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EDITOR’S NOTES

This has been another frantic quarter. Brexit has come and the UK has
gone, and while any hint of global negativity normally sends the Rand
spiralling downwards, surprisingly it has not been the case this time.
The Rand strengthened some 20% against the British Pound, from R23
to below R19 per sterling, some 10% against the US Dollar, and the
All Share Index (ALSI) recovered just about all its losses in response
to Brexit. The rapid appreciation of the Rand does not bode well for
South African exporters (particularly Western Cape agri-exporters),
but it does bode well for motorists and inflation.

South African employment growth turned negative in the first quarter, recording a
decline of 15 000 formal non-agricultural jobs, and employee gross earnings declined
by 4% (or R22 billion). Quarter-on-quarter Trade showed the largest decline in jobs
(–36 000) and Community Services the largest expansion (44 000). Business Services was
the only sector in which gross earnings grew (R3.7 billion), with Trade and Manufacturing
declining most (–R7 billion and –R6.3 billion, respectively).
Job losses are particularly concerning, because even though Standard & Poor’s kept South
Africa’s credit rating one notch above sub-investment (junk) grade, the rating agency
warned that if growth does not improve, the country could still lose its investment grade
status. Given the Reserve Bank’s expectation of no growth over the next twelve months, it
does not bode well for South African debt costs if S&P does downgrade our debt. It must
be said that National Treasury is implementing a very austere fiscal stance that may sway
the S&P in our favour. It is also likely that much of our debt is priced at sub-investment
grade already and the impact of a downgrade may not be as severe as we expect. PROVINCIAL OUTLOOK NATIONAL OUTLOOK GLOBAL OUTLOOK GAP HOUSING INVESTOR NARRATIVE SPOT THE OPPORTUNITY PORTFOLIO INSIGHTS KHULISA NEWSLETTER ELECTRIC VEHICLES ENERGY SECURITY LOOKING AT GDP

As noteworthy as these events are, they pale in comparison to the threat presented to
jobs by what is now known as the fourth wave of industrialisation. Jobless growth is not
only a South African phenomenon; more countries are reporting similar trends. The BBC
reported that Foxconn, the world’s largest electronics manufacturer, reduced the number
of employees in one factory from 110 000 to 50 000 with the introduction of robots.

Creative destruction, as the Austrian economist Joseph Schumpeter coined it, is simple and
easy to understand, but its impact can be devastating. When the automobile replaced
the horse as the primary mode of transport, jobs related to stabling, horse rearing activities,
blacksmiths, the horse feeding industry, and saddle and cart activities, were all rendered
pretty much worthless. Schumpeter argued that it was innovation, through competition, in
the capitalist system that was the real force for growth and the associated sustained long-
term economic growth and the real force behind sustained increases in wellbeing, and up
to now he appears to have been right.
In the past, whenever jobs and industries were creatively destroyed, it was accompanied
by new jobs that could not be handled by machines. Labour productivity increased
significantly, as did incomes. Nowadays robots and sophisticated software are replacing
jobs faster than the disruptions create new jobs. One of the single largest occupations
in the US is truck driving, with a total of 3.5 million drivers. Last year a number of truck
manufacturers, including Volvo, completed a week-long test of autonomous driving
across Europe. This one innovation alone will render 3.5 million jobs in the US redundant.

QUARTERLY ECONOMIC BULLETIN 2016 3