Eskom hike will cost jobs

Johannesburg - Jobs - not profits - will be the first to fall victim as big businesses adapt to a sharp hike in the energy price, analysts say.

The National Energy Regulator of South Africa this week decided to allow an electricity price hike of 31.3%.

Industrial and manufacturing groups in particular will find it hard to pass on the higher cost of energy to their clients, says Kurt Benn, a senior portfolio manager for Cadiz African Harvest.

Instead, they will turn to cut their labour costs, expects Econometrix senior economist Tony Twine.

"The financing of a firm's capital requirements will either have to come from a company's profits or its labour. Companies will now have to give up something they had before (and) labour will be the first to go," said Twine.

South Africa is already struggling with a retrenchment crisis, with 179 000 jobs lost in the first three months of 2009. Economists expect the problem will persist for months to come.

The Eskom tariff hike is also expected to have an impact on wage negotiations.

The rise in input costs (energy) takes place in a shrinking economy, which "makes labours demands that much more challengeable by employers - either labour or equity owners will have to give up something, or both", said Twine.

There are a number of strikes looming amid wide gaps between what workers expect and employers offer.

The Chemical, Paper, Printing, Wood and Allied Workers' Union (Ceppwawu) demands a 17% wage increase for its members and a shift allowance of 12% across all shifts, while paper and packaging producers Mondi are offering a 4.5% increase.

In the industrial chemicals sector, trade union Solidarity wanted a 10.4% pay increase, while companies in the sector have offered 7%. Negotiations in the past couple of days have been unsuccessful.

- Fin24.com