Despite Downturn, Skilled Workers Still Lacking in South Africa's Construction and Mining Sectors

While the supply of labor is overabundant in South Africa, with unemployment edging up in the third quarter to 23.2%, labor conditions in the mining and construction sectors remain tight. This is evidenced in robust wage growth witnessed in both industries for all workers. Compensation growth is even higher for skilled workers within these industries. While earnings in mining remain higher than construction, growth rates are catching up. IHS Global Insight expects construction wages to decelerate next year, but still post double-digit increases over 2008.

The limited supply of highly trained workers in these fields—particularly engineers and artisans—limits growth and productivity of each sector. As a result, opportunities for lower skilled workers remain low, and unemployment remains high. Exacerbating the skilled worker shortage is a long-standing trend of skill emigration.

History of Skilled Worker Emigration Leaves Gap in Labor Supply

According to Elliot International, for every worker returning to South Africa, two-and-a-half are leaving. There is evidence that emigration figures may be headed higher. In the third quarter of 2008, 18% of persons selling homes reported doing so to emigrate: twice the rate reported at the end of 2007. Emigration has also hit certain industries and skill sets harder than others. Over the last 40 years, one-third of engineers have left South Africa. Even with training initiatives set forth by the African National Congress (ANC) since coming to power in 1994, the number of registered engineers as of mid-2008 was only 14,234, down over 1,100 from 10 years ago. Skilled worker emigration has its greatest impact on the mining and construction sectors within South Africa, both of which have struggled with skilled labor shortages. Over the summer, the mining industry in South Africa estimated 50,000 artisans were needed. But, as the mining and construction sectors have boomed on a global scale, many workers have followed the compensation. Earlier in 2008, 69% of mines in Canada reported offering bonus schemes. What happens now that mining in remote locations is not always profitable?

As commodity prices tumble, and demand hits its trough, compensation in the mining sector will decelerate. Many companies—including Areva, Moly Mines, Rio Tinto, Shell—have announced delays to mining projects and/or payroll reductions. It is estimated that mining companies could postpone 119 new projects around the world worth $193 billion over the next seven years based on lower demand.

Weakening demand will impact mining in South Africa as well, alleviating some labor market pressures. Employment growth in that sector is already decelerating; however, it is not declining. On the construction side, Eskom's announcement that the country's second nuclear power plant will be delayed will reduce estimates of needed workers for that project. However, continued government infrastructure investment and preparation for the 2010 World Cup events will keep the pressure on skilled workers in that industry. In fact, the construction sector remains the driving force of growth. Although it represents only 3.6% of the entire South African economy, construction contributed 0.6 percentage point to growth in the third quarter of 2008. Civil construction is expected to keep the industry afloat in the face of weakening private investment. While real GDP at factor cost for construction will decelerate in 2009, IHS Global Insight still expects it to remain positive and robust, gaining just over 7% next year.

So, the question remains: will falling demand alleviate labor shortages and compensation growth for skilled workers in mining and construction in South Africa? Unless skilled workers can be incited to stay, and training programs continue to expand as they have over the last 14 years, the economy will not likely chip away at the skills shortage. This would then provide more opportunities for lower skilled workers as capacity expands, raising the level of employment measurably. Many specific artisan training programs originate with parastatals or private firms, like Eskom and Exxaro. Funding concerns within the private realm in the midst of a global downturn could negatively impact the supply of skilled artisans going forward, leaving it to government programs to increase the skilled worker supply. Without continued proactive training program expansion and policies geared towards elevating South African employers' competitiveness, it is likely compensation growth for skilled workers in mining and construction will remain elevated throughout the forecast horizon.