Trade union and business negotiators are preparing for a tough year. Two-year wage settlements in the bellwether mining and metal sectors expire and the costs of production on gold mines often exceed the value of gold being produced.
Wage inflation and the recent appreciation of the rand are the biggest obstacles facing the private-sector negotiations, which start in May.
This comes at a time when the gold industry faces great danger because of the rapidly rising rand.
“Wage inflation and the strong currency are the greatest threats to the South African economy. The cost of labour will be something the South African Reserve Bank will need to watch,” says Marie Myers, an economist at Credit Suisse.
“The appreciation of the rand is outweighing the gains the industry has made in the past two years.”
Moferefere Lekorotsoana, spokesperson for the National Union of Mineworkers (NUM), disagrees: “The past two years have seen an upward move in terms of the industry, despite the recent strengthening of the rand. The industry must appreciate that the workers should be recompensed for their contribution.
“Inflation has also increased dramatically, particularly food and transport inflation, which form the biggest part of workers’ expenditure.”
CPIX, the inflation measure on which wage demands are based, is running at 11,2%, though the Treasury expects it to average 7,7% for the year. A Reuters poll of economists expects CPIX to average 8,5% this year.
“The CPIX might put a floor on demands when negotiations take place. In the past few years wage increases have been below CPIX, reversing the tradition that the level of settlement should be a few percentage points higher than inflation,” said Jackie Kelly of labour analysts Andrew Levy & Associates. “Wage negotiations will probably depend on how tough employers are.”
The negotiations will be dominated by the Chamber of Mines and the Steel and Engineering Industries Federation of South Africa (Seifsa) on one side of the table, and NUM and the National Union of Metal Workers for South Africa (Numsa) on the other. Both had two-year bargaining council agreements that end in June.
Mining is still the most important sector of the country’s economy and employs about 500 000 workers.
After the usual protracted negotiations in 2001, the chamber and NUM settled on an effective 8,5% increase across the board and an increase in the minimum wage to R2 000.
Seifsa, which settled on similar terms, is one of the most influential employer federations in South Africa and employs 230 000 people.
Employers and unions are holding pre-bargaining conferences where the trade union and employer demands are presented. Formal negotiations take place next month.
Frans Barker, the Chamber of Mines’ negotiator, says the rand’s appreciation is the industry’s biggest worry. In the December quarter the currency averaged R9,62 to the dollar, but it improved to R8,33 in the March quarter. A dollar now costs about R7,60.
“Mining companies have been hit hard by the rand strength because our earnings are in rands, but our products are typically priced in dollars. This is a very worrying aspect, which we need to take into account during our negotiations to avoid job losses and to avoid becoming uncompetitive,” says Barker.
He says average extraction costs now narrowly exceed the gold price. The average South African mine, he says, pays R84 000 to produce 1kg of gold, which sells for R81 000. He ascribes this uneconomic production to the rapidly improving rand. “If this continues, there will be layoffs.”
Roger Baxter, chief economist at the Chamber of Mines, says: “These figures have been confirmed. The industry is not looking a happy picture at the moment.
“The industry is obviously jittery because of the inflation rate and the appreciation of the rand,” says Lekorotsoana, “but this should not negatively affect the pocket of the worker. Workers don’t worry about inflation, they want to know if they can put food on the table.” The union will negotiate within the “current context”, he said.
NUM will demand the industry moves from a “sunrise to a caring industry”. This will involve HIV/Aids benefits and provident funds, phasing out of single-sex hostels and effective incorporation of employment equity.
Seifsa is expecting the unions to demand a new job-grading system and security of employment in addition to wage increases.
In preparation for the wage talks, a group of senior Seifsa and trade union officials visited European countries last year to investigate grading systems in other countries where centralised collective bargaining takes place.
“We are expecting tough negotiations, with workers demanding double-digit increases on the back of inflation,” said Dave Carson, Seifsa’s director of industrial relations.
Numsa spokesperson Dumisa Ntuli said union demands will include inflation-linked increases, fewer job grades, skills planning in line with the Skills Development Act, HIV/Aids benefits such as paid sick leave, and job security.
Wage settlements above 3% to 6% remain a strong concern for the Reserve Bank and industry. “Last year the average inflation rate was 10% and unions are likely to demand increases higher than this.
The wage settlements are a severe concern for this reason,” said Myers.