Job Cuts May Lead to Recession

By Mvusi Ngubane    20-Oct-2013 16:52 UTC+02:00 2

Johannesburg- As a result of an increase in the retail sector’s recent adoption of retrenchments as a means of cost saving, South Africa’s economy has been jeopardised and will inevitably fall into a recession if other options are not considered, report analysts.

Director of Labour Research Services, Saliem Patel, in accordance with the Business Report, says the occurrence of job cuts is a normal commercial reaction and is not uncommon when companies face reduced growth but Patel insists that other options can and should be explored.

“It’s a knee-jerk reaction from the sector,” reports Patel. “Unfortunately when growth is not high, the first cost to go is usually the salaries. I don’t think it’s a viable solution, there should be other routes.”

Pioneer Foods, one of the country’s largest food distributors, is reported to be retrenching 1200 employees, Pick ‘n Pay has dismissed 400 workers and JD Group is currently dismissing employees for the third time this year. Excuses used by large commercial organisations to justify these job cuts are their need to “restructure” or keep the business alive and functioning, insisting that alternatives were considered.

This week, Pioneer Foods reported it performed an efficiency evaluation which led them to find that the company had jobs which could be dismissed; claiming that “Various alternatives were investigated, but after serious analysis it was found that surplus positions to the operational needs of the company exist.”

Chief executive Phil Roux relays his regret that employees are affected by this process. “Pioneer Foods is acutely aware of it’s responsibility to grow revenues and market share, expand margins and enhance returns on capital share.”

Pick ‘n Pay said it was the improvement of the effectiveness and efficiency of the business which resulted in their need to cut jobs while JD Group claimed that their retrenchments are a result of heavy losses based their exposure to slower sales of furniture and unsecured lending.

The country’s unemployment rate is expected to increase largely as more companies dismiss employees but economists argue that at a growth rate of 2 percent, the economy does not favour job creation.

Patel insists that businesses should consider options other than job cuts as “retrenchments will worsen the problem of low growth because those people support the business”. He suggested that businesses hold discussions with unions and the government with the mutual interest of enhancing efficiency without retrenching.

Programmes such as the Training Lay-off Scheme, developed by the Department of Labour display the government’s understanding of the economic pressures placed on commercial organisations. This programme aims to train employees who face job dismissals and involves them working without a salary for a period while the company recovers financially.

Kevin Lings, Chief Economists at Stanlib raised concerns that the retrenching trend could spread to other sectors, placing the country into a difficult recession.

“It’s not a disaster yet,” reports Lings, “but if it gains momentum, it runs the risk of pushing us into a recession”


  1. David Groenewald says:

    We were never out of a recession! We are on the brink of a fiscal depression! What the hell does Gill Marcus know ?

  2. Kejoy says:

    Mr Patel says “…..there should be other routes.” Well, what are they? If a company is not covering its costs what do you cut down on, rent, power, maintenance, stock purchases?

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