (to the consumer) remuneration of brokers by insurers.
Although insurers welcome the positive changes the various legislations have introduced, they remain concerned about the cost implications. Adam Samie of Lion of Africa Insurance said “the cost of regulatory compliance was set to skyrocket as [stakeholders acquired] the professional staff, including actuaries, risk managers and the external consultants needed for the implementation of new legislation.” Escalating compliance costs will lead to dominant players in the insurance industry merging with or acquiring their competitors. Herman Schoeman of Guardrisk observed: “the costs of compliance, as well as the new capitalisation requirements will impact on both the industry’s structure and the operational architecture of insurance companies.”
Editor’s thoughts: Regulatory changes in the financial services industry will probably create a scattering of employment opportunities for highly skilled individuals. But the job creation war must be fought at the front line, where unskilled workers battle it out for low-income opportunities. Is there a quick fix for South Africa’s unemployment problem? Please add your comment below, or send it to gareth@fanews.co.za
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