A BAKKIE drives off after loading unemployed builders and painters from the side of the road in Cape Town. Small businesses are vital job creators, but many require growth capital to do this effectively. Photo: EPA
JOHANNESBURG – Fitch Solutions, a unit of the Fitch Group, yesterday warned that South Africa’s high level of unemployment would continue to weigh on private consumption and real gross domestic product (GDP) growth in 2019.

The firm said in a research note that a weak macroeconomic backdrop and poor labour market conditions elevate risks to social stability. “We forecast an average unemployment rate of 26.3 percent in 2019, remaining above the average of 25.2 percent recorded since 2008,” Fitch said.

“We expect structural constraints to economic reforms - including the potential restructuring of highly indebted state-owned enterprises such as power-utility firm Eskom - will continue to weigh on business investment and employment levels in 2019.”

Fitch’s country risk index, which evaluated political stability and economic outlook as well as long-term potential and operational barriers to doing business, scored South Africa above the regional and global average.

Capital Economics economist John Ashbourne said South Africa’s unemployment rate continued to be a result of structural factors.

“Many factors are at work, but we think that one of the most important is the skills mismatch in the economy - and the failing education system that perpetuates it,” Ashbourne said

In February, Statistics South Africa said its Quarterly Labour Force Survey for the fourth quarter of 2018 showed that the unemployment rate decreased by 0.4percent to 27.1 percent.

However, it said the labour market remained under pressure, mainly against the backdrop of weak economic growth - with the economy having not grown above 2 percent since 2013.

Fitch further warned that high unemployment in 2019 would slow growth in private consumption, limiting the expansion of domestic demand and thus further weighing on South Africa’s GDP prospects this year.

“Crucially, given that only 43.3 percent of the working-age population is employed, and that youth unemployment has risen to 54.7 percent, economic growth is likely to remain below its potential until those who are willing and able to work are better integrated into the economy.”

The National Development Plan’s (NDP) target to slash unemployment to 14percent by 2020 and to 6percent by 2030 seems to have fallen flat as the economy remains in the doldrums. To ignite economic growth, the NDP has set a target of 90percent of new employment opportunities to be created by 2030 to come from small businesses. However, a study by the World Bank and the National Treasury released last month showed the finance gap between supply and demand in the micro, small and medium enterprises sector in South Africa to be $30 billion (R417.41bn).

Tanya van Lill, the chief executive of the South African Venture Capital Association, said South Africa had to use venture capital (VC) industry to enable entrepreneurs to expand their businesses and to drive employment opportunities.

“While small businesses are vital job creators, many require growth capital to do this effectively. And because young companies generally don’t have access to more traditional sources of funding, investments by VC firms become an essential form of financing,” Van Lill said.