Unemployment could rise to 40%, says National Treasury DG

The National Treasury’s Director General Dondo Mogajane has warned that the South African unemployment rate could rise to 40% as a result of lockdown measures. 

Speaking to Eusebius McKaiser on Monday 4 May, Mogajane tentatively suggested a catastrophic impact on the South African economy should the current projections play out. 

“As this has never happened, it’s very difficult to grasp what the effect will be on the South African economy. What we put into projection models, we want to be certain of,” he said. 

“It’s certain that the economy is going to contract, by how much we don’t know at this early stage. There are many other factors that could influence a projection.”

Growth depreciation and job losses  

Mogajane said that in his estimation, it was not unreasonable to suggest that unemployment levels in South Africa could rise to as much as 40%, with a massive drop in growth also likely to be incurred. 

“It could be that growth drops by around 7-8%,” he said. “All we know is that it’s going to be huge. In my personal opinion, without being able to provide a perfect data set, if things go the way they are, unemployment could reach between 30% and 40%. It depends on which sectors are affected.” 

Relief package about mitigating damage 

He said that “huge amounts of money” had been lost on the sale of alcohol and tobacco products while they have been banned during the lockdown, and warned that such losses in revenue were going to be incredibly difficult to recoup. 

He added that the ban, while financially devastating, was in the best interests of the health of South Africans.

“It is huge amounts [of under-received revenue] we are seeing.” 

“The reason for the ban is more important. It is a temporary set-back that we regret for now but the bigger gain is that the impact will be minimised. Those hospital beds will not be filled with unnecessary alcohol related cases as they would usually be.”

“As treasury, we miss the revenue, but I am fine with it.”

He said that the current relief package rolled out by President Cyril Ramaphosa was currently aimed at “cushioning” the impact of the pandemic, but said that an approach that would allow for restructuring and growth within the parameters of such a deal were still to come in forthcoming stages.

“The current relief package is about cushioning – we have to do what we have to do in the short term to cushion what is already a massive challenge. What do we do beyond that, we must come up with measures that accelerate critical structural reforms.” 

He said that reform should be focused on alleviating the plight of the country’s most vulnerable groups.

“There are structural challenges that we must deal with to look after our most vulnerable. Do we only preserve those that have jobs, or how do we expand this labour structure to accommodate those that want to come in and stop barriers to entry?” 

“We have to focus on a post-COVID-19 environment to know how the scene will look.”

Piling on the pressure  

Mogajane said that the current crisis was putting South Africa’s democracy under immense pressure, and said that while the impact of the virus has exposed social and financial inadequacies that exist in our society, that there were already major challenges to contend with. 

“The foundations of our democracy will be hugely impacted if we don’t address the problems quickly. With government topping up grants by R350 and so on, it is only a temporary solution. We need to ensure that we hit the targets for alleviating poverty that we need.” 

“The normal people people who are supposed to be working are not in a position to do so anymore. They cannot feed their families. Government needs to do everything it can to alleviate the problems. It’s not just COVID-19, it’s also the economic downgrades that are coming left, right and centre these days.” 

“We must cushion the impact. As more grants start flowing, we can see that there is progress being made.”