The Sukuma Fund has committed R1-billion to the saving of jobs in South Africa in the face of Covid-19’s path of economic destruction. Is this money well spent, or should the focus rather be on job creation in the post-Covid economy?
The answer is not either-or, but the numbers illustrate why saving jobs is important and powerful.
Figures published in a World Bank blog post in February 2018 show that job creation is not a cheap exercise.
The author of the post and a colleague used general equilibrium models to estimate the number of jobs that $10-million could create. Using Tunisia as an example, they found that with such an investment, one could create 300 jobs in sectors like trade, wood or construction, but less than 100 in the electrical or transportation sectors. That pegs the cost of a new job at somewhere between $33,000 and $100,000.
New jobs are expensive because they do not only involve the new employee’s cost to the company. To be productive, the worker needs equipment and infrastructure, and in many cases some form of training to meet the requirements of the position.
If the new job is created in a new enterprise, the cost skyrockets due to capital outlay and expenses related to registering the business, securing and equipping premises, buying stock, establishing a customer base, marketing and advertising, and much more.
The best estimate of the price tag for a new job in South Africa comes from the Jobs Fund, which reported in 2019 that it had created 170,000 permanent and 55,000 short-term jobs from 2011 to 2018. To do this, some R19-billion was spent. Working on these figures, the cost per job was just over R84,000. This compares favourably with the World Bank data for a permanent job; for a short-term job, however, it is expensive.
The cost of saving a job has not been similarly quantified, but there could be parallels with the quantum between retaining a customer and acquiring a new one. Common wisdom in the marketing profession pegs the differential at five times. Significantly, it is not only vastly cheaper to retain a customer; it has a direct bearing on profits too, with research suggesting that increasing customer retention rates by 5% boosts profits by 25% to 95%. One could extrapolate that keeping a going concern going would similarly translate into higher profits over a period of time than setting up a new enterprise.
Related research points to additional benefits of saving jobs. According to Adcorp, there is a direct link between people’s employability, or the likelihood of getting a job, and their length of employment. Eighteen percent of people with one year of work experience remain employed, compared to 15% of people with no work experience. Beyond that, employment prospects grow sharply: from 29.5% after five years to 48.7% after 10 years and a peak of roughly 74% after 25 years.
Saving jobs significantly improves people’s future prospects, not only because they continue to earn an income but because they become progressively more employable.
Against this backdrop, the Sukuma Fund delivers extraordinary value. To date, the average soft loan issued was R532,500 and, on average, saved 18 jobs per small and medium-sized enterprise. The cost per job saved amounts to just over R29,500. The average is never the full story, however. In at least one instance, a R1-million soft loan saved the jobs of 95 textile workers – at a cost of only R10,500 per job. The amplified economic value of this example cannot be overestimated: every employed person spends their wages and salaries on goods and services, and in most cases takes care of an estimated five dependants, ranging from children and parents to unemployed relatives.
Saving jobs not only makes financial sense; it maintains economic momentum, which is critical to preserve value in an economy while creating the platform for future growth. The Sukuma Fund’s focus might be on securing survival, but the value inherent in the jobs it is saving far exceeds the rand value of its investment. BM/DM
Become an Insider
Without structural reform of the labour and other related legislation, job creation will not be a priority and specifically for SMEs. There is simply to much potential risk and trauma associated with this. I also see many companies and organisations trimming employment levels post the lockdown level 2 as they have learned that they can actually do with fewer people and/or introduce alternatives to employing people directly.