SA economy pays high price for wage raises

Increasingly violent labour protests sweeping South Africa during its mid-year “strike season” are stoking worries about inflation and dealing blows to the long-term prospects of Africa’s largest economy.

Unions representing hundreds of thousands of workers in the mining, steel, chemical and petroleum sectors have walked off the job or are threatening to do so, demanding wage increases about triple the 4.6% inflation rate.

The strikes and threats, punctuated by sporadic assaults on non-union members and management, are an annual event typically settled before September with generous wage deals that drive up costs for employers.

Average increases over the last few years have been about double inflation.

This year, the central bank sees global food and fuel prices pushing inflation briefly beyond its 3% to 6% target in the first quarter of next year. Lofty wage deals are likely to cause it to cast a colder eye on its inflation outlook.


“This month with their meeting and in September, they may be talking a bit tougher,” said Christie Viljoen of NKC Independent Economists.

The Reserve Bank’s monetary policy committee (MPC) has left its repo rate unchanged at its three meetings this year after reducing it by 650 basis points to 5.5% between December 2008 and December 2010.

In a Reuters poll, economists forecast inflation edging up this year, and the central bank raising interest rates by the end of the year.

“If these wage settlements continue to push significantly higher than inflation, at some stage both retailers and producers are going to have to pass these on into their prices,” said Jeffrey Schultz, macro strategist at Absa Capital.

Chronic pain
The longer-term risk is that South Africa prices itself out of jobs, to the gain of lower-cost rivals.

The average factory worker now makes R10 983 ($1 632) a month in wages and benefits and is typically less productive than a comparable Chinese worker getting 1 783 yuan ($276).

Despite a series of wage hikes seen by economists as unsustainable, unions are again looking at increases of about 13% to 20%, tacking on non-salary benefits such as housing aid that push the bill even higher.

“I can’t see how, with inflation at 4.6% and wage increases in excess of 13%, people or businesses would want to create more employment opportunities,” said Freddie Mitchell, an economist at the Efficient Group.

The economy lost one million jobs in a 2009 recession, the first in nearly two decades, and has shown few signs of recovery due to rigid labour laws that make it costly to hire new workers. Wage hikes only add to the burden.

The government has unveiled plans to cut unemployment, stuck at around 25% for years, but with no relief in sight for employers, the goals look unattainable.

“It will not translate into declining growth rates but it will definitely cap at what we can grow,” said Viljoen. “We will not be able to keep up with many other economies on the continent that have easier labour systems.” — Reuters

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Jon Herskovitz
Jon Herskovitz has over 313 followers on Twitter.

Related stories

Seals abort pups in mass die-off

There are a number of factors — a pollutant, virus or bacteria or malnutrition — may have caused the 12 000 deaths on Namibia’s coast

Deconstructing South Africa’s construction industry performance

The construction industry has contracted sharply, partly due to Covid, and needs to rebalance its focus if it wants to survive

Editorial: SA will be bankrupted by looters

The chickens have finally come home to roost: if we do not end the looting, it will end us

Further Reserve Bank repo rate cut unlikely this year

The central bank estimates that gross domestic product (GDP) to contract by 8.2% in 2020

Zuma vs Ramaphosa? Neither is the leader South Africans deserve

Neither statesman could command sufficient authority in an ANC that remains mired in corruption and infighting and at the behest of big capital

E-payments for the unbanked are booming

The pandemic is providing mobile phone network operators with a unique chance to partner with fintech firms and banks to deliver clever e-commerce solutions to the informal sector in Africa
Advertising

Subscribers only

SAA bailout raises more questions

As the government continues to grapple with the troubles facing the airline, it would do well to keep on eye on the impending Denel implosion

ANC’s rogue deployees revealed

Despite 6 300 ANC cadres working in government, the party’s integrity committee has done little to deal with its accused members

More top stories

Finance probe into the Ingonyama Trust Board goes ahead

The threat of legal action from ITB chairperson Jerome Ngwenya fails to halt forensic audit ordered by the land reform minister

Ailing Far East Rand hospital purchases ‘vanity’ furniture

Dr Zacharia Mathaba, who purchased the furniture, is a suspected overtime fraudster and was appointed as Gauteng hospital chief executive despite facing serious disciplinary charges

Eusebius McKaiser: Reject the dichotomy of political horrors

Senekal shows us that we must make a stand against the loud voice of the populist EFF and racist rightwingers

Seals abort pups in mass die-off

There are a number of factors — a pollutant, virus or bacteria or malnutrition — may have caused the 12 000 deaths on Namibia’s coast
Advertising

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday