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Johannesburg - Labour disputes, trade unions and political uncertainty continue to negatively affect the South African economy, according to Stuart Kantor, founder of Kanan Wealth.
South Africa's headline consumer inflation quickened in February to 5.9% year-on-year from 5.8% in January, Statistics South Africa said on Wednesday.
He said many industry experts believe the Marikana incident was a driving factor in the rise of more militant unions and the apparent weakening of the tripartite alliance.
"The net result in many instances is that unions have reduced in popularity, but now bark much louder and in some instances bite," said Kantor.
"Strike action in most instances, particularly illegal action, hampers productivity and often results in higher wages for the few at the expense of jobs for many."
Rising wages have a direct impact on production costs and, despite their best attempts to remain competitive in a global market, it is difficult for companies to avoid pushing these higher prices on to consumers.
"Disputes mostly result in lower productivity, pushing the cost per unit higher," said Kantor.
"Investors, who see the impact of striking action on productivity, as a consequence may reallocate funds contributing to a weaker exchange rate and thereby increasing the cost of imports."
The end result is rising prices for consumers and the reality is that it is the poor who are affected the most, he warned.
Not only consumers
It is not only consumers who take the brunt of such action.
In late 2013 the South African Reserve Bank (Sarb) pointed out that strikes and a slowing economy put sovereign credit rating at risk and that local bonds could become less attractive to foreign investors.
The concerns came following a string of warnings from economists and agencies that poor economic growth and continuing labour disputes undermine the country’s credit rating.
This has not changed.
According to Kantor, South Africa’s sovereign credit rating has primarily been at risk simply due to the substantial loss of export revenue as a result of excessive and continued strike action, as well as the consequential reduction in foreign reserves.
"International investors will naturally invest more cautiously and seek other less volatile options," he said.
"Falling productivity does not bode well from a foreign investment perspective and the simple fact is that, like it or not, South African businesses operate in a global market place and we get rated, praised and punished accordingly."
Political uncertainty
Added to this, political uncertainty surrounding the upcoming national election is a major factor for investors to rather look at the prospect of safer offshore investments options, as opposed to investing in South Africa.
"With the prospect of faster relative growth coming out of developed economies such as US, Japan and Europe, many investors prefer to position themselves in these markets versus our volatile and sluggish SA economy, and this seems to be increasing," said Kantor.
"Our economy, together with other emerging markets, is vulnerable to foreign flows as global investors make the (often daily) choice between risk and return on investments."
Volatility of the rand
The volatility of the rand is a major concern for investors and uncertainty in markets such as the mining sector is assisting in driving this trend.
"That said, although we are seeing more investment outside of SA, we predict this to be a short-term solution to many investors," said Kantor.
He believes many unions have become even more emboldened and appear to have embarked on a noble cause against tyranny.
"The net result of excessive labour disputes is a country tied up in inflationary knots and a massively burdened social security sector," said Kantor.
"It is the responsibility of the trade unions to facilitate peaceful and sensible labour negotiations as such actions enable democracy to serve and can offer useful market insight."
South Africa's headline consumer inflation quickened in February to 5.9% year-on-year from 5.8% in January, Statistics South Africa said on Wednesday.
He said many industry experts believe the Marikana incident was a driving factor in the rise of more militant unions and the apparent weakening of the tripartite alliance.
"The net result in many instances is that unions have reduced in popularity, but now bark much louder and in some instances bite," said Kantor.
"Strike action in most instances, particularly illegal action, hampers productivity and often results in higher wages for the few at the expense of jobs for many."
Rising wages have a direct impact on production costs and, despite their best attempts to remain competitive in a global market, it is difficult for companies to avoid pushing these higher prices on to consumers.
"Disputes mostly result in lower productivity, pushing the cost per unit higher," said Kantor.
"Investors, who see the impact of striking action on productivity, as a consequence may reallocate funds contributing to a weaker exchange rate and thereby increasing the cost of imports."
The end result is rising prices for consumers and the reality is that it is the poor who are affected the most, he warned.
Not only consumers
It is not only consumers who take the brunt of such action.
In late 2013 the South African Reserve Bank (Sarb) pointed out that strikes and a slowing economy put sovereign credit rating at risk and that local bonds could become less attractive to foreign investors.
The concerns came following a string of warnings from economists and agencies that poor economic growth and continuing labour disputes undermine the country’s credit rating.
This has not changed.
According to Kantor, South Africa’s sovereign credit rating has primarily been at risk simply due to the substantial loss of export revenue as a result of excessive and continued strike action, as well as the consequential reduction in foreign reserves.
"International investors will naturally invest more cautiously and seek other less volatile options," he said.
"Falling productivity does not bode well from a foreign investment perspective and the simple fact is that, like it or not, South African businesses operate in a global market place and we get rated, praised and punished accordingly."
Political uncertainty
Added to this, political uncertainty surrounding the upcoming national election is a major factor for investors to rather look at the prospect of safer offshore investments options, as opposed to investing in South Africa.
"With the prospect of faster relative growth coming out of developed economies such as US, Japan and Europe, many investors prefer to position themselves in these markets versus our volatile and sluggish SA economy, and this seems to be increasing," said Kantor.
"Our economy, together with other emerging markets, is vulnerable to foreign flows as global investors make the (often daily) choice between risk and return on investments."
Volatility of the rand
The volatility of the rand is a major concern for investors and uncertainty in markets such as the mining sector is assisting in driving this trend.
"That said, although we are seeing more investment outside of SA, we predict this to be a short-term solution to many investors," said Kantor.
He believes many unions have become even more emboldened and appear to have embarked on a noble cause against tyranny.
"The net result of excessive labour disputes is a country tied up in inflationary knots and a massively burdened social security sector," said Kantor.
"It is the responsibility of the trade unions to facilitate peaceful and sensible labour negotiations as such actions enable democracy to serve and can offer useful market insight."
