8891 September 2015

Home , Curriculum vitae, Employment agency, Executive search

PROVISION OF STAFF

Siccode 8891 September 2015

Compiled by: Ebrahim-Khalil Hassen [email protected]

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WEBSITE: WWW.WHOOWNSWHOM.CO.ZA REG NO: 1986/003014/07

DIRECTORS: MAUREEN MPHATSOE (CHAIRPERSON), MICHELLE BEETAR (EXPERIAN), PAXTON ANDERSON (EXPERIAN), ANDREW MCGREGOR (MANAGING) Labour Recruitment and Provision of Staff Contents Siccode 8891

CONTENTS

1. INTRODUCTION ...... 1

2. DESCRIPTION OF INDUSTRY ...... 1 2.1. Industry Value Chain ...... 3 2.2. Geographic Position ...... 4

3. SIZE OF INDUSTRY ...... 4

4. STATE OF THE INDUSTRY ...... 6 4.1. Local ...... 6 4.1.1. Corporate Action ...... 10 4.1.2. Regulations ...... 10 4.1.3. Enterprise Development and social Economic Development ...... 13 4.1.4. Opportunities for SMMEs ...... 13 4.2. Continental ...... 14 4.3. International ...... 15

5. INFLUENCING FACTORS ...... 16 5.1. Economic Environment ...... 16 5.2. Labour ...... 17 5.3. Information Technology and /or Technology ...... 19 5.4. Regulation ...... 20 5.5. Environmental Concerns ...... 21

6. COMPETITION ...... 21 6.1. General ...... 21 6.2. Competition Commission Rulings ...... 21 6.3. Technology, Research and Development and Innovation ...... 21

7. SWOT ANALYSIS ...... 22

8. FUTURE OUTLOOK ...... 23

9. INDUSTRY ASSOCIATIONS ...... 24

10. REFERENCES ...... 25 10.1. Publications ...... 25 10.2. Websites ...... 25

1. INTRODUCTION

This report focuses on the labour recruitment industry which plays a significant role in the South African economy. The International Confederation of Private Employment Agencies (CIETT) estimates that there are 2,621 agencies in South Africa, with 3,000 branches, and that around 13,000 people are employed directly in the recruitment industry. The estimated value of the sector to the economy is around R48.8bn per annum, according to the Federation of African Professional Staffing Organisations (APSO). This report explores developments in the recruitment and provision of staff industry, which includes temporary employment services or ‘labour brokers’ from November 2013.

2. DESCRIPTION OF INDUSTRY

Recruitment is the process of screening and selecting qualified people for a job at an organisation. The recruitment industry in South Africa plays an important role in linking employees with employers.

Private Employment Agencies (PrEAs) require a licence from the Department of Labour to operate in South Africa. The process of registration is prescribed in the Skills Development Act, Section 24(1) – (4). However, the registration process will change with the introduction of the Employment Services Act of No.4 of 2014. See 4.1.2 Regulations for more information.

The industry association, APSO, identifies five broad categories of PrEAs. These are summarised in the table below.

Type Description Business Model Permanent These recruitment agencies have Placement fee for successful Recruitment candidates listed on the agency’s database placements. If placements are not Agencies and work to match their pool of candidates successful the agency does not to their clients' available positions. Suitable receive a fee. candidates are short-listed and put forward for an interview with potential employers on a permanent basis.

Type Description Business Model Temporary Recruiters providing temporary Labour brokers usually invoice Employment employment services, who are also known clients on a monthly basis for the Services as labour brokers, specialise in hiring out services rendered by the temp. The the services of temporary workers, known client pays the labour broker who as 'temps', to a third party for a fee. then pays the temp a pre-agreed salary. E- Recruitment Recruitment websites have two main Fees are charged for job postings Solutions features: job boards and a résumé or and access to search resumes. curriculum vitae (CV) database. Job boards allow member companies to post job vacancies. Alternatively, candidates can upload a résumé to be included in searches by member companies. Search Firms Search firms generally play a strategic role Search firms may work on a in finding specific people for large retainer fee basis and/or on corporates. These firms do not advertise delivery, according to for potential applicants and are typically negotiations. contracted by large corporates who are looking for high level executives but do not want their vacancies to be public knowledge. The search firm actively canvasses the market so it can advise the client of potential candidates and then contact them. Advertising/Res Advertising response handling firms This is a paid-for service that does ponse Handling generally assist clients in directly not work on the typical Services advertising their vacancies in their own contingency or payment on name, using employer branding. The placement basis. company collects the responses, conducts a basic screening and then sends selected details to the client for further action.

The industry itself is organised at a sector level and at a national level. More details on these associations and their roles are provided at the end of the report.

Type of Firms The local recruitment industry comprises: ♦ Several large corporate players; ♦ A small segment of mid-sized firms that employ between 20 and 60 full-time staff; and ♦ The majority of firms that employ fewer than 10 people.

The Services SETA estimates that 74% of firms are small firms, 11% medium firms and 9% large firms. 6% of its sample was unable to be classified.

