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Strikes take toll on SA economy

Aug 10 2011 15:35 Sapa

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Johannesburg - A wave of strikes in South Africa has cost gold miners around $190m in lost output, curtailed the already struggling manufacturing sector and possibly trimmed third-quarter economic growth by up to 0.6%, analysts have said.
 
SA is nearing the tail end of its annual strike season which saw gold, coal and diamond miners and fuel, paper and pharmaceutical workers all downing tools for higher wages.

Although most industries have reached settlements - well above the annual inflation rate of 5% - tens of thousands of municipal workers will strike from August 15, and power utility Eskom is in talks with unions in a bid to avert industrial action in the key electricity sector.
 
Analysts say this year’s wage talks across all sectors were more severe than in previous years, and recruitment group Adcorp said the number of work days lost to strikes in 2011 could jump over 20% to nearly 18 million from 14.6 million last year.

Unlike other years when the majority of industrial action took place in the public sector, 68% of strikes this year were in the private sector, Adcorp said.

“The strikes in 2011 represents a worrying trend for businesses and investors as the ’strike season’ now seems to have become an annual event with strikes also taking place in a number of sectors in both 2009 and 2010,” said Mike Davies, associate director at London-based risk analysis group Maplecroft.

Fuelling inflation?

A worrying trend is that wage settlements this year again overshot inflation. In some sectors increases were double the inflation rate and analysts fear this could stoke inflation when the central bank is concerned the rate could breach its 3% to 6% target range.

“The wide differential between inflation figures and the increases demanded by unions and the weak relationship between wage increases and productivity gains are also concerning,” Maplecroft’s Davies said.

Quantifying the direct cost of the strikes is difficult, especially when the global economic slowdown and sluggish South African domestic recovery need to be take into account.
 
Nomura International emerging markets economist Peter Attard Montalto said the industrial action could shave off 0.3% to 0.6% of headline economic growth in the third quarter.

Gold mining companies lost close to 118 000 ounces in production during the miners’ strike - worth about $190m based on an average spot gold price of about $1 600/oz.
 
With a sluggish economic recovery and unemployment sticking at around 25% of the workforce, the outlook for the labour market is not encouraging.

Employers have responded to increasing wage bills by shedding jobs. Despite record high precious metals prices, the mining sector in South Africa - the world’s largest platinum producer and fourth-largest gold producer - lost 31 000 jobs in the second quarter, government data said.
 
Attard Montalto wrote in a recent blog post that wage growth should be kept down to encourage job growth at this stage of the economic cycle.
 
“But this is the fundamental issue - unions in South Africa do not care about the unemployed and do not care about the fact that they negotiate wages above the market clearing rates. Restrictive labour laws allow them to get away with this and government is happy to let this happen,” he said.
 
Labour is already costly and inefficient compared with other emerging economies, with the typical South African factory worker earning about six times more than the average Chinese factory worker and being less productive.

The country has some of the world’s most rigid labour markets, according to the World Economic Forum.
The strikes also took their toll on the manufacturing sector, the second-biggest contributor to gross domestic product with about 17%.
 
The purchasing managers’ index fell for a fourth straight month in July and sponsor Kagiso Securities said the business activities component fell nearly 20 points - mainly due to the strikes.
 
Moody’s Analytics economist Mekael Teshome said the prospects for an improvement in manufacturing is waning.

“The July strikes will likely weaken demand for factory goods going into August. Even though major union strikes have recently been resolved, spillover into other sectors cannot be ruled out.”
adcorp  |  eskom  |  sa economy  |  unions
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