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Tech firms contribute to SA’s dire unemployment stats

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South African tech companies have contributed significantly to the high joblessness rate in the country this year.

Yesterday, Stats SA revealed that unemployment in South Africa rose to 30.1% in the first quarter of 2020. It points out that in the quarter, employment decreased by 38 000 to 16.4 million.

The number of unemployed persons increased by 344 000 to 7.1 million. As a result, the official unemployment rate increased by one percentage point compared to the fourth quarter of 2019, says Stats SA.

A net decline in total employment in the first quarter of 2020 was mainly driven by decreases in the number of people employed in the formal sector (50 000) and agriculture (21 000).

Since the beginning of the year, SA’s tech sector has seen a jobs bloodbath as companies tried to stay afloat amid a weak economy, or as a result of the impact of the COVID-19 pandemic, among other factors.

In January, before COVID-19 was an issue in SA, telecommunications giant Telkom communicated it was retrenching as many as 3 000 employees.

This was also the same month retail giant Massmart closed down its electronics units – DionWired and Masscash – leaving 1 400 people without jobs.

The trend continued in the ICT sector in May when systems integrator Dimension Data revealed that approximately 480 employees were to leave the business through a Section 189 process.

Last week, financially-constrained mobile operator Cell C became the latest to announce it was to let go of as much as 40% of its semi-skilled labour force.

Top managers were also not spared at the company, with some senior managers and executives at Cell C being pushed out.

Other entities that added pressure to SA’s already strained job market include public broadcaster SABC, with reports indicating that about 600 jobs are on the line at the state-owned company.

Industry-wide layoffs

However, the statistical agency says most industries experienced job losses in the first quarter of 2020 compared to the fourth quarter of 2019.

During this period, finance shed the most jobs (50 000), followed by community and social services (33 000), agriculture (21 000), transport (17 000), manufacturing (15 000), construction (7 000) and utilities (4 000).

In his newsletter on Monday, president Cyril Ramaphosa said more than 100 days after the outbreak of the coronavirus pandemic in SA and after two months of a nation-wide lockdown, the economy is in the throes of the anticipated fallout from this global crisis.

He pointed out that the predictions of businesses shutting down and jobs being lost are materialising.

This is not unique to SA, as globally, there has been widespread layoffs, pay cuts and furloughs at IT vendors, and there is more economic pain on the horizon, says GlobalData.

The data and analytics company reports that, as of the end of May, the number of active jobs in the technology and telecommunications field was down 36.2% as compared with the same time last year.

Steven Schuchart, principal analyst at GlobalData, comments: “Times are tough for enterprise IT vendors. The economic downturn as a result of the COVID-19 pandemic has hit them hard. Some IT vendors, particularly the ones involved in cloud or collaboration, have seen great increases in business, but the traditional vendors and start-ups are taking a beating.”

Ramaphosa noted: “In April, the International Labour Organisation forecast there would be around 305 million job losses worldwide. The situation of workers in the informal economy is even worse, with an estimated 1.6 billion workers in danger of losing their livelihoods.”

Independent analyst and researcher Dr Charley Lewis.
Independent analyst and researcher Dr Charley Lewis.

Shattering the norm

Independent telecoms analyst and researcher Dr Charley Lewis says: “Retrenchments are going to be an ongoing theme this year, period. COVID-19 has thrown a curved ball down the bowling alley of business in entirely unanticipated ways, and has altered unpredictably the parameters of the marketplace.”

Lewis sees company responses to the exigencies of COVID-19 as loosely falling into three categories.

First, he explains there are companies whose business models have been fundamentally destroyed or deeply vitiated by lockdowns and other responses to the COVID-19 crisis.

“Restaurants and airlines are prime examples, with hundreds of eateries folding, and airlines far better managed than SAA [South African Airways] going to the wall. Closures, bankruptcies and unemployment stare these firms in the face.”

Conversely, he adds, there are companies whose product and business models are ideally positioned to benefit from the changes wrought by COVID-19. Video-conferencing platform Zoom is the pre-eminent example.

“Thirdly, are the companies that need to reposition their offering, rejig their operations, or refocus their strategies – either in order to survive COVID-19, or to exploit the opportunities the crisis may offer.

“Among this grouping are companies in already precarious positions, under financial bottom line and business model pressures, where the resources to adapt to the additional impacts of COVID-19 may not be there. Think SAA, SABC, Cell C, and possibly Telkom too.”

According to Lewis, while the pandemic has been a boon to many companies in the ICT space, and the demand for broadband data, for both business and leisure, and for a range of e-transactions, has spiked, not all are well-positioned to take advantage of these shifts in the market.

Lulama Qongqo, investment analyst at Mergence Investment Managers.
Lulama Qongqo, investment analyst at Mergence Investment Managers.

Casualties of poor planning

Commenting on job cuts at Telkom, Lulama Qongqo, investment analyst at Mergence Investment Managers, says: “I do think that job cuts at Telkom relating to the strategy of decreasing their fixed-line portion of the business is justified to some degree.

“It wouldn’t make sense to continue to have a bloated wage bill dedicated to a division that contributes a smaller portion to the business over time, as fixed-line loses share to mobile due to structural changes in the sector.”

She adds that the other side of the coin though is that Telkom, as a responsible corporate citizen, should have planned ahead as it knew very well that some roles would become redundant in the future.

“They could have retrained the staff members and helped them obtain new skills that enable them to add value in high growth and high return divisions within the company.”

Qongqo points out that the reason given by Dimension Data for job losses was that it wanted to remove duplicated roles as it streamlined the business.

“The same could be said here – they could have helped employees to find new ways of adding value at the company. I think that job cuts, in some contexts, are short-sighted because the retrenchment process is expensive; and hiring new people that are aligned to the new strategy is also expensive in the form of candidate search time, cost of hiring and cost of integrating new people into the company,” she says.

Meanwhile, Aubrey Tshabalala, general secretary at labour body Communication Workers Union, says: “We are witnessing a number of employers taking advantage of the [COVID-19] situation by retrenching workers.

“Others have been having problems way before the COVID-19 outbreak. However, they are seizing this opportunity as a scapegoat for their poor management. Cell C is a classic example; they’re now proposing to retrench more than 900 workers and only attributing this to a fact that the company was not making good returns.”

Tshabalala says COVID-19 has, in fact, highlighted the importance of re-skilling and upskilling of the labour force, and how important it is to make businesses competitive in this fast-moving digital economy.

“Backward management that has always relied on retrenchments to improve profit margins like Telkom has now been exposed,” he concludes.

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