A central distinction is between recruitment by labour brokers on one hand, and other recruitment companies on the other. The sector is dominated by labour broking activities.

2.1. Industry Value Chain

The recruitment industry, due to the wide variety of activities it undertakes, has distinct value chains based on the type of service provided. It should be remembered that recruitment agencies serve as intermediaries between employees and employers.

The following three features are important to note. 1. Employer Driven Chains: Employers pay for the recruitment process and thus most chains could be described as buyer-driver value chains. The rise of e-recruitment portals, however, is providing disintermediation of the industry. The Internet is making significant changes to traditional recruitment methods but at the same time making the work of recruitment agencies more efficient. 2. Triangular Employment Relationships: Labour broking arrangements represent a triangular employment relationship. Labour brokers specialise in hiring out the services of temporary workers, known as 'temps', to a third party for a fee. The client pays the labour broker who then pays the temp a pre-agreed salary. This ‘value chain’ is different from other recruitment activities in that the recruitment agency acts as an employer.

3. Intermediary Function: Recruitment companies play an intermediary role, linking employees and employers. The role of the recruitment company, however, differs depending on the type of contract entered into.

2.2. Geographic Position

Recruitment agencies in South Africa are concentrated in larger cities and metropolitan areas. Based on the online membership search on the APSO website, which does not include all members, but does provide an estimate, the majority of recruitment companies are in Gauteng, followed by the Western Cape and KwaZulu-Natal. This is understandable as the majority of work generated is in the larger urban centres. Even if work for instance in mining or agriculture, is undertaken in other provinces, recruitment agencies are likely to have head offices in one of the large city or cities. Moreover, when regional opportunities exist, recruitment companies in mining and agriculture provide services in these areas.

Opportunities in other provinces may exist for recruitment agencies. The opportunities, especially in more rural provinces, will, however, be dependent on rural development strategies implemented by government, and the development of new enterprises in these areas.

3. SIZE OF INDUSTRY

Estimates on the size of the industry are not readily available with even the industry association APSO noting that there is limited research available. The task is made more difficult by the fact that in the official accounts the recruitment agencies are included in the “Business Services Not Elsewhere Classified” category and grouped together with other unrelated industries. This section draws on data compiled by the International Confederation of Private Employment Agencies, the international industry and other sources.

Data from the CIETT indicates that in South Africa there are: ♦ 2,621 recruitment agencies; ♦ 3,000 branches; and that ♦ 13,000 people are directly employed by recruitment agencies themselves.

Labour Broking APSO reported to the CIETT that 93% of all sales are derived from providing temporary agency work. The dominance of labour broking in this industry shows that not only is it a profitable undertaking, it dwarfs more traditional recruitment activities. The data is shown in the graph below and is derived directly from APSO’s submissions to the CIETT.

Share of Total Annual Sales Revenues

2% 5%

Temporary Agency Work

Permanent recruitment

Outsourcing

93%

[Source: APSO]

Data on labour broking activity in South Africa shows that not only is it the dominant recruiting activity in South Africa, but that these activities are high in comparison to other countries. CIETT uses the “penetration rate” to measure labour broking. The penetration rate is the “Daily average number of agency workers in full-time equivalents divided by the working population”. South Africa has a penetration rate of 9.2% which is much higher than the global average of 1% and 6%.

Penetration Rate

9.2

3.6 3 3 0.1 0.1 0.3 0.4 0.4 0.4 0.5 0.6 0.6 0.6 1 1 1.7 2 2

[Source: CIETT 2015 Economic Report, page 28]

This data shows the extensive usage of labour broking arrangements in the country. Adcorp, one of the largest recruitment agencies in South Africa, confirms this overall picture. Adcorp’s June 2014 Employment Index shows that agencies provide 7.9% of employment, which equates to just under 1 million jobs in the official sector.

An analysis conducted by the Development Policy Research Unit (DPRU) based at the University of Cape Town estimates that there are 784,434 workers employed in the TES sub-sector. The CIETT estimates that labour broking provides 1,220,000 daily average full time equivalents (FTEs).

The reason for South Africa having such a high penetration rate is not immediately clear. Natalie Singer from APSO indicated that the data might not be 100% correct, as without effective regulation it is difficult to reach accurate measurements. In addition, South Africa has a very high unemployment rate, which may skew the data, as the number of people in non-standard work is large in comparison to the employed population. The alternative explanation provided by trade unions is that employers have used labour broking extensively to skirt the costs of employment.

4. STATE OF THE INDUSTRY

4.1. Local

In South Africa changes to the recruitment industry are observable at several levels. 1. Role for external recruitment agencies: The demand for services provided by external recruitment industries is likely to face pressure due to several factors. a. Internal placements: South African companies favour placing internal candidates before approaching recruitment agencies. In 2014, according to the MCI 2014 Survey, 88% of respondents favoured placement of internal candidates. While this is high, the trend since 2012 has been for fewer respondents to indicate that their organisations will attempt to source and place candidates internally before approaching recruitment agencies. See the Table below.

