Guest columnist Peter Attard Montalto of Nomura presents his outlook on SA labour relations and growth prospects:
THE labour market situation in the mining sector and elsewhere in the economy remains tense on aggregate, though it has not markedly deteriorated since the start of the month.
A number of mines have seen workers return in response both to the threatened firings, as well as pay increases and bonuses. These include AngloGold, Gold Fields and Lonmin.
A combination of mines having lost many weeks of output and workers not having been paid during illegal strike action have all contributed to some degree of compromise being reached.
However, many workers have stayed away and there have also been workers at mines like Marikana that have already had settlements seeing some issues of intimidation and violence return.
Equally, other mines such as Amplats and Gold Fields have resorted to sacking large numbers of miners – 12 000 in the case of Amplats already, while Gold Fields sacked 1 500 last week and today another 8 500.
Harmony Gold has also made similar threats.
The overall impression is that the stability of the situation currently is very thin.
While the market is largely ignoring the headlines at the moment - given the headlines seem to have lost some of their marginal shock value – significant mining output is being lost each day.
There is also lost output from other sectors of the economy that are seeing ongoing strike action, including Eskom and car part manufacturers.
Indeed, in terms of total days of output lost in the mining industry, mid- to end-September was probably the peak of the crisis.
However, that does not mean the current situation is any less damaging as it rolls on and more mines have suffered some form of action and resulting backlogs.
The issues are now multifold:
• We think the government still has both the inability and the unwillingness to put in place immediate policy solutions to show leadership and solve the crisis, given both the difficulty in confronting such strikes that are structural in nature and related to the distrust of workers in entrenched unions, the ANC and government, but also not wanting to annoy anyone ahead of Mangaung in December.
As such the crisis continues to roll on, with no policy solution to resolve it.
• Part of this issue is that the government either still fundamentally does not fully understand what are the structural root causes of the unrest, or does understand them but they are politically unpalatable so that they cannot admit to those causes.
In reality we think it is probably a mix of the two.
• The government is trying to pressure unions (but crucially excluding Amcu) and the miners into various pacts to get workers to return to work without firings and with wage increases in a political win-win for the government with Cosatu and with workers themselves, it hopes.
However, the success of these agreements both at mineral, sectoral and individual mine level have been minimal as the whole point in this crisis is that workers are not acting within the structures of their unions and outside the National Union of Mineworkers (and so Cosatu) especially.
• The government’s reaction is to reject layoffs of illegal strikers.
However, this not only removes any incentive against illegal striking (save for loss of income – though even then the bonuses being offered for returning to work are designed to compensate in part for that) but also by proxy condones the violence that is much more likely to accompany illegal as opposed to legal strikes.
This route is also the more likely to lead to increased costs for the miners, as well as in the long run force them to see more shafts in South Africa being uncompetitive and close them, even if in the short run it is politically more palatable for the government.
• Cosatu and the NUM continue to find themselves enfeebled and worry about their position ahead of Mangaung, especially as their job there is, basically, already over having already backed Zuma for re-election.
As such they have taken up the government line on miners not sacking workers and called for a general strike of its members across the economy in solidarity against the mines if sackings continue and sacked workers are not returned to work.
The timing of such a strike remains uncertain, though it could be in the next two weeks. Cosatu has some 2.2 million members out of a total workforce of 9.5 million in the formal non-agriculture economy, and a total employment level of 13.4 million.
Such a "quasi-general-strike" (we call it that because it would not affect all workers and participation rates in the past have been volatile) would mean full-year gross domestic product growth loss of some 0.06-0.14pp per day of such a strike, depending on the participation rate (50% to 100%).
In the past we said a general mining strike was not possible as the action of workers on the ground was only very loosely linked to Amcu and there was little if any coordination between groups, save for common factors behind the action.
However, the kind of quasi-general-strike that we are talking about with Cosatu is much more aggressive and economy-wide (or at least most of the economic sectors where Cosatu has representative unions).
The trade federation is straining at the leash here, given the government’s attempts to get it to help workers return to the mines – then going on a wider sympathy strike looks like the antithesis of that, and would cause more serious and widespread new damage to SA’s reputation.
However, Cosatu knows ultimately with Zuma it has a strong hand still to get away with this. That said, we think it would only last a day or two at most so as not to overplay its hand.
We think a general strike would be a "new" event for the market and certainly negative, likely forcing a retracement after a short post-medium-term budget policy statement rally on a credible fiscal presentation at that event.
To reiterate our long-run view on what is going on in the labour market in South Africa:
• We believe that the labour unrest is due to deep structural issues.
The breakdown in trust with entrenched union leadership as well as corruption and enrichment of unions together with their relationship with the government is at the core of the problem.
Aggressive new forces including Amcu but also more localised groupings have taken advantage of this and have been ready to resort to violence.
• Politics and Julius Malema as well as the actions of the policy are catalysts rather than causes in our view.
• The government is unwilling and unable to act to stop the action.
• The rise of mistrust will likely lead to continued if slow and subtle continuation of contagion over the next year, even after Mangaung, but we believe that the wage round of next year will be even more fraught than the famously violent and disruptive 2011 one when more workers are assessing both their pay, conditions and union effectiveness.
• There will be a policy reaction by the ANC to try and ameliorate the issue through policies like more stratified minimum wages and regulator interventions as well as shoring up the position of Cosatu, which may further lead to dissatisfaction by workers.
Equally, there will be a shift by Cosatu to become more "dramatic" and strike prone in an attempt to keep membership.
We think all this will lead to further downgrades and a steep curve when all combined together and the outcomes of Mangaung.
*Guest columnist Peter Attard Montalto is an emerging market economist at Nomura.