South African labour growing more costly

THE long-term viability of South Africa’s economy is being eroded by a steady flow of above-inflation wage deals that have been making the country’s overall labour market less competitive.

Unions have already fired the first salvoes in mid-year wage bargaining, known locally as “strike season”, seeking annual increases of as much of 20% in Africa’s biggest economy, where inflation is at about 4%

The ruling African National Congress, which has been in a governing alliance with unions since it took over with the end of apartheid 17 years ago, is unlikely to put the brakes on organised labour.

With local elections coming on May 18, senior members of the ruling bloc want to stay on the good side of labour to mobilise votes for the poll and then to jostle for power in the ANC infighting which is expected to follow.

While union members have benefited, firms have increasingly shunned South Africa because of high wages. Consumers have been stuck with the bill while the masses of jobless have been shut out of the workforce.

“It is not sustainable. It is damaging to the economy and it’s damaging to the overall attempt to create more jobs,” said Gary van Staden, political analyst with NKC Independent Economists.

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 R 10 983 rand (1,625) a month in wages and benefits and is typically less productive than the average Chinese worker getting 1,783 yuan (R274.60).


One example of how the wage deals are taking bites out of the economy can be seen in the demands of major union NUMSA, which is seeking this year a 20% increase for its workers in the auto and steel industries, as well as at state power utility Eskom.

Eskom, struggling to pay for new power plants after an electricity crunch in 2008 that forced miners and smelters to shut, gave workers a 9 percent raise last year and R1500  a month for housing to head off a strike when South Africa was hosting the World Cup soccer finals.

It plans to drastically raise electricity rates to pay for the new power stations, adding to inflationary pressure and taking more money out of middle class paychecks. Further wage hikes will make it more costly to hire the workers needed to bring power by 2014 to the 25 percent of the country’s households that still have no access to electricity.

If Eskom gives into NUMSA’s demands, its workers will have received wage and benefit increases of more than 35% over two years.

Any settlement would likely widen the wage gap between electricity , water and gas sector workers who make an average R25 773 a month, non-farm workers who make half of that, and the average worker whose salary is 25% of the electric sector worker, according to government data.

More than one million public sector employees, who won wage increases of 7.5% last year after a lengthy strike, are threatening labour action again this year.

The wage bill for state employees has increasingly strained the budget, making it more difficult for the Treasury to reduce a deficit it projects at 5.3% of GDP for 2010/11.

The government, which has pledged to create millions of jobs through state spending, is saddled with a massive burden to pay employees. In 2009/10, 47% of tax revenue went to their wages and benefits.

“High real wage settlements have been a significant upside risk to the inflation outlook,” central bank governor Gill Marcus said in March, in announcing a hold on interest rates.

LABOUR LAWS                      .

The economy shed about 1 million jobs due to the 2009 recession, the first in nearly two decades. Many have not been replaced due to a rigid labour market that makes it costly for firms to hire and fire.

“The bigger risk is that as employers give wage increases above inflation, they have to take some pressure in terms of margin and they become reluctant to hire. It acts as a general inhibitor to job growth,” said Kevin Lings, chief economist at Stanlib.

The unemployment rate has been stuck for years at around 25%, and could become higher due to laws the ANC has proposed that will make it more difficult and costly for employers to take on low-wage and short-term workers, according to a report commissioned by the presidency.

“The risk is that other African countries set themselves up as places with less regulation, less labour regulation, lower labour cost and greater ease of doing business. You might find that businesses migrate there,” Lings said.

Many of the measures before parliament are aimed at pleasing the country’s largest labour federation COSATU, which joined the ANC in the struggle to end apartheid and has been a governing partner since the party took charge.

The ANC has taken pains over the years not to alienate COSATU, which has used its two million members as a powerful machine to gather votes.

“Labour is cashing in on its relation to government to make outrageous demands for salary and benefit increase. That puts a serious damper on the private sector to increase employment,” said analyst van Staden.

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