Recruitment Trend 2012 2013 2014 Organisations that use a recruitment 52 43 52 management system

Recruitment Trend 2012 2013 2014 Organisations that had an annual staff turnover 58 59 64 rate of less than 10% Organisations that attempt to source & place 93 87 88 candidates internally before approaching recruitment agencies Organisations that rely on internal staff to refer 56 52 53 candidates to HR for hiring consideration Organisations that have an employee candidate 58 61 46 referral rewards programme in place Organisations that do not primarily make use of 58 56 60 recruitment agencies to fill their requirements Organisations that have between 1 and 5 40 44 46 recruitment agencies on their preferred supplier list Organisations that use social media to recruit 53 58 66 candidates Organisations that use job portals to advertise 64 68 70 vacancies Organisations that use print media to advertise 65 65 59 vacancies

[Source: MCI 2014 SA HR Recruitment trend survey]

b. Impact of the internet: The Internet has sprouted many sites geared towards linking employees and employers. Local sites such as PNET and Career Junction compete with larger international sites such as Indeed. Social networking sites, especially LinkedIn, also provide solutions tailored to recruitment activities that are equally accessible to in-house human resource departments and external recruitment agencies. The MCI 2014 survey shows that the use of jobs portals and social media has increased from 2012 to 2014. In the case of jobs portals, usage has increased from 64% in 2012, to 70% in 2014. Similarly, social media usage has increased from 53% (2012) to 67% (2014). Importantly, social media recruitment has gained credibility and is now established as a legitimate source for recruitment activities.

2. Recruiters reconstructing relevance: The proliferation of jobs boards has provided a significant challenge to recruitment companies. However, as the novelty of online recruitment channels wears off, the value of recruitment agencies has become evident. Natalie Singer from the Confederation of Associations in the Private Employment Sector (CAPES), said, “Although companies now have direct access to jobs boards they continue to make use of professional recruitment companies. The complexity of the industry has necessitated a shift from 'hatch, match and dispatch' as recruiters realise they need to provide subject-matter expertise and additional value.” Debbie Goodman-Bhyat, of JackHammer Executive Headhunters, explained that the recruitment agency offers additional key services including screening, interviewing, benchmarking, referencing, verifying information and credentials, negotiating an offer, and ultimately securing the candidate. While some big corporations may have a team of internal recruiters to do this, most still need to rely on third party recruiters for this service. She further notes that head hunting has become a core skill that requires the services of a recruitment specialist to engage people who are not active job seekers, and as roles become more senior.

3. Assessing demand: Due to the various means through which applicants can apply for employment, it is difficult to estimate demand across the industry. The Department of Labour tracks adverts in newspapers which provides an indicator of demand in the industry. The graph below provides data from the Department of Labour’s Job Opportunities and Unemployment in the South African Labour Market from 2008/09 to 2012/13.

Number of Vacancies

60 345 60 433

49 001 45 770 44 611 44 611 40 136

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2012/13

[Source: Department of Labour, Job Opportunities and Unemployment in the South African Labour Market]

From 2008/09 to 2011/12 the increase in advertised vacancies could be attributed to recovery after the recession. The sharp decline in the number of advertised jobs from 2012 onwards (compared to 2011/12) is largely accounted for by sluggish economic growth and possibly companies switching to alternative forms of advertising for vacancies, for example, on jobs portals. Based on the data, one could argue that the recruitment industry simply mirrors the business cycle and this point has validity. However, the impact of alternative forms of advertising for vacancies, for example, social media and jobs portals, is likely to play a role but it is too early to provide a definitive account of this.

4. Mismatch between vacancies and skills: A central challenge facing recruitment industry is the inability to match job applicants with skills required in the economy. This is not the fault of recruitment companies as the onus lies on the education and training sectors. However, it does raise questions as to whether recruitment agencies are able to find the skills for available vacancies. a. High demand occupations: The Department of Higher Education in 2014 released the List of Occupations in High Demand: 2014 which identifies the top 100 occupations in high demand. The list is intended to better align policy with demand and could play an important role in shaping government and private sector recruitment decisions. b. Online Trends: The overall trends in online recruitment are difficult to aggregate as no centralised database exists. One of the larger online recruitment portals, Career Junction, provides a snapshot of the industry trends. The overall trends show that for occupations in IT, building and construction, and admin office and support there are low numbers of applicants. In these areas, there are fewer candidates than in other areas, and may indicate challenges in matching employer and employees.

POTENTIAL Seekers Per Job Advert 277.92 PETROCHEMICAL 113.28 104.19 EDUCATION 95.81 93.07 SOCIAL & COMMUNITY 88.54 79.58 SCIENCE & TECHNOLOGY 56.3 55.03 HUMAN RESOURCES & RECRUITMENT 46.32 45.75 MARITIME 44.05 42.33 PROPERTY 41.68 39.38 BEAUTY 34.32 33.65 ENGINEERING 33.52 33.22 SPORT & FITNESS 32.2 30.59 BUSINESS & MANAGEMENT 28.51 27.86 DESIGN 25.44 25.25 TRANSPORT & AVIATION 23.54 22.79 ARTS & ENTERTAINMENT 22.28 20.62 FMCG, RETAIL & WHOLESALE 18.47 17.59 HOSPITALITY & RESTAURANT 15.72 15.49 ADMIN, OFFICE & SUPPORT 9.13 8.78 INFORMATION TECHNOLOGY 3.44 0 50 100 150 200 250 300 [Source: Department of Higher Education, List of Occupations in High Demand: 2014]

4.1.1. Corporate Action

The major development in the sector is the approval by the Competition Tribunal for Adcorp Holdings Ltd to purchase Kelly Group Ltd. The merger of the two companies, which are among the largest in South Africa, creates the largest recruitment grouping in South Africa.

Another interesting development is the acquisition of Verex Consulting, part of the Simunye group of companies, by Imperial Logistics. This provides Imperial, a large player in the South African economy, with a presence in the recruitment space.

4.1.2. Regulations

Major regulatory changes are in the process of being implemented and more changes will occur in 2015. The following table summarises the changes unfolding in the sector.

Change Description Legislation Effective Date Approval required for Companies are now required to utilise Amendment to 1 August psychometric testing tests that are certified by the Health the 2014 Professionals Council of SA. Employment Equity Act 55 of 1998. Registration and The Bill provides a licensing system for Employment 1 June 2015 regulation of private private employment agencies and makes Services Act of employment agencies it a criminal offence to operate without a No.4 of 2014 licence. Includes fines for non-compliance. Development of public Establishes what are referred to as public Employment 1 June 2015 employment services employment services (run by Services Act of (anticipated) government), to be provided free of No.4 of 2014 charge, which aim to match work seekers with available work opportunities. Temporary Employees earning below the threshold Labour 1 January Employment Services and who have worked for more than three Relations 2015 months will be considered employees. Amendment Act This change is likely to be the subject of 6 of 2014 legal dispute. Fixed term contracts Employers may employ on a fixed term Labour 1 January basis for longer than three months or Relations 2015 extend the fixed term contract only if the Amendment Act nature of the work is of limited or definite 6 of 2014 duration, or if the employer can demonstrate any other justifiable reason for fixing the term.

Overall, the changes aim to create a fairer labour relations dispensation.

The critique of labour brokers is that they allow employees to be exploited. Workers perpetually work as temporary employees without the benefits enjoyed by full-time employees such as medical aid, allowances and so on while employers enjoy all the benefits of full-time employees. The changes in

legislation are seen as a response to the exploitative labour relations based on atypical work, or what others call non-standard employment.

The industry body, however, argues that temporary employment services play an important role in introducing young workers to employment and thus support job creation. Industry estimates suggest that a large percentage of workers transition from part-time to full-time employment. CAPES data indicates that 30% find full-time employment within one year and 42% within three years.

The implementation of legislation raises several challenges. ♦ Administrative changes: The registration process will change with recruitment companies required to register via the process outlined in the Employment Services Act No.4 of 2014. Bedding down this administrative process is likely to be difficult, especially since some have interpreted the provisions as excluding ‘labour broking’. ♦ Legislative interpretations of ‘deemed provisions’: The Labour Relations Amendment Act makes provision for temporary employees to be deemed permanent employees after a period of three months. The clause in dispute is 198A(3)(b)(i). ‘For the purposes of this Act, an employee … not performing such temporary services [defined to be limited to three months] for the client is deemed to be the employee of that client and the client is deemed to be the employer.’ The industry body, CAPES, however, disagrees with the interpretation that employees are transferred to the client after three months. Natalie Singer from CAPES indicated, “CAPES’s view is that the employee does not become permanent, but rather that a dual employment relationship is created through joint and several liability between the temporary employment agency and the client”. The industry body has indicated that it will challenge the government interpretation in court and that this is the “biggest challenge that we as an industry have embarked on and will require much effort”. This is a development that needs to be closely watched as it will provide clarity on the interpretation of the legislation.

Despite these challenges, the overall impact of improved regulations is likely to be positive and APSO Vice President KC Makhubele believes that regulation helps to protect job seekers. In the case of the Employment Services Bill, Natalie Singer commented, “The Employment Services Act has been developed through consultation at the National Economic Development and Labour Council (NEDLAC) and thus has the support of industry and social partners. CAPES will continue to work with Government and Organised Labour to drive effective regulation of the industry.” The importance of social dialogue

in this industry cannot be underestimated, as the industry has traditionally been characterised by adversarial labour relations. .

South Africa’s regulation of the labour broking industry is consistent with changes in legislation across the globe in both developed and developing countries to protect part-time workers. While the settlements in countries differ, the overall intent is to create a fairer working environment. However, some countries like South Korea, are considering changes to the regulation of non-standard or atypical work that trade unions argue will reverse the gains of workers.

4.1.3. Enterprise Development and social Economic Development

There is no charter directly applicable to the recruitment sector. The industry has, however, communicated its intent to support black economic empowerment. While consolidated data on recruitment agencies is not readily accessible various research reports indicate that there are many smaller companies that employ 10 or less people in the sector.

