Dire economic outlook could lead to more job losses in South Africa

You may be excused for thinking things couldn’t get any worse in South Africa. The sad, indeed frightening reality is that it does.

The residual global economic fallout following two and a half years of Covid-19, the Russian/Ukrainian war, the South African government’s preoccupation with Russia, and its inability to take decisive, remedial action in addressing the protracted load-shedding debacle has all but decimated the South African economy, culminating in the value of the ZAR dropping to an all-time low compared to all major global currencies.

This entirely disastrous state of affairs has further contributed to the ever-increasing levels of fiscal and economic uncertainty and instability in the country and has frightened off potential international investors. The economic outlook appears decidedly bleak. The real tragedy is, of course, the government's inability and/or unwillingness to do anything about the

situation.

Lack of leadership

Cyril Ramaphosa’s lack of coherent answers as to whether SA supplied arms to Russia and his government’s intended circumvention of the International Criminal Court’s directive to arrest Vladimir Putin should he set foot on South Africa’s soil has exacerbated an already dire political, economic, and financial situation in SA, and has done nothing to inspire foreign investment. In effect, through his actions or inactions, he has given the middle finger to any potential investors.

Investor confidence is at an all-time low and the economy is in an unabated downward spiral – yet no one in government seems to care. The cost of living is at an all-time high, unemployment rates are at an all-time high, and crime remains high. Whilst all this is happening, the country is looking down the barrel of a full-year recession. Projections for economic growth are currently sitting at ‘very low to nothing’ according to the Bureau for Economic Research (BER).

The BER said its current projection for SA’s full-year GDP growth in 2023 is sitting at 0.2%, whilst the South African Reserve Bank (SARB) recently revised its estimate to 0.3%. Analysts are awaiting the first-quarter GDP data to ascertain whether South Africa has indeed been able to dodge a technical recession.

A consequence of the foregoing is the inevitable increase in interest rates. The consequence of raising interest rates is that this impacts negatively on a business’s cash flow which is decreased, whilst revenue is also negatively impacted as consumers have less money to spend on goods and services. The cumulative effect of this adds tremendous strain on any business.

On 25 May 2023, the South African Reserve Bank (SARB) raised interest rates yet again by another 50 basis points, taking the prime lending rate to 11.75% marking the tenth such hike in the rate hike cycle which started in November 2021, and which totals an increase of 475 basis points over the past two years.

The consequences for businesses

As a consequence of the above, some employers may well be forced to restructure their businesses. Typically, a restructuring of a business leads to retrenchments, thus protecting the financial stability and sustainability of the business, optimisation of the business’s human resources, and ensuring most of the business’ employees remain employed.

Retrenchment, or the termination of an employee’s employment on the basis of the business’s operational requirements, must be conducted in accordance with Sect. 189 of the Labour Relations Act. Compliance with this section of the LRA is non-negotiable.

The ‘operational requirements’ of a business are based on the economic, technological, and structural needs of the employer. Under no circumstance should pre-existing HR issues such as misconduct or poor work performance be ‘dealt’ with under the guise of a retrenchment process.

Employers are urged to seek expert advice and guidance when contemplating embarking on a retrenchment process.

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