On Monday, South Africa-based Massmart Holdings announced plans to cut up to 1,440 jobs amidst plans to close some stores as it struggles to grow sales in a tough economy.
According to a statement made by the retailer, it had started consultations with unions and other stakeholders around the closure of up to 34 stores, following a review that identified a number of outlets that were underperforming. The identified outlets sum up to a total of 34 Dion-Wired and Masscash stores and approximately 1 440 employees are potentially affected by this process.
Dion-Wired is Massmart’s electronics and appliances subsidiary, while Masscash is its wholesale division including cash and carry food and cosmetics outlets. Massmart shares, sank to a 13-year low last year after the retailer issued a profit warning, were up 2.4 percent.
With the possible layoff of staff, the unemployment rate increases in South Africa. Over time, South Africa has been battling with the issue of unemployment. In the third quarter(Q3) of 2019, the unemployment rate edged up to 29.1 percent, the highest level since comparable data began in Q1 2008, matching market expectations.
The number of unemployed rose by 78 thousand to 6.73 million while employment increased by 62 thousand to 16.38 million. A year earlier, the jobless rate was lower at 27.5 percent. Unemployment Rate in South Africa averaged 25.77 percent from 2000 until 2019, reaching an all-time high of 31.20 percent in the first quarter of 2003 and a record low of 21.50 percent in the fourth quarter of 2008
However, the unemployment rate can be attributed to some factors such as a combination of poor government policies which are deterring investment. Also according to reports, demographics are at play here.
The economy is not growing quickly enough or creating enough jobs to absorb new entrants into the labour market, many of whom are unskilled.
The government has embarked on a campaign to create jobs and investments, but the figures show no improvement. Despite ample political will and willingness by key stakeholders including business, labour, civil society and government to collaborate in finding sustainable solutions to the issue of unemployment, there has been little progress made.
Another factor is the net rate at which people enter the labour market exceeding the rate of job creation, leading to having both more employed people and more unemployed people simultaneously.
More so, the educational system in South Africa is another cause of the problem. This is visible in the ever-widening earnings distribution that is driven by extremely high wage growth for people with a tertiary qualification.
In the last 10 years, severe power cuts in South Africa have caused several companies to shut down, leading to a decline in economic activities. The power cuts have led to either slow production and the shutdown of businesses across the country, especially the mining companies.
In December, mining companies like Harmony Gold, Impala Platinum and Sibanye-Stillwater all said that they had been forced to cut production because of power shortages, leaving its workers jobless.
Investors are however wary of risks that might affect their return on investments such as threats to property rights, social and political instability, and corruption. If people are not willing to invest in a country, it is almost impossible to generate new jobs.
By Faith Ikade