The wider issue related to socio-economic development is the role of labour brokers. CAPES cites data that shows that 57% of workers with temporary employment agencies were never previously employed, and that 30% of temps secure permanent employment within one year, and 42% within three years. However, as discussed above, trade unions argue that labour broking arrangements are exploitative and used by employers to outsource not only workers, but also the cost of employment. In this context, it is felt that the continued casualisation of the labour force will undermine existing jobs and ensure that workers remain in constant ‘temporary’ positions. Legislative interventions suggest that with greater regulation of the TES sector, the opportunity to meet both demands for a flexible workforce by businesses, and greater certainty by workers, might be achievable.

4.1.4. Opportunities for SMMEs

The changes experienced by recruitment industry present several opportunities for smaller businesses. These include the following. ♦ Software for recruitment – developers could provide a useful solution for in-house human resource departments that supports applications and response handling. ♦ Niche recruitment agencies – Several sectors, including information technology, have niche recruitment companies that specialise in sectors, or even sub-sectors. Smaller players, with

good linkages to companies and through using social media, could provide bespoke services to various companies. ♦ Internet intermediaries – Several opportunities still exist in the recruitment industry to match employees and employers using the Internet. More focused jobs portals, by industry or specific skills, could be developed, and provide a useful service for niche recruitment.

In addition, APSO has a useful guide to entrepreneurs wanting to enter the recruitment industry on their website. The regulatory improvements, including the need for a compulsory licence to operate, are unlikely to place major barriers in the way of start-ups and new entrants in the sector.

4.2. Continental

The African continent is the fastest growing continent in terms of economic growth. With such rapid growth in many countries, albeit from a low base, the demand for recruitment services are likely to grow, especially since many African countries face skills shortages in several key areas. These include executive managers, engineering and other sectors.

EY conducts a survey on ‘Talent Management’ that offers pertinent information on the recruitment industry in Africa. The 2014 survey of sub-Saharan Africa provides indicators of the recruitment industry in Africa. The respondents included 308 companies representing approximately 415,000 employees from 23 countries across sub-Saharan Africa (), who contributed feedback. Key findings include the following. ♦ Decentralised recruitment functions: The survey respondents (46%) indicated that the recruitment function was decentralised. A further 23% indicated that they were able to make adjustments to head office guidelines. ♦ Local talent: The respondents to the survey indicated a preference for sourcing candidates locally, rather than opting for employing expatriates. ♦ Mixed requirements: 31% of respondents revealed that they were expanding headcount to support high growth. Differences are, however, observable based on type of company, and region. 50% of multinational companies were recruiting simply to maintain existing headcounts and to support slight growth. One-third of indigenous companies anticipated growing substantially, and this drove recruitment intentions. Companies in Francophone sub- Saharan Africa (48%) and West Africa (45%) were recruiting on the basis of ambitious growth plans. In contrast, one-third of Southern African organisations have no plans for growth.

Several key developments in the industry are likely to have an impact on the recruitment industry. These developments include the following. ♦ Rise of continental recruitment agencies: Several agencies have emerged that are branded as Africa-focused recruitment companies, usually focused on placing high skilled executives and other high skilled jobs. CA Global Finance, for instance, focuses on banking and financial recruitment. ♦ Africa focused jobs portals: Companies such as Everjobs have introduced country-specific job search engines in Cameroon, Senegal, Uganda and the Ivory Coast. Competitor companies, including Indeed, Adzuna and others, already have a presence in many African countries. LinkedIn will also be a major player on the continent, as will other business focused social networks.

Across the African continent, the use of triangular employment arrangements has come under scrutiny. In Nambia labour broking, known as called labour hire, has been the subject of extensive debate among government, labour and business. The Namibian government instituted a ban on labour brokers but this was subsequently successfully challenged in the Namibian constitutional court. Similarly, in Zimbabwe labour broking has been declared unlawful by the government and through legislation, although the practice remains fairly common. The debate in Southern African countries thus continues on the role of labour brokers.

4.3. International

According to CIETT data, South Africa’s recruitment industry is around 1% of the global market. The data in the table below, which provides an estimate of the size of the South African industry in global terms, is drawn from the Economic Report 2015 produced by the CIETT.

Share of Global Number South Africa Global Market % Agencies 2,421 259,529 0,9 Branches 3,000 236,283 1,3 Employees (Direct) 13,000 1,660,000 0,8

[Source: CIETT, 2015.]

An important aspect is that the CIETT data does not include many African countries, a key area for possible growth for South African companies. Three features of the international landscape for South African companies are important.

1. Alliance building with larger multinational companies is a tactic for many local firms. Key examples of these alliances include Talent Africa, which has an alliance with Korn Ferry which is listed on the New York Stock Exchange, and Jack Hammer Executive Headhunters, which has an exclusive relationship with IRC Global Executive Search Partners Worldwide.

2. Opportunities for expansion outside South Africa are being explored. For example, MCI Holdings provide recruitment software and has expanded into several countries, including Saudi Arabia. The business has, in fact, expanded in several countries. Adcorp purchased Dare Holdings for an estimated A$30m (about R280m) as it seeks to expand into Africa. Dare Holdings provides qualified and experienced engineering and technical skills on a contract and permanent basis to local and international clients in the oil and gas sector. This sector is likely to grow in Africa. Adcorp aims to have as much as 45% of its revenue being generated outside South Africa.

3. Given the consolidation of Adcorp and Kelly, two of the major companies, there is a likelihood that one of the larger multinational recruitment companies views South Africa as an attractive market in which to hold a stake .

5. INFLUENCING FACTORS

5.1. Economic Environment

The South African economy is characterised by low economic growth which potentially means that recruitment opportunities are likely to remain the same or reduce in size. As shown in the data provided by the Department of Labour, adverts in the press have stabilised at around 40,000 per year. While it is difficult to estimate the overall impact of jobs portals and social networks on advert placements in newspapers, the cost of online adverts is much cheaper and may have a wider reach. Potentially, the number of vacancy adverts could be much larger than those advertised in newspapers (those tracked by the Department of Labour) should online recruitment be included. Consequently, even in a low growth environment, recruitment companies could potentially expand business

opportunities through the effective usage of jobs portals and social networks. However, indications are that companies are increasingly returning to using recruitment agencies, even though companies have direct access to many of the jobs portals.

In the context of addressing high levels of unemployment, recruitment companies will continue to play an important role. The central challenge relates to the matching of skills to vacancies. Improving the matching process, however, requires interventions in the education sector and in improving information on available vacancies. Potentially, improving access to information will be addressed through the introduction of the public employment service, and increasing access for job seekers to the Internet.

Of importance in the ‘labour broking’ sector is that there are now government subsidies that can be accessed. The introduction of the Employment Tax Incentive, aimed at reducing youth unemployment, has been accessed extensively by large labour brokers in South Africa. Workforce, the second largest labour broker, claimed R53.4m in 2014 and reported a profit of R51.2m. Similarly, Adcorp is estimated to have received R42m during the period under review. Potentially, the continued sourcing of and growth of the Employment Tax Incentive could be accessed by labour broking companies, and grow the industry. John Martin Botha, from Adcorp, said, “The Employment Tax Incentive, like all subsidies, can grow bottom-line growth in any business. Temporary employment services are, however, better placed to access the incentive because of what they do. However, it is an opportunity available to any company.” This recognition is important in understanding how subsidy efforts operate in South Africa, and when evaluation time comes to ask questions on the distributional impacts of Employment Tax Incentive.

The programme on which the subsidy is sourced is, however, extremely contentious and has faced significant challenges from alliance partners of the African National Congress (ANC). The potential for continuation of the programme at scale is thus limited. The efficacy of the programme has also been brought into question. Academic economists Vimal Ranchhod and Arden Finn have argued, “In the first six months since the introduction of the ETI, we find no evidence that the ETI had any substantial, positive and statistically significant effect on aggregate youth employment probabilities”.

5.2. Labour

The role of labour and especially organised labour is significant in this sector.

General ♦ Trade unions have interacted with industry, especially labour broking, through various challenges. Through processes of social dialogue, undertaken at NEDLAC, agreement has been reached on important issues, with the result being the Employment Services Act. Trade unions have thus managed to influence the context of, and potentially improve, working conditions. ♦ The core challenge for trade unions, however, remains its ability to organise and represent temporary workers. Legislation in this regard could support unionisation in the sectors, as one interpretation of the legislation is that after three months temporary workers become permanent.

♦ At issue in some readings of the legislation is whether employees working through labour brokers are transferred to client companies or remain with temporary employment service. This determination, which will be tested in court, will have a major impact on the industry. Regardless of the interpretation of the legislative, the impact on the industry will be significant.

Employment Figures Labour broking activities are high both in terms of the recruitment industry in South Africa and when compared internationally. As mentioned earlier, analysis conducted by the DPRU at the University of Cape Town estimates that there are 784,434 workers employed in the TES sub-sector. The CIETT estimates that labour broking provides 1,220,000 daily average full time equivalents (FTEs). Industry bodies argue that job losses are likely to result from legislative changes and that temporary employment provides an important generator of jobs. The impact of legislative changes on the employment numbers will be closely watched.

Two contending outcomes are envisaged. On the one hand, industry bodies argue that the changes to the status of temporary workers will reduce employment levels and first job experiences. On the other hand, trade unions argue that employers will now need to employ workers on fairer contracts, and thus formal jobs are likely to increase. At this stage, the outcome is difficult to measure.

Unions Unions have been actively looking for strategies to recruit atypical workers. In tandem with legislative changes there is likely to be an increase in unionisation levels in the sector. This development is, however, not new, with COSATU unions indicating that in certain sectors they have up to 12%

membership in atypical work, and agreements on labour broking being reached in clothing and textile, and in the metal and engineering bargaining councils.

Skills and Training Legislation now requires psychometric tests to be approved by the Health Professions Council of South Africa (HPCSA). Ensuring that tests are approved and administered in line with legislation will increase the demand for psychometrists. There is likely to be a shortage in this area of skilled senior psychometrists capable of satisfying regulatory requirements for fair testing procedures.

A potential impact of the changes to legislation, especially the introduction of a public employment service, is the improvement in the learnership system. This has a direct bearing on the recruitment industry as improvements in the system and possible reductions in skills shortages could increase the pool of job seekers.

5.3. Information Technology and /or Technology

The entire recruitment industry will be impacted upon by technology to an even greater extent than has been seen. This can be seen in relation to the impact on employees/job searchers, recruitment companies and employers. ♦ Job Seekers: Internet based jobs portals have already transformed the way employers and employees are connected. Many mobile-based applications have entered the market, covering job search, networking, resume building, interviews and other parts of the job search process. Coupled with social networking sites, especially LinkedIn, job seekers have a wide range of options enabled by technological improvements in search technologies and cross device applications. ♦ Recruitment Companies: Recruitment companies act as intermediaries, and the Internet can play a role in disintermediating incumbents. Recruitment companies in South Africa have attempted to build alliances with jobs portals and this has proven successful as it provides central places for companies to advertise jobs and access prospective candidates. The challenge, however, remains that technological advancements will continue to place pressure on recruitment companies to remain relevant. On the plus side, it will present companies with an opportunity to reduce costs, create new offerings and to focus on things that technology cannot satisfy.

♦ Employers: The potential for employers to recruit directly, without requiring a recruitment company, has improved. Recruitment software provides for efficient ways to accept applications, handle responses, shortlist candidates and schedule interviews. However, companies are likely to still require the services of recruitment companies in recruiting, as passive candidates are not engaged in active job searches.

The technological changes in the industry have improved efficiencies, but arguably cannot replace the ‘human factor’ in recruitment. As it stands, the technological setup provides both an opportunity for disintermediation of recruitment companies, but also for recruitment companies to reconstruct their relevance. The impact of technology on the industry will be a trend to watch.

5.4. Regulation

As mentioned earlier, the impact of changes to regulations governing the industry will have impacts. The range of options available as a response to regulatory changes governing temporary employment services is summarised by John Martin Botha, Head: Strategic Solutions, Adcorp, “Legislation will impact on the ‘normal’ labour broking model. Companies will now provide for fully outsourced services, being responsible for output and not just people. Another option is to provide insourced human resource services. In this scenario, the labour broking company will continue to provide human resource related services, even if they are no longer the employer. Also, the Managed Service Provider model which is growing internationally, is getting traction in SA. Companies thus have a range of options.”

The response of labour brokers to changes in the regulatory environment will be a feature to be mindful of as South Africa attempts to strike a balance between flexibility required by employers with the rights of workers.

Other recruitment activities will also be impacted upon by regulatory changes. The use of psychometric tests now requires regulatory approval and the introduction of the public employment service will provide challenges and opportunities for recruitment companies. Companies that are able to meet regulatory requirements and link into the public employment services are likely to be able to grow their businesses.

5.5. Environmental Concerns

There are no environmental concerns in this sector. If anything, the shift to online recruitment strategies will reduce paper consumption.

6. COMPETITION

6.1. General

Competitive pressures in the industry arise from three major sources. These are: 1. Advances in technology: The important point is that matching systems for recruitment will improve and become more prevalent as Internet-based technologies improve and access to the Internet in South Africa improves. 2. Company responses to legislative changes: The legislative changes will increase regulatory compliance costs and, with that, create conditions for consolidation within the industry. Small businesses will find it difficult to comply with the regulatory regime. 3. Global workforce: South African companies will continue to compete for scarce skills and high- skilled jobs with other markets internationally. The recruitment industry thus will face a challenging period, with changes in the structure of the industry and the role it plays expected over the next few years.

6.2. Competition Commission Rulings

The major case before the competition authorities in South Africa was the purchase of Kelly Group by the Adcorp Group. The competition authorities approved this transaction.

Another relevant ruling from the Competition Commission pertinent to the recruitment industry is that the Varachia Investment Group intends to acquire Morvest. Morvest provides outsource services and recruitment services in the ICT sector.

6.3. Technology, Research and Development and Innovation

Technological developments in the recruitment sector are nothing short of revolutionary. Over the last decade the way people search for jobs and how companies search for candidates has changed. This is due to the proliferation of the Internet and also ecosystems linked to smartphones. The diffusion of

information on job opportunities and candidate information into various jobs portals and social networks has fundamentally changed the way job and candidate searches are conducted. In turn, the role of recruitment companies will change.

One aspect of this change is in the research and development function of recruitment companies. This may take several forms. One form will be for recruitment companies to better mine data that is already available by integrating with jobs portals and social networks. Through better mining of the data that is available, recruitment companies may have a comparative advantage in reaching prospective job seekers, and especially passive candidates. Costs to develop these tools could range from a couple of thousand to train recruiters on extracting information to hundreds of thousands for fully fledged integration platforms with employment of analysts.

Innovations are likely to continue in the sector, with peer-to-peer networks and finding scarce skills being areas for possible innovation. The Internet has already spurred innovation in the sector, but arguably this is the beginning. More contextual and personal data will be available to recruiters and to job seekers. These forms of information will be more contextual and personal, allowing for richer profiles of candidates and companies to be built. The costs to personal privacy are likely to be large and could be seen as intrusive.

7. SWOT ANALYSIS

Strengths Weaknesses ♦ The recruitment industry plays an ♦ Industry is as yet unable to match, across important role in matching employers and the economy, skills to vacancies due to skill employees. shortages. ♦ The industry is organised and plays a role in lobbying and advocacy.

Opportunities Threats ♦ Technologically driven innovation presents ♦ Large changes to legislation could provide an opportunity for firms to re-imagine significant challenges to operations of products and services being offered. recruitment agencies, especially temporary ♦ The introduction of the Public Employment employment services. Service could potentially provide an ♦ Proposed legislative changes are likely to important source of candidate be tested in courts, and as such uncertainty information, provided a sound working in the industry is likely to prevail. relationship between the industry and ♦ The introduction of the Public Employment government develops. Services could replace activities ♦ Better regulation of the TES sector could traditionally performed by the private provide much-needed certainty on the sector. rules that need to be followed. There is an ♦ Larger corporates may continue to increase opportunity to craft labour legislation that their internal capacity for recruitment and protects workers and provides firms with utilise jobs portals and social media. flexibility. ♦ Disintermediation through technology ♦ Growth sectors such as exploration, could result in recruitment companies no mining, energy and other sectors will longer playing the roles they traditionally require recruitment services. have. ♦ The underlying labour dispute resolution mechanisms could settle disputes between industry and government. ♦ ‘Passive recruitment’, that is not active job seekers, could be an area for growth, especially in scarce skills sectors.

8. FUTURE OUTLOOK

The outlook for the recruitment industry will be impacted on by two related developments. First, large changes in the regulation of the industry are unfolding. Government, through various pieces of legislation, has changed registration systems, improved protection for atypical workers and introduced a Public Employment Service. These changes are important but are likely to be challenged by the industry.

Second, with the continued rise of internet usage in South Africa, the recruitment industry will need to adapt quickly to changes. The rise of job aggregators, social media and various mobile applications to support the recruitment process indicates that new roles will be emerging. The uncertainty this generates is both around the continued relevance of recruitment agencies and the impact it will have on supporting employment. Thus far, the recruitment industry has found ways to partner with jobs portals and social media networks.

Overall, the recruitment industry has navigated many challenges over the last few years and has arrived at a social compact on key aspects in the industry. Differences, however, still remain, specifically on the deeming provision in the Labour Relations Amendment Act, but should not detract from progress in the sector. The deeming provision, however, cuts to the heart of labour relations in South Africa, with legal challenges to interpret legislation likely to be a feature going forward.

9. INDUSTRY ASSOCIATIONS

♦ The Federation of African Professional ♦ Allied Nursing Agencies South Africa Staffing Organization (APSO) (ANASA) (previously known as Association of Tel No.: +27 83 444 9227 Personnel Service Organisations) Email: [email protected] Tel No..: +27 11 615 9417/8/9 Website: www.anasa.org.za Fax No.: +27 11 615 9424 Email: [email protected] ♦ Constructional Engineering Website: www.apso.co.za Association (CEA) Tel No.: 011-2989412 ♦ Confederation of Associations in the Website: www.cea.org Private Employment Sector (CAPES) Tel No.: +27 11 244 5511 Fax No.: 0866 1975 24 Website: www.capes.org.za

10. REFERENCES

10.1. Publications

♦ Adcorp Employment Index, June 2015 ♦ APSO: Guide to starting a staffing business (2013) ♦ Career Junction. 2015. Career Junction Employment Index, April 2015 ♦ Department of Higher Education. 2014. List of Occupations in High Demand: 2014 ♦ Department of Labour. (Various years) Job opportunities and unemployment in the South African labour market ♦ EY. 2014. Realising potential: EY 2014 Sub-Saharan Africa talent, trends and practices survey ♦ International Confederation of Private Employment Services. 2015. Economic Report 2015 Edition

10.2. Websites

♦ http://cosatu.org.za ♦ www.globaltalentstrategy.com ♦ www.adcorp.co.za ♦ www.groundup.org.za ♦ www.advtech.co.za ♦ www.hrpulse.co.za ♦ www.afrizan.co.za ♦ www.itweb.co.za ♦ www.anasa.org.za ♦ www.jhammer.co.za ♦ www.apso.co.za ♦ www.kamo.co.za ♦ www.atelier.net ♦ www.kellygroup.co.za ♦ www.cea.org.za ♦ www.manpowergroup.com ♦ www.ciett.org ♦ www.networkrecruitment.co.za ♦ www.citypress.co.za ♦ www.seifsa.co.za ♦ www.ey.com ♦ www.skillsportal.co.za ♦ www.fin24.com ♦ www.staffingindustry.com ♦ www.gcis.gov